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Flashcards in exam 2 Deck (48):
1

Actual Sales - Break-Even Sales =

Margin of Safety in dollars

2

Margin of safety in dollars / actual sales =

Mragin of safety ratio

3

Fixed Costs / Unit Contribution Margin =

Break-Even point in units

4

Fixed Costs / Unit Contribution Margin Ratio =

Break-Even point in dollars

5

(Fixed costs + target income) / unit contribution margin =

required sales in units

6

(Fixed costs + target net income)/ Contribution margin ratio =

required sales in dollars

7

unit contibution margin x sales mix percentage =

weighted average unit contribution margin

8

contribution margin per unit of limited resource

unit contribution margin/ limited resource consumed per unit

9

cost structure

refers to the relative proportion of fixed versus variable costs that a company incurs

10

operating leverage

the extent to which a comapny's net income reacts to a given change in sales

11

degree of operating leverage

refers to the extent to which a company's net income reacts to a given chance in sales.

12

generally accepted accounting principles require that absorption costing be used for the costing of inventory for external reporting purposes

true

13

sales mix

relative percentage in which a company sells its multiple products

14

the extent to which a company's net income reacts to a change in sales.

operating leverage

15

cvp analysis

study of effects of changes in costs and volume on a company's profit

16

target net income

fixed costs + target net income / unit contribution margin

17

margin of safety

actual sales - break even sales

18

Croc Catchers calculates its contribution margin to be less than zero. Which statement is true?

Its selling price is less than its variable costs.

19

why is sales mix important

different products have different cms

20

net income will be

Greater if more higher-contribution margin units are sold than lower-contribution margin units.

21

approach used to identify and manage constraints so as to achieve company goals

theory of constrainits

22

If the contribution margin per unit is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is:

5$

23

relative proportion of fixed versus variable costs

cost structure

24

operating leverage

When sales revenues are increasing, high operating leverage means that profits will increase rapidly

25

When sales revenues are declining, too much operating leverage can have devastating consequences.

OPERATING LEVERAGE

26

CAN BE COMPUTED BY DIVIDING TOTAL CM BY NET INCOME
PROVIDES MEASURE OF COMAPANYS EARNINGS
AFFECTS A COMPANYS BREAK EEN POINT

THE DEGREE OF OPERATING LEVERAGE

27

THE DEGREE OF OPERATING LEVERAGE MEASURES THE COMAPNYS SENSITIIVITY TO CHANGES IN SALES

TRUE

28

PRODUCT COSTS UNDER VARIALE COSTING

DIRECT MATERIALS
DIRECT LABOR
VARIABLE MANUFACTURING OVERHEAD

29

DIFFERENCE BETWEEN ABSORPTION AND VARIABLE COSTING

Under both costing methods, selling and administrative expenses are treated as period costs.
Companies may not use variable costing for external financial reports because GAAP requires that fixed manufacturing overhead be treated as a product cost.

30

FIXED MANUFACTURING OVERHEAD COSTS ARE RECOGNIZED AS

PRODUCT COSTS UDER ABSORPTION COSTING

31

COST BEHAVIOR ANALYSIS

STUDY OF SPECIFIC COSTS RESPOND TO CHANGES IN LEVEL OF BUSINESS ACTIVITY

32

CHANGES IN LEVEL OR VOLUME OF ACTIVITY SHOULD BE CORRELATED WITH CHANGES IN COSTS

T

33

ACTIVITY LEVEL SELECTED IS CALLED ACTIVITY OR VOLUME INDEX

T

34

IF ACTIVITY LEVEL INCREASES BY 5 PERCENT, TOTAL VARIABLE COSTS WILL INCREASE 10 PERCENT

T

35

IF THE ACTIVITY LEVEL DECREASES BY 25 PERCENT, TOTAL VARIABLE COSTS DECREASE Y 25 PERCENT

T

36

VARIABLE COSTS REMAIN TH ESAME PER UNIT AT EERY LEVEL OF ACTIVITY

T

37

EXAMPLES OF FIXED COSTS

PROPERTY TAXES
INSURANCE
RENT
DEPRECIATION

38

VARIABLE COSTS ARE COSTS THAT

VARY IN TOTAL DIRECTLY WITH CHANGES IN ACTIVITY LEVEL

AND REMAIN THE SAME PER UNIT AT EVERY ACTIITY LEVEL

39

CURVILENEAR

RELATIONSHIP BETWEEN VARIABLE COSTS AND CHANGES IN ACTIVITY LEVEL

40

RELEVANT RANGE

THE RANGE OVE RWHICH THE COMPANYE XPECTS TO OPERATE DURING A YEAR

41

HIGH-LOW METHOD

USES TOTAL COSTS INCCURRED AT HIGH AND LOW LEVELS OF ACTIVITY TO CLASSIFY MIXED COSTS TO FIXED AND VARIALE

42

CHANGES IN TOTAL COSTS / HIGH MINUS LOW ACTIVITY LEVEL

VARIABLE COST PER UNIT

43

WHICH OF THE FOLOWING IS NOT INVOLVED IN CVP ANALYSIS

FIXED COSTS PER UNIT

44

CONTRIUTION MARGIN

IS REVENUE REMAING AFTER DEDUCTING VARIABLE COSTS

45

CONTRIBUTION MARGIN MAY BE EXPRESSSED AS CM PER UNIT

T

46

GOSSEN COMPANY IS PLANNING TO SELL 200,000 PLIERS FOR 4$ PER UNIT. THE CONTRIUION MARGIN RATIO IS 25%. iF GOSSEN WILL BREAK EVEN AT THIS LEVEL OF SALES, WHAT ARE THE FIXED COSTS?

200,000

47

TARGET NET INCOME

VARIABLE COSTS + FIXED COSTS + TARGET NET INCOME

48

MARSHALL COMPANY HAD ACTUAL SALES OF 600K WHEN BREAKEVEN SALES WERE 420K. WHAT IS MARGIN OF SAFETY RATIO

30&