The contribution margin approach helps managers in short-term decision making because itA. reports costs and revenues at present valueB. reports only mixed costsC. treats fixed manufacturing overhead as product costsD. isolates costs by behavior

The contribution margin approach helps managers in short-term decision making because it isolates…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A. Mastery Problem: Break-Even Point in Units and the Profit-Volume Graph CVP and the Contribution Margin Income Statement For planning and control purposes, managers have a powerful tool known as cost-volume-profit (CVP) analysis. CVP shows how revenues, expenses, and profits behave as volume changes. In CVP analysis, costs are classified according to behavior: variable or fixed. To arrive at operating income in CVP analysis, costs are classified by behavior on the income statement. This format is known as the contribution margin income statement. Complete the following table to illustrate the format. Select a or b to pick the correct decscription under the sales column Contribution Margin Income Statement Sales $ XXX (a. Less: Variable Cost or b. Less: Fixed costs) (XXX) (a. Contribution margin or b. Gross margin) $ XXX (a. Less: Variable Cost or b. Less: Fixed costs) (XXX) Operating income $ XXX B. CVP and the Break-Even Point Review the following concepts about…
Question: In marginal accounting, what is the primary focus when analyzing costs and revenues? A) Total accumulated costs and revenues B) Average costs and revenues C) Incremental changes in costs and revenues D) Fixed costs and variable costs
Variable costing income will be greater than absorption costing income when: a. Sales is greater than production. b. contribution pricing is applied c. Production is less than or equal to sales. d. Production is greater than sales
Profitability changes may be simply calculated by using what kind of tool: sales price/volume/variable costs/fixed costs.
Fixed costs are costs that: A) Change in total with changes in the level of activity B) Remain constant per unit with changes in the level of activity C) Remain constant in total regardless of changes in the level of activity D) Vary inversely with changes in the level of activity
Which of the following statements regarding marginal costing is incorrect? Select one: O A. It is useful long-term planning technique OB. It assumes that fixed costs remain fixed over relevant activity ranges O C. It assumes that variable costs vary in proportion to activity O D. It assumes that costs can be classified as variable or fixed
When using the general methods to estimate cost behavior, A. It is a good idea to use multiple methods so results can be compared B. Managers often apply their own best judgement as a first step in the estimation process C. Results are likely to differ from method to method D. Large differences in methods suggest that the cost cannot be estimated.
Mastery Problem: Contribution Margin, Cost-Volume-Profit Analysis and Break-Even Point (Overview) Fixed, Variable and Mixed Costs An appreciation of cost behavior is needed in order for management to understand and predict profitability as the costs of material, labor and other operating expenses and levels of production and sales change. It's important to review the cost behavior of fixed, variable and mixed costs before contribution margins, cost-volume-profit analysis, and break-even points. 1. In the table below, Have-A-Seat Inc. has outlined many of the costs associated with producing office chairs. With respect to the production and sale of office chairs, classify each cost as: a.fixed b.mixed c.variable. a. Pressure-molded plastic for chair frames b. Pension cost: $0.50 per employee hour on the job c. Insurance premiums for inventory: $2,100 per month plus $0.01 for each dollar of inventory over $2 million d. Property taxes: $120,000 per year for…
Which of the following is not a method used by managers to determine cost behavior? High-low Method Scatterplot Account analysis Regression Analysis Derivation
Describe the differences in behavior of fixed costs, variable costs, semi-variable costs and step costs. Then discuss how break-even analysis and contribution margin can be useful in making business decisions.
Cost-volume-profit analysis is used to make many decisions, including product pricing and controlling costs. What are the limitations of using operating leverage to predict profitability?
1

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The contribution margin approach helps managers in short-term decision making because it A. reports costs and revenues at present value B. reports only mixed costs C. treats fixed manufacturing overhead as product costs D. isolates costs by behavior