business test 12/05 Flashcards
(20 cards)
If a business decreases its sales price per unit and all other variables remain unchanged, what will be the effect on the break-even point?
Break-even point will become higher
If a business decreases its variable cost per unit and all other variables remain unchanged, what will be the effect on the break-even point?
Break-even point will become lower
If a business increases its fixed costs and all other variables remain unchanged, what will be the effect on the break-even point?
Break-even point will become higher
If a business increases its sales price per unit and all other variables remain unchanged, what will be the effect on the break-even point?
Break-even point will become lower
What is the formula for target output?
(target profit + fixed costs) divided by contribution per unit
What is the formula for profit?
(output x contribution per unit) - fixed costs
What is the margin of safety?
The difference between the current or forecasted quantity of output and the current or forecasted break-even quantity
What is break-even quantity?
The quantity of output where total revenue equals total cost
What is the formula for contribution per unit?
Price per unit minus variable cost per unit
What does every level of sales quantity above the break-even point result in?
Profit
Which of the following is a use of break-even analysis?
Financing decisions by potential lenders or equity investors
Supporting a company’s business plan
Strategy decisions
Which of the following is a limitation of break-even analysis?
Costs and revenues are not linear
Which of the following is a use of contribution analysis?
Make or buy analysis
Determining the break-event point
Choosing which orders to accept
Which type of cost is easier to allocate to the contribution calculation?
Direct cost
Costs that are used in multiple areas or activities of the business and, therefore, are not traceable to a specific cost object
Indirect cost
Precisely traceable to a specific cost object
Direct cost
Which costing method is simpler to calculate?
Contribution costing
Which costing method provides a more accurate picture of the various contributions of each product to a business’s profits?
Absorption costing
A cost accounting method that allocates indirect costs among products, departments or regions based on predetermined criteria such as output, sales revenue, number of employees or the value of the equipment.
Absorption costing
A cost accounting method that only considers the direct costs of the product, department or region and their resulting contribution to covering the indirect costs of the business as a whole.
Contribution costing
