ch 21 and 22

Question 1

a. activity base –

Answer 1

the activities that cause the cost to change

Question 2

b. relevant range –

Answer 2

the range of activity over which the changes in the cost are of interest

Question 3

a. fixed costs =

Answer 3

total costs – (variable cost per unit x units produced)

Question 4

b. total cost =

Answer 4

(variable cost per unit x units produced) + fixed costs

Question 5

a. contribution margin =

Answer 5

sales – variable costs

Question 6

b. contribution margin ratio =

Answer 6

contribution margin / sales OR unit contribution margin / unit selling price OR 1 – variable cost ratio

Question 7

c. change in income from operations =

Answer 7

change in sales dollars x Contribution margin ratio

Question 8

d. change in income from operations (units) =

Answer 8

change in sales units x unit contribution margin

Question 9

e. unit contribution margin =

Answer 9

sales price per unit – variable cost per unit

Question 10

f. break-even sales (units) =

Answer 10

fixed costs / unit contribution margin

Question 11

g. break-even sales (dollars) =

Answer 11

fixed costs / contribution margin ratio

Question 12

h. to find target: sales (unit) =

Answer 12

(fixed costs + target profit) / unit contribution margin

Question 13

i. to find target: sales (dollars) =

Answer 13

(fixed costs + target profit) / contribution margin ratio

Question 14

how do changes in fixed costs impact the break even point

Answer 14

i. increases in fixed costs increase the break even point

ii. decreases in fixed costs decrease the break even point

Question 15

how do changes in the unit variable costs impact the break even point

Answer 15

i. increase in unit variable costs increase the break even point – decreases unit contribution margin
ii. decreases in unit variable costs decrease the break even point – increases unit contribution margin

Question 16

how do changes in the selling point impact the break even point

Answer 16

i. increases in the selling price decrease the break even point – increases unit contribution margin
ii. decreases in the selling point increase the break even point – decreases the unit contribution margin

Question 17

contribution margin income statement

Answer 17

sales
variable costs
\_\_\_\_\_\_\_\_\_\_\_\_\_
contribution margin
fixed costs
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
income from operations

Question 18

a. operating leverage =

Answer 18

contribution margin / income from operations

Question 19

what does operating leverage tell us

Answer 19

i. tells how sensitive operationg leverage is to percentage changes
ii. a larger amount of fixed costs means a larger amount of operating leverage
iii. can be used to measure the impact of changes in sales on income from operations

Question 20

b. percent change in income from operations =

Answer 20

percent change in sales x operating leverage

Question 21

c. margin of safety (in percent)=

Answer 21

(sales – sales at breakeven point) / sales

Question 22

i. mos (in dollars) =

Answer 22

sales – sales at breakeven point

Question 23

what does the margin of safety tell us

Answer 23

ii. indicated the possible decrease in sales that may occur before an operating loss occurs

Question 24

a. continuous budgeting –

Answer 24

maintains a 12 month projection into the future, continuously revised by replacing the data for the month just ended with the budget data for the same month in the next year

Question 25

b. zero-based budgeting –

Answer 25

requires managers to estimate sales, production, and other operating data as though operations are being started for the first time, takes a fresh view of operations each year

Question 26

c. responsibility center –

Answer 26

the budgetary unit of a company