Flashcards About Accounting Chapter 12
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Which of the following statements does not describe a characteristic of management accounting? Management accounting must conform to GAAP Approximate amounts rather than accurate amounts or refined estimates are often used in management accounting Management accounting places a great deal of emphasis on the future Management accounting is concerned with units of the organization rather than with the organization as a whole
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Management accounting must conform to GAAP
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Managerial accounting, as compared to financial accounting: Must conform to GAAP Places a great deal of emphasis on historical transactions Uses frequent and prompt control reports Focuses on information prepared for investors and creditors
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Uses frequent and prompt control reports
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Management accounting is: A highly technical subject that people in personnel or engineering should not be expected to understand Performed by individuals who seldom work with people in other functional areas of the organization The principal activity involved in determining the goals and objectives of the entity An activity that gets involved with virtually all of the other functional areas of the organization
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An activity that gets involved with virtually all of the other functional areas of the organization
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Managerial accounting, as opposed to financial accounting, is primarily concerned with: Preparing the current balance sheet of the company Present and future planning and control Providing information to investors and creditors Historical results of operations
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Present and future planning and control
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Managerial accounting can best be described as: The preparation and distribution of the financial statements The preparation and distribution of the corporate tax return The preparation and use of accounting information within the organization Meeting the requirements of generally accepted accounting principles
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The preparation and use of accounting information within the organization
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The relevant range concept refers to: A firm's range of profitability A firm's range of sales A firm's range of rates of return A firm's range of activity
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A firm's range of activity
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Which of the following is another term for mixed costs? Semifixed costs Semivariable costs Component costs None of these
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Semivariable costs
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As the total volume of activity changes: The total of variable costs changes The total of fixed costs changes Variable costs per unit change Fixed costs per unit stay the same
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The total of variable costs changes
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Expressing fixed costs on a per unit basis of activity is misleading because: Total fixed costs decrease as activity decreases Total fixed costs increase as activity increases Fixed cost per unit increase as activity increases Fixed cost per unit decrease as activity increases
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Fixed cost per unit decrease as activity increases
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The formula for expressing the total of a fixed, variable, or mixed cost at any level of activity is: Total cost = fixed cost + (variable rate*volume of activity) Total cost = fixed cost*volume of activity Total cost = fixed cost*variable rate Total cost = fixed cost - variable cost
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Total cost = fixed cost + (variable rate*volume of activity)
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When a cost formula is used to describe a mixed (semi-variable) cost behavior pattern, total costs are expected to increase and per unit costs are expected to: Increase as the level of activity increases Decrease as the level of activity decreases Decrease as the level of activity increases Remain constant as the level of activity increases
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Remain constant as the level of activity increases
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Cost behavior refers to: Costs that are both good and bad Costs that increase at a quicker rate than others Costs that decrease at a quicker rate than others Costs that are variable or fixed None of these
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Costs that are variable or fixed
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When the cost behavior pattern has been identified as fixed at a certain volume of activity: Any change in volume will probably cause the cost to change It is appropriate to express the cost on a per unit of activity basis The total cost will not change even if the volume of activity changes substantially The total cost may change if the volume of activity changes substantially
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The total cost may change if the volume of activity changes substantially
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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: Net income will change proportionately The effect on the net income will depend on the behavior pattern of various costs Fixed costs will rise proportionately Variable costs will not change
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The effect on the net income will depend on the behavior pattern of various costs
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As the level of activity increases: Fixed cost per unit increase Variable cost per unit increase Variable cost per unit decrease Fixed cost per unit decrease
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Fixed cost per unit decrease
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As the level of activity decreases: Fixed costs per unit decrease Variable cost per unit decrease Fixed cost remains constant in total Variable cost remains constant in total
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Fixed cost remains constant in total
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An example of a cost that is likely to have a variable behavior pattern is: Sales force salaries Depreciation of production equipment Salaries of production supervisors Production labor wages
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Production labor wages
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An example of a cost likely to have a fixed behavior pattern is: Sales force commission Production labor wages Advertising cost Electricity cost for packaging equipment
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Advertising cost
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An example of a cost likely to have a mixed behavior pattern is: Sales force commission Raw material cost Depreciation of production equipment Electricity cost for the manufacturing plant
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Electricity for the manufacturing plant
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The term "relevant range" refers to: The range of activity where costs will fluctuate The range of activity where fixed costs change as activity changes The range of activity where total variable cost remains constant as activity changes The range of activity where cost relationships are valid
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The range of activity where cost relationships are valid
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When the firm's activity requires it to operate at a level above the upper boundary of the relevant range, fixed expenses are likely to: Increase Decrease Remain the same Be eliminated
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Increase
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Which of the following is the correct calculation for the contribution margin ratio? Sales revenue divided by variable costs Sales revenue divided by the contribution margin Contribution margin divided by sales revenue Contribution margin divided by variable costs
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Contribution margin divided by sales revenue
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The cost of a single unit of production in excess of the break-even point in units is: Its fixed cost and variable cost Its fixed cost only Its variable cost only None of these
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Its variable cost only
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What percentage of the contribution margin is profit on units sold in excess of the break-even point? It's 50% to contribution margin ratio It's equal to the variable cost ratio It's equal of the gross profit ratio It's 100%
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It's 100%
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The concept of operating leverage refers to which of the following? Operating income changes proportionately more than revenues for any given change in activity level Operating income changes proportionately less than revenues for any given change in the activity level Operating income changes proportionately more than income for any given change in activity level Operating income changes proportionately less than income for any given change in activity level
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Operating income changes proportionately more than revenues for any given change in activity level
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To which function of management is CVP analysis most applicable? Planning Organizing Directing Controlling
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Planning
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The scattergram allows cost-volume relationships to be visually scanned for outlier observations that should be: Included in the calculation of the cost formula of a mixed cost Ignored in the calculation of the cost formula of a mixed cost Included in the calculation of the fixed cost component of the mixed cost Included in the calculation of the variable rate of the mixed cost
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Ignored in the calculation of the cost formule of a mixed cost
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When the high-low method of estimating a cost behaviour pattern in used: Cost and volume data must be reviewed for outliers The direct result of the high-low calculations is the fixed expense The highest and lowest sales price and volume amounts are used in calculation The resulting cost formula will explain total cost accurately for every value between the high and low volumes
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Cost and volume data must be reviewed for outliers
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What is the high-low formula for the variable rate?
