MBA 621 TEST 2 VERIFIED STUDY GUIDE
Cost-Volume-Profit Analysis - Answers - The study of the effects of changes in costs
and volume on a company's profits
Contribution Income Statement - Answers - helpful to managers in judging the impact
on profits of changes in selling price, cost, or volume. The emphasis is on cost behavior
Contribution Margin - Answers - is the amount remaining from sales revenue after
variable expenses have been deducted
CVP Analysis estimates the profit effect of changes in: - Answers - price, variable costs,
fixed costs, and sales volume
CVP Assumptions - Answers - 1. Price remains the same unless otherwise indicated
2. Changes in volume are within the relevant range for cost behavior
3. Inventory levels do not change
4. Sales mix does not change
break-even point - Answers - the point at which the costs of producing a product equal
the revenue made from selling the product
CVP Equation - Answers - Profit= (Sales-VE)-FE
Sales mix - Answers - The relative proportions in which a company's products are sold.
Sales mix is computed by expressing the sales of each product as a percentage of total
sales.
incremental analysis - Answers - The process of identifying the financial data that
change under alternative courses of action.
Cost Structure and Profit Stability - Answers - Cost structure refers to the relative
proportion of fixed and variable costs in an organization. Managers often have some
latitude in determining their organization's cost structure
If the variable cost per unit goes down - Answers - contribution margin increases and
Break-even point decreases
The amount of revenue required to earn a targeted profit is equal to - Answers - total
fixed cost plus targeted profit divided by CM Ratio
Break-even revenue for a multiproduct firm can - Answers - be calculated by dividing
total fixed cost by the overall CM Ratio
, In the CVP graph, - Answers - both the total revenue curve and the total cost curve
appear
The use of fixed costs to extract higher percentage changes in profits as sales activity
changes involves - Answers - operating leverage
If the margin of safety is 0, then - Answers - the company is precisely breaking even
Which of following equations is used to obtain the total change in profits from a change
in revenues? - Answers - Changes in profits= CM Ratio x Changes in Sales
In cost-volume-profit analysis, assuming unit variable cost and total fixed cost remain
the same, any increase in price will mean - Answers - lower break-even point
In cost-volume-profit analysis, assuming price and unit variable cost remain the same,
any increase in fixed costs will mean - Answers - a higher break-even point
In cost-volume-profit analysis, a multiple-product problem is converted into a single-
product problem by - Answers - defining a particular sales mix in units
Common fixed expenses - Answers - fixed expenses that cannot be traced to the
segment, and will continue to exist even if one segment or product is eliminated
Sensitivity Analysis - Answers - it allows managers to vary costs, prices, and sales mix
to show various possible break even points
Direct Materials - Answers - raw materials that become an integral part of the product
and that can be conveniently traced directly to it
Direct labor - Answers - labor costs that can be easily traced to individual units of
product
Manufacturing Overhead - Answers - all manufacturing costs except direct materials
and direct labor
Job Order Costing - Answers - are used when many different products are produced
each period, products are manufactured to order, or the unique nature of each order
requires tracing or allocating costs to each job, and maintaining cost records for each
job
Process costing - Answers - are used when units of product are homogeneous,
products are mass produced in a continuous production process, product costs are
accumulated in departments, or inventory costs are based on average cost per unit
Allocation - Answers - use of a systematic and rational formula to charge costs to a cost
object
Cost-Volume-Profit Analysis - Answers - The study of the effects of changes in costs
and volume on a company's profits
Contribution Income Statement - Answers - helpful to managers in judging the impact
on profits of changes in selling price, cost, or volume. The emphasis is on cost behavior
Contribution Margin - Answers - is the amount remaining from sales revenue after
variable expenses have been deducted
CVP Analysis estimates the profit effect of changes in: - Answers - price, variable costs,
fixed costs, and sales volume
CVP Assumptions - Answers - 1. Price remains the same unless otherwise indicated
2. Changes in volume are within the relevant range for cost behavior
3. Inventory levels do not change
4. Sales mix does not change
break-even point - Answers - the point at which the costs of producing a product equal
the revenue made from selling the product
CVP Equation - Answers - Profit= (Sales-VE)-FE
Sales mix - Answers - The relative proportions in which a company's products are sold.
Sales mix is computed by expressing the sales of each product as a percentage of total
sales.
incremental analysis - Answers - The process of identifying the financial data that
change under alternative courses of action.
Cost Structure and Profit Stability - Answers - Cost structure refers to the relative
proportion of fixed and variable costs in an organization. Managers often have some
latitude in determining their organization's cost structure
If the variable cost per unit goes down - Answers - contribution margin increases and
Break-even point decreases
The amount of revenue required to earn a targeted profit is equal to - Answers - total
fixed cost plus targeted profit divided by CM Ratio
Break-even revenue for a multiproduct firm can - Answers - be calculated by dividing
total fixed cost by the overall CM Ratio
, In the CVP graph, - Answers - both the total revenue curve and the total cost curve
appear
The use of fixed costs to extract higher percentage changes in profits as sales activity
changes involves - Answers - operating leverage
If the margin of safety is 0, then - Answers - the company is precisely breaking even
Which of following equations is used to obtain the total change in profits from a change
in revenues? - Answers - Changes in profits= CM Ratio x Changes in Sales
In cost-volume-profit analysis, assuming unit variable cost and total fixed cost remain
the same, any increase in price will mean - Answers - lower break-even point
In cost-volume-profit analysis, assuming price and unit variable cost remain the same,
any increase in fixed costs will mean - Answers - a higher break-even point
In cost-volume-profit analysis, a multiple-product problem is converted into a single-
product problem by - Answers - defining a particular sales mix in units
Common fixed expenses - Answers - fixed expenses that cannot be traced to the
segment, and will continue to exist even if one segment or product is eliminated
Sensitivity Analysis - Answers - it allows managers to vary costs, prices, and sales mix
to show various possible break even points
Direct Materials - Answers - raw materials that become an integral part of the product
and that can be conveniently traced directly to it
Direct labor - Answers - labor costs that can be easily traced to individual units of
product
Manufacturing Overhead - Answers - all manufacturing costs except direct materials
and direct labor
Job Order Costing - Answers - are used when many different products are produced
each period, products are manufactured to order, or the unique nature of each order
requires tracing or allocating costs to each job, and maintaining cost records for each
job
Process costing - Answers - are used when units of product are homogeneous,
products are mass produced in a continuous production process, product costs are
accumulated in departments, or inventory costs are based on average cost per unit
Allocation - Answers - use of a systematic and rational formula to charge costs to a cost
object
