Chapter 2: Cost-Volume-Profit Exam 47 Questions with Verified Answers,100% CORRECT

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Chapter 2: Cost-Volume-Profit Exam 47 Questions with Verified Answers 1. Selling prices 2. Sales Volume 3. Unit variable costs 4. Total Fixed Costs 5. Mix of Products sold - CORRECT ANSWER Fact ... ors in which profits are affected (5): Sales revenue - CORRECT ANSWER Price × Units sold Profit Equation - CORRECT ANSWER (Price × Units) - (Unit variable cost × Units) - Fixed cost Break-even point in units - CORRECT ANSWER Total Fixed cost/ Contribution Margin (Price - Unit variable cost) Contribution margin - CORRECT ANSWER Ratio of the total contribution margin to total sales to estimate change in total sales would have on net operating income. Contribution Margin Equation - CORRECT ANSWER Selling Price per unit - Variable Cost per unit Break-even point in sales revenue - CORRECT ANSWER Fixed cost/Contribution margin ratio Margin of safety - CORRECT ANSWER Actual/Budgeted Sales - Break-even sales the units sold or expected to be sold or the revenue earned or expected to be earned above the break-even volume. excess of budgeted or actual dollar sales over the break-even dollar sales variable cost per unit - CORRECT ANSWER total variable costs/units Target profit break-even sales in units - CORRECT ANSWER total fixed cost + Target Profit/contribution margin contribution margin (per unit) - CORRECT ANSWER price - variable cost Used extensively in CVP analysis. The amount of revenue remaining after deducting all variable costs (including variable production, selling & administrative costs) The amount left to cover fixed costs & "contribute" to net income. sales revenue for target profit - CORRECT ANSWER total fixed cost + target profit/contribution margin ratio Total Fixed Costs - CORRECT ANSWER all the expenses that remain the same no matter how many products are made or sold break-even analysis - CORRECT ANSWER a method of determining what sales volume must be reached before total revenue equals total costs unit sales to break even estimated by dividing the fixed expense by the unit contribution margin Measure of risk - CORRECT ANSWER margin of safety Direct fixed expenses - CORRECT ANSWER fixed costs that can be traced to each segment and would be avoided if the segment did not exist Sales mix - CORRECT ANSWER relative combination of products being sold by a firm by expressing the sales of each product as a percentage of total sales Defining a particular sales mix allows us to convert a multiple-product problem to a single-product CVP format Break-Even Point in Units for the Multiple-Product Setting - CORRECT ANSWER Break-even sales = Fixed Costs/Weighted Average Contribution Margin Ratio Unit variable costs - CORRECT ANSWER variable cost expressed on a per unit basis for a product, Variable Costs/Total Volume The sales mix should be stated as a proportion of total revenues - CORRECT ANSWER when performing CVP calculations in sales $. The mix of products - CORRECT ANSWER Is offered to the consumer by the retailer; also called the product assortment or merchandise mix From Income Statement Total Sales Less: Total Variable Costs = Contribution Margin Less: Total Fixed Costs = Operating Income - CORRECT ANSWER Basic Formula Selling price/unit x number of units - Variable cost/unit x number of units = CM/ unit x number of units - Fixed costs = Operating income SQ - VQ = CmQ - F = Oi Units to breakeven - CORRECT ANSWER TFC/CM sales mix - CORRECT ANSWER the relative percentage in which a company sells its multiple products. It's changes can affect the break-even point, margin of safety, and the other critical factors. Margin of Safety - CORRECT ANSWER the excess of budgeted or actual sales over the break-even sales Margin of Safety percentage - CORRECT ANSWER Margin of safety in units/ Actual or estimated units Margin of safety in $/ Actual or estimated sales $ Margin of Safety in units - CORRECT ANSWER actual or estimated units of activity - BEP in units Margin of Safety in $ - CORRECT ANSWER actual or estimated sales $ - BEP in sales $ Profit graph - CORRECT ANSWER A graph that shows how profits vary with changes in volume depending in sales Break-even point - CORRECT ANSWER The level of sales at which profit is zero CM Ratio - CORRECT ANSWER A ratio computed by dividing contribution margin by dollar sales CVP graph - CORRECT ANSWER A graphical representation of the relationships between an organization's revenues, costs, and profits on the one hand and its sales volume on the other hand. Degree of Operating Leverage - CORRECT ANSWER A measure, at a given level of sales, of how a percentage change in sales will affect profits. The _________ of _________ ____________ is computed by dividing contribution margin by net operating income. Incremental analysis - CORRECT ANSWER an analytical approach that focuses only on those costs and revenues that change as a result of a decision Operating leverage - CORRECT ANSWER a measure of how sensitive net operating income is to a given percentage change in dollar sales. --> The higher degree the greater impact on company's profit Target profit analysis - CORRECT ANSWER estimating what sales volume is needed to achieve a specific target profit. total target profit + fixed expense divided by unit contribution margin Variable expense ratio - CORRECT ANSWER a ratio computed by dividing variable expenses by dollar sales Break-Even Percentage - CORRECT ANSWER = Fixed Expenses / Total CM x 100 Equation Method - CORRECT ANSWER A method of computing break-even sales using the contribution margin form to break-even calculations Formula method - CORRECT ANSWER A method of setting claim reserves by using a mathematical formula using CM ratio as a divisor 21-4. Which of the following would not be an element of factory overhead? a. salary of a marketing manager b. amortization on the maintenance equipment c. salary of the plant supervisor d. property taxes on the plant buildings - CORRECT ANSWER The correct answer is "a". The marketing function is not directly related to the manufacturing function; all of the other costs are elements of factory overhead. 21-13. Which of the following is a period cost? a. direct materials b. indirect materials c. factory utilities d. administrative expenses - CORRECT ANSWER The correct answer is "d". Administrative costs are not directly related to the manufacturing function. Cost Structure and Profit Stability Cost Structure depends on many factors such as: (3) - CORRECT ANSWER 1. The long-run trend in sales 2. Year-to-year fluctuations in the level of sales 3. The attitude of the owners toward risk The Degree of Operating Leverage: (3) - CORRECT ANSWER 1. Is not a constant 2. Is greatest at sales levels near the break-even point 3. Decreases as sales and profits rise The company with the higher fixed costs in its cost structure will have __________ operating leverage. - CORRECT ANSWER Higher The Fixed portion of mixed cost - CORRECT ANSWER The minimum cost of having a service ready and available for use. - The variable portion of mixed cost - Varies - CORRECT ANSWER The cost incurred for actual consumption of the service, thus it ________ in proportion to the amount of service actually consumed. [Show More]

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