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High cost - low cost / (High activity - low activity)
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What is the high-low formula for the fixed rate?
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Plus in variable rate found and highest units and cost and solve for missing
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An income statement organized by cost behavior does not include: Operating income Gross profit Contribution margin Revenues
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Gross profit
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Operating income using the contribution margin format income statement is calculated as: Revenue - variable expenses = contribution margin - fixed expenses Revenue - variable expenses = gross profit - fixed expenses Revenue - cost of goods sold = contibution margin - fixed expenses Revenue - cost of goods sold = contribution margin - operating expenses
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Revenue - variable expenses = contribution margin - fixed expenses
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The contribution margin format income statement: Results in a larger amount of operating income than the traditional income statement format Uses a behavior pattern classification for costs rather than a functional cost classification approach Is most frequently used for financial statement reporting purposes Emphasizes that all costs change in proportion to any change in revenues
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Uses a behavior pattern classification for costs rather than a functional cost classification approach
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The contribution margin format income statement is organized by: Responsibility centers Functional classifications Sales territories Cost behavior classifications
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Cost behavior classifications
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A 10% change in a firm's revenues is likely to result in a change of more than 10% in the firm's operating income because: Not all of the firm's costs will change in proportion to the revenue change The firm has financial leverage The contribution margin ratio will change in proportion to the revenue change Only fixed expenses will change in proportion to the revenue change
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Not all of the firm's costs will change in proportion to the revenue change
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A firm has revenues of $120,000, a contribution margin of ratio of 30%, and fixed expenses of $56,000. If revenues increase by $20,000: Operating income will increase by $6,000 Operating income will be 0 Fixed expenses will increase $8,000 The contribution margin ratio will increase by 1/8
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Operating income will increase by $6,000
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A management decision that would have a long term influence on the operating leverage of a firm would be: Increasing the advertising budget Substituting robots for hourly paid workers Increasing prices in proportion to raw materials costs increases Having a season-end sale of seasonal products
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Substituting robots for hourly paid workers
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Selling price per unit - 100 Variable expenses per unit - 40 Fixed expenses per month - 60,000 Operating income at a volume of 4,000 per month is how much?
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180,000
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Selling price per unit - 100 Variable expenses per unit - 40 Fixed expenses per month - 60,000 How many units is the break-even point?
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1,000
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Selling price per unit - 100 Variable expenses per unit - 40 Fixed expenses per month - 60,000 How much total revenues per month is the break-even point?
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100,000
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Selling price per unit - 100 Variable expenses per unit - 40 Fixed expenses per month - 60,000 The contribution margin ratio is what?
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60%
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Selling price per unit - 100 Variable expenses per unit - 40 Fixed expenses per month - 60,000 If sales volume were to decrease 10% from 4,000 to 3,600 per month, operating income would: Not change Decrease 10,000 Decrease 24,000 Decrease 40,000
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Decrease 24,000
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Selling price per unit - 100 Variable expenses per unit - 40 Fixed expenses per month - 60,000 If the selling price per unit were to drop $2, and the volume increase to 4,500, and ad expense increase by 1,000: The break even point would increase The break even point would decrease The contribution margin ratio would increase Operating income would decrease
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The break even point would increase
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The contribution margin ratio always decreases when the: Break even point decreases Fixed expenses increase Selling price increases and the variable costs remain constant Variable cost increases and the selling price remainds constant
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Variable cost increases and the selling price remainds constant
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If fixed costs were increased by $9,000 and the contribution margin ratio remained at 30%, then sales must increase by what in order to cover the additional fixed expenses? 27,000 30,000 33,000 54,000
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30,000
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ABU Co. has several products each with a different contribution margin ratio. If the same number of units were sold in July as in June, but the sales mix changed: Operating income would be the same in June and July Fixed expenses in July would be in a different relevant range than in June The company's overall contribution margin ratio would be the same as in July Total contribution margin in July would be different from that in June
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Total contribution margin in July would be different from that in June
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Each of a company's two product lines has a different contribution margin ratio. If the company's total sales remain the same but the sales mix shifts toward selling more of the product with the higher contribution ratio, which of the following is true? Operating income will increase The average contribution margin ratio will increase The break-even point will decrease All of these are true
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All of these are true
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Each of a company's several product lines has a different contribution margin ratio. Total sales in 2014 were 20% higher than total sales in 2013. Total contribution margin for 2014 will be: The same as it was in 2013, regardless of changes in sales mix 20% higher than it was in 2013, regardless of changes in sales mix More than 20% higher than it was in 2013, if the sales mix changes and proportionately more high contribution margin ratio products are sold in 2014 than in 2013 Less than 20% higher than it was in 2013, if the sales mix changes and proportionately more high contribution margin ratio products are sold in 2014 than in 2013
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More than 20% higher than it was in 2013, if the sales mix changes and proportionately more high contribution margin ratio products are sold in 2014 than in 2013
