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Exam 12: Managerial Accounting and Costvolumeprofit Analysis

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Question 31

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To which function of management is CVP analysis most applicable?

A) Planning.
B) Organizing.
C) Directing.
D) Controlling.

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Question 32

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

A) included in the calculation of the cost formula of a mixed cost.
B) ignored in the calculation of the cost formula of a mixed cost.
C) included in the calculation of the fixed cost component of the mixed cost.
D) included in the calculation of the variable rate component of the mixed cost.

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Question 33

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The contribution margin ratio always decreases when the:

Knowledge about the behavior pattern of a cost is important to understanding the effect on net income of a change in sales volume because as sales volume changes:

The contribution margin format income statement:

Operating income using the contribution margin format income statement is calculated as:

Managerial accounting can best be described as:

The relevant range concept refers to:

As the total volume of activity changes:

A firm's products have an average contribution margin ratio of 40%, which will be maintained for the next month even though fixed expenses are expected to rise by $20,000. In order to keep operating income for the month from being affected, revenues will have to increase by:

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

Obed Corp., makes three models of high performance cross country ski machines. Current operating data are summarized below: $\begin{array} { l r r r } & \text { MySki } & \text { YourSki } & \text { OurSki } \\\text { Selling Price/Unit } & \$ 400 & \$ 500 & \$ 250 \\\text { Variable Cost/Unit } & \$ 100 & \$ 200 & \$ 150 \\\text { Monthly Sales Volume } & 600 & 400 & 500\end{array}$ 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 break-even 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?

Simplifying assumptions made when using cost behavior pattern data include:

Brazen, Inc. produces sound amplifiers for electric guitars. The firm's income statement showed the following: $\begin{array}{ll}\text { Revenues }(8,400 \text { units) } & \$ 504,000&100\% \\\text { Variable expenses } & \underline{ (302,400)}& \underline{60\%} \\\text { Contribution margin } & \$ 201,600&40\% \\\text { Fixed expenses } & \underline{ (140,400)} \\\text { Operating income } & \$ 61,200\end{array}$ An automated machine has been developed that can produce several components of the amplifiers. If the machine is purchased, fixed expenses will increase to $315,000 per year. The firm's production capacity will increase, which is expected to result in a 25 percent increase in sales volume. It is also estimated that the variable expense ratio will be reduced to half of what it is now. (a.) Calculate the firm's current contribution margin per unit and break-even point in units. (b.) Calculate the firm's contribution margin per unit and break-even point in terms of units if the new machine is purchased. (c.) Calculate the firm's operating income assuming that the new machine is purchased. (d.) Do you believe that management of Brazen, Inc. should purchase the new machine? Explain your answer.

Management of ABC Company is considering new production robotics to replace some current manual labor operations for one of their product lines. ABC's current cost structure for this product line consists of variable expenses of $40 per unit and fixed expenses totaling $86,400 per month. If the robotics were installed, variable expenses would drop to $28 per unit, but fixed expenses would increase to $135,600 per month. (a.) Define the term indifference point. (b.) Calculate the indifference point between the alternative cost structures for ABC Company's product line. (c.) Explain how ABC's management would use the indifference point in the decision to replace the manual operations with the new production robotics.

When the cost behavior pattern has been identified as fixed at a certain volume of activity:

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

If fixed costs were increased by $9,000 and the contribution margin ratio remained at 30 percent, then sales must increase by _________ in order to cover the additional fixed expenses.