ACCOUNTING II EXAM 2 UARK QUESTIONS AND ANSWERS

ACCOUNTING II EXAM 2 UARK


CONTRIBUTION STATEMENT - answer SALES
VE(LESS)
CM
FE(LESS)
NI

contribution income statement - answerhelpful to managers in judging the impact on
profits of changes in selling price, cost, or volume. The emphasis is on cost behavior.

Contribution Margin - answeris the amount remaining from sales revenue after variable
expenses have been deducted.

unit contribution margin - answerUnit CM = Selling price per unit - Variable expenses
per unit

CM ratio - answerCM/SALES

CM RATIO - answerUse the contribution margin ratio (CM ratio) to compute changes in
contribution margin and net operating income resulting from changes in sales volume

Target Profit Analysis - answerIn target profit analysis, we estimate what sales volume
is needed to achieve a specific target profit.
We can compute the number of units that must be sold to attain a target profit using
either:
(1) Equation method, or
(2) Formula method.

margin of safety - answeris the excess of budgeted or actual sales dollars over the
break-even volume of sales dollars. It is the amount by which sales can drop before
losses are incurred. The higher the margin of safety, the lower the risk of not breaking
even and incurring a loss.

Operating leverage - answera measure of how sensitive net operating income is to
percentage changes in sales. It is a measure, at any given level of sales, of how a
percentage change in sales volume will affect profits

Variable costing - answerproduct cost: DM, DL, Variable manufacturing overhead
period cost: fixed MO, variable selling and administrative, fixed and selling and
administrative expenses