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Exam 12: Managerial Accounting and Cost-Volume-Profit Relationships

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Question 1

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Presented below is the income statement for Breckenridge Farms for the month of October: $\begin{array}{lcc}\text { Sales } & \$ & 220,000 \\\text { Cost of goods sold } & & (114,000) \\ \text { Gross profit } & \$ & 106,000 \\\text { Operating expenses } & & (76,000) \\\text { Operating income } & \$ & 30,000\end{array}$ Based on an analysis of cost behavior patterns, it has been determined that the company's contribution margin ratio is 30%. (a.)Rearrange the income statement to the contribution margin format. (b.)If sales increase by 20 percent, what will be the firm's operating income? (c.)Calculate the amount of revenue required for Breckenridge Farms to break even.

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(a.) (b.) The increase in operating ...

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Question 2

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The relevant range concept refers to:

A) a firm's range of profitability.
B) a firm's range of sales.
C) a firm's range of rates of return.
D) a firm's range of activity.

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D

Question 3

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The term "relevant range" is used to describe:

Managerial accounting supports the management process least significantly by:

Janson Company prepares an income statement for financial accounting purposes using the traditional income statement format, as well as an income statement for managerial accounting purposes using the contribution margin format.Selected information from both income statement formats are as follows: $\begin{array} { l r } \text { Revenules } & \$ 200,000 \\\text { Cost of goods sold } & \$ 40,000 \\\text { Contribution margin ratio } & 50 \% \\\text { Operating expenses } & \$ 120,000 \\\text { Fixed expenses } & \$ 60,000\end{array}$ Using the traditional income statement format, the gross profit ratio is:

For each of the following costs, identify the cost behavior as variable, mixed, or fixed: 1.Wages of assembly line workers ________ 2.President's salary ________ 3.Plant utilities ________ 4.Sales force commissions ________ 5.Shipping costs ________ 6.Factory rent ________ 7.Research and development expenses ________ 8.Property taxes ________ 9.Advertising ________ 10.Supplies used in production ________

An example of a cost likely to have a fixed behavior pattern is:

If a firm's variable costs are 40% of sales and sales increase by $60,000 this month because of a special promotion, by how much will contribution margin increase?

When the high-low method of estimating a cost behavior pattern is used:

Janson Company prepares an income statement for financial accounting purposes using the traditional income statement format, as well as an income statement for managerial accounting purposes using the contribution margin format.Selected information from both income statement formats are as follows: $\begin{array} { l r } \text { Revenules } & \$ 200,000 \\\text { Cost of goods sold } & \$ 40,000 \\\text { Contribution margin ratio } & 50 \% \\\text { Operating expenses } & \$ 120,000 \\\text { Fixed expenses } & \$ 60,000\end{array}$ Using the contribution margin format, operating income is:

Which of the following activities is not part of the management planning and control cycle?

As the total volume of activity changes:

Obed Corp.makes three models of high performance cross country ski machines.Current operating data are summarized below: $\begin{array}{lccc}&\text { MySki } & \text { YourSki } &\text { OurSki }\\ \text { Selling Price/Unit } & \$ 400 & \$ 500 & \$ 250 \\\text { Variable Cost/Unit } & \$ 100 & \$ 200 & \$ 150 \\\text { Monthly Sales Volume } & 600 & 400 & 500\end{array}$ Fixed expenses per month total $185,820. (a)Calculate the contribution margin ratio for each product. (b)Calculate the firm's overall contribution margin ratio. (c)Calculate the firm's breakeven point in sales dollar. (d)Calculate the firm's operating income. (e)Management is considering the elimination of the OurSki model due to low sales volume.As a result, total fixed expenses can be reduced by $60,000 per month.Assuming that this change would not affect the other models, would you recommend the elimination of the OurSki model?

A firm has revenues of $150,000, a contribution margin ratio of 35%, and fixed expenses that total $60,000.If revenues increase by $30,000, then:

Using the high-low method, Company X has determined the variable portion of its cost formula for electricity to be $2 per unit.For the month of July Company X estimates that total electricity cost will amount to $66,000 based on producing 30,000 units.The amount of fixed electricity cost estimated for July is:

The scattergram allows cost-volume relationships to be visually scanned for outlier observations that should be:

Company A has fixed expenses of $150,000 and variable expenses of $75 per unit.Company B has fixed expenses of $300,000 and variable expenses of $50 per unit.The volume of unit sales necessary to produce exactly the same operating income for Company A and Company B is:

Production labor wages are an example of a ________ cost behavior pattern.

An example of a cost likely to have a mixed behavior pattern is:

Pineapple Corp.has annual revenues of $600,000, fixed expenses of $200,000, and an average contribution margin ratio of 30%. (a)Management is considering adding a new product to the company's product line.The new item will have $14.00 of variable costs per unit.Calculate the selling price that will be required for this product to maintain the 30% average contribution margin ratio on current sales. (b)If the new product adds an additional $63,000 to Pineapple's fixed expenses, how many units of the new product must be sold at the price calculated in part (a)in order to break even on the new product? (c)If 25,000 units of the new product could be sold at a price of $18.00 per unit, and the company's other business did not change, calculate Pineapple's total operating income and average contribution margin ratio.