Test 2

Question 1

Variable Costs

Answer 1

In proportion to volume of activity (selling), variable cost/unit remains constant

Question 2

Fixed Costs

Answer 2

Remains the same regardless of changes in volume of activity

Question 3

Contribution Margin Calculation

Answer 3

Net sales revenue - Variable costs

Question 4

Breakeven

Answer 4

Where operating income is zero,
Total revenues = Total costs

Question 5

Operating Income

Answer 5

Net Sales Revenue
(Variable Costs)
(Fixed Costs)

Question 6

Target Profit

Answer 6

Add it to fixed costs for a secondary breakeven

Question 7

Margin of Safety

Answer 7

of Units Sold - # of Units for Breakeven

Question 8

Mixed Cost

Answer 8

Stairstep cost or flat rate to a certain point

Question 9

Breakeven Units

Answer 9

Fixed Costs / Contribution Margin

Question 10

BE Units needed for Target Profit

Answer 10

(Fixed Cost + Target Profit) / Contribution Margin

Question 11

Calculation Lineup

Answer 11

Sales Revenue
(Variable Costs)
Contribution Margin
(Fixed Costs)
Operating Income

Question 12

Zero-Based Budgeting

Answer 12

Managers must justify all revenue and expenses (starting with nothing)

Question 13

What do you start with in budgeting?

Answer 13

Revenue (not expenses)

Question 14

Static Budget

Answer 14

Built on estimate for revenue

Question 15

Flexible Budget

Answer 15

How much should have been spent based on actual revenue

Question 16

What is the purpose of a budget?

Answer 16

Communication tool, shows co. importance and priorities (some departments get more funding than others)
Used to manage co.
Used to improve communication

Question 17

Calculate Cost Variance

Answer 17

Cost Variance = (Actual Cost - Standard Cost) * Actual Quantity

Question 18

Calculate Efficiency Variance

Answer 18

Efficiency Variance = (Actual Quantity - Standard Quantity Allowed) * Standard Cost

Question 19

Calculate Sales Volume Variance

Answer 19

Sales Volume Variance = Flexible - Static

Question 20

Calculate Flexible Budget Variance

Answer 20

Flexible Budget Variance = Actual - Flexible

Question 21

What does an overspent fixed cost indicate?

Answer 21

The person making the static budget probably made a mistake

Question 22

Which two pieces come from the flexible budget?

Answer 22

Cost and Efficiency Variances

Question 23

Cost Center

Answer 23

Manager is only responsible for controlling costs (just an expense, like HR and Accounting)

Question 24

Revenue Center

Answer 24

Manager is only responsible for generating revenue (Admissions at Corban)

Question 25

Profit Center

Answer 25

Manager is responsible for controlling costs and profits (subsidiaries, sports teams at Corban)

Question 26

Investment Center

Answer 26

Manager is responsible for generating profits and efficiently managing center’s invested capital (Corban University itself, more big picture)

Question 27

Return on Investment (ROI)

Answer 27

ROI = Operating Income / Average Total Assets

Question 28

Profit Margin Ratio

Answer 28

Profit Margin = Operating Income / Net Sales Revenue

Question 29

Asset Turnover Ratio

Answer 29

Asset Turnover Ratio = Net Sales Revenue / Average Total Assets

Question 30

Residual Income

Answer 30

Operating Income - (Avg total assets * Target rate of return)

Question 31

What is ROI used for?

Answer 31

Evaluating whole company

Question 32

What is RI used to determine?

Answer 32

How much income has been made above the target rate?

Question 33

Can you control Sales Volume Variance and Flexible Budget Variances?

Answer 33

No (Sales Volume) & Yes (Flexible)