Chapter 6
What is the cost equation?
A.y=xv+f
B. y=v+f
C. y=vx+f
D. y=fx+v
C. y=vx+f
How do you calculate the CM Ratio?
A. Variable Cost - Fixed Cost / Total Mixed Costs
B. Sales Revenue - Fixed Cost / Contribution Margin
C. Fixed Cost - Variable Cost/ Contribution Margin
D. Sales Revenue - Variable Cost / Sales Revenue
D. Sales Revenue - Variable Cost / Sales Revenue
shows what percentage of each sales dollar remains after covering variable costs, indicating how much money is available to cover fixed costs (like rent and salaries) and generate profit. A higher CM ratio signifies greater profitability and efficiency in turning sales into funds for fixed costs and profit
1. Regular Pricing
2. Special Order
3. Discontinue
4. Product Mix w/ Constraints
5. Outsourcing (Make or Buy)
Breakeven point in sales and units formula is:
Sales:
Fixed Expenses + Desired Income (always 0)
____________________________________
CM Ratio
Units:
Fixed Expenses + Desired Income (always 0)
____________________________________
CM Per Unit
In order for information to be relevant it must be ______ data that ________ among alternatives.
A. Past; differs
B. Future; differs
C. Past; is similar
D. Future; is similar
B. Future; differs
What is the equation for total costs (mixed costs)?
A. Total Costs= Total Variable Cost + Total Fixed Costs
B. Total Costs= Total Mixed Costs + Total Variable Costs
C. Total Costs= Total Fixed Costs + Total Mixed Costs
D. Total Costs= Total Mixed Costs + Total Whole Costs
A. Total Costs= Total Variable Cost + Total Fixed Costs
How much we need to sell in order to exactly cover expenses and make $0 of income is what?
A. Margin of Safety
B. Breakeven Point
C. Target Point
D. Smiling Point
B. Breakeven Point
Regular Pricing Decisions: What is the difference between a price-setter and a price-taker? List the formulas and their names.
Price Setter: more unique product, less competition, brand name
Cost-Plus Pricing:
Total Cost + Desired Profit = Total Revenue
Price Taker: lacks uniqueness, more competition, no brand name
Target-Costing:
Revenue @ Market - Desired Profit = Target Cost
Companies that are considered price-setters usually employ the ___________ approach to pricing products.
A. percentage pricing
B. target costing
C. cost-plus pricing
D. target-cost pricing
C. cost-plus pricing
Which of the following is irrelevant when deciding whether to drive or fly home for winter break?
A. Cost of the plane ticket
B. Cost of gasoline
C. Cost of car insurance
D. Wear and tear on your vehicle
C. Cost of car insurance---cannot be changed because it pertains to the past and does not differ
What method finds the cost equation of a line between two points?
A. Account Analysis Method
B. Scatterplot Method
C. Regression Analysis Method
D. High-Low Method
D. High-Low Method
The "cushion" or room for error between the sales you need to reach a certain target/expectation and the sales you need to break even.
A. Target Point
B. Breakeven Point
C. Margin of Safety
D. Regression Point
C. Margin of Safety
MOS= Target (Expected or Actual) Sales - Breakeven Sales
What is the special order decision and discontinue decision formula?
1. CM Effect
2. Fixed Expenses Effect
_______________________
3. Net Effect on Operating Income
Buying a piece of your product from an outside manufacturer instead of making it yourself is?
A. Product Mix w/ Constraint
B. Regular Pricing Decisions
C. Discontinue Decisions
D. Outsourcing Decisions
D. Outsourcing Decisions
All variable costs are listed _________ on a contribution margin income statement.
A. above the contribution margin line
B. below the contribution margin line
C. above the gross profit line
D. below the gross profit line
A. above the contribution margin line
SR
-VC
___
CM
-FC
____
OP IN
What is the difference between a traditional income statement and a contribution margin income statement?
A. There is no difference
B. Traditional is organized by manufacturing vs non-manufacturing; Contribution is organized by cost behavior (variable vs fixed)
C. Contribution is organized by manufacturing vs non-manufacturing; Traditional is organized by cost behavior (variable vs fixed)
D. Contribution is organized by high-low method; Traditional is organized by cost behavior (variable vs fixed)
B. Traditional is organized by manufacturing vs non-manufacturing; Contribution is organized by cost behavior (variable vs fixed)
Sales:
FE + Desired Income
________________
CM Ratio
Units:
FE + Desired Income
________________
CM Per Unit
Product Mix
_________
Restrictions on the number of units that can be manufactured or displayed to sell would be considered?
(Examples: time = machine hours; space = feet or yards)
A. Constraint
B. Sales Mix
C. Product Mix
D. High-Low Mix
A. Constraint
Fixed costs that continue to exist even after a product line is discontinued are called:
A. unavoidable fixed costs
B. relevant fixed costs
C. avoidable fixed costs
D. variable fixed costs
A. unavoidable fixed costs
How much we need to sell in order to make a desired profit is what?
A. Margin of Safety
B. Breakeven Point
C. Smiling Point
D. Target Point
D. Target Point
What term represents the total variable cost component in the cost equation?
A. y
B. fx
C. vx
D. v
C. vx
Y= VX + F
Y= TOTAL COST
V= VARIABLE / UNIT
VX= TOTAL VC
F= FIXED COST
When you want to calculate the breakeven or target sales units for a company with multiple products, you have to calculate the ____________________ based on the sales mix.
A. Contribution Margin per unit
B. Sales Mix per unit
C. Operating Leverage Margin per unit
D. Weighted Average Contribution Margin per unit
D. Weighted Average Contribution Margin per unit
Sales Price
- Variable Expenses
_______________
Contribution Margin
x # units in sales mix
________________
Total CM for sales mix
What is the outsourcing formula?
1. Variable Expenses
2. Fixed Expenses
3. Freed Capacity
______________
4. Total Cost
True or False: Companies with high operating leverage generally have lower fixed costs than variable costs.
False:
High Operating Leverage
1. High Fixed Costs & Low Variable Costs
2. High Risk/High Reward
3. High CM per unit
Think of airlines and golf courses.
If the net income increases with a special order, do you accept or reject the order?
Net Income increases = Accept
Net Income decreases = Reject