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Questions and Answers
Which type of cost includes executive, organizational, and clerical costs?
What type of costs are easily traced to a unit of product, such as direct material and direct labor?
What type of costs include manufacturing overhead and cannot be easily traced to a unit of product?
Which type of costs are incurred to support multiple cost objects and cannot be directly associated with a single cost object?
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What type of costs are relevant for evaluating cost of goods sold and inventory on financial statements?
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When are product costs attached to a unit of product and remain attached to each unit in inventory until sold?
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What is the main difference between managerial accounting and financial accounting?
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What is the primary audience for managerial accounting information?
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How does the scope of managerial accounting differ from financial accounting?
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What type of information does managerial accounting primarily provide?
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How does the use of information differ between managerial accounting and financial accounting?
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What distinguishes the formats used in managerial accounting from those used in financial accounting?
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Which statement best describes the treatment of direct labor and manufacturing overhead costs in the production process?
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What is the characteristic of variable costs in relation to changes in the level of activity?
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What distinguishes committed fixed costs from discretionary fixed costs?
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What is the defining characteristic of relevant costs in decision-making?
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How are sunk costs treated in decision-making?
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For what purpose is the traditional format for income statements primarily used?
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What is the primary focus of financial accounting?
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What is a requirement to become a Certified Management Accountant (CMA)?
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What does the Chartered Global Management Accountant (CGMA) designation require?
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What is the focus of managerial accounting courses?
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What does the Institute of Management Accountants (IMA) estimate about professional accountants in the U.S.?
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What is the emphasis of financial accounting?
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What does the degree of operating leverage (DOL) measure in cost-volume-profit analysis?
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What does the contribution margin represent in cost-volume-profit analysis?
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What does the break-even quantity represent in cost-volume-profit analysis?
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What does the contribution income statement help managers assess in cost-volume-profit analysis?
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What assumption do managers typically make for cost-volume-profit calculations?
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What is the formula for calculating the margin of safety in cost-volume-profit analysis?
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Study Notes
Applications and Assumptions of Cost-Volume-Profit Analysis
- Cost-volume-profit analysis uses the classification of variable versus fixed costs for informative purposes
- It helps determine the quantity of break-even or the sales of break-even, essential for a business to stay afloat
- The formula for determining break-even quantity is based on a simple equation
- The analysis can also be used to determine the targeted income and for simulation or what-if analysis
- It can be used to calculate the margin of safety, indicating how safe the company is in terms of reaching the break-even point
- The degree of operating leverage (DOL) measures the percentage change in profit associated with a change in volume or sales
- Managers typically assume constant selling price, linear costs, and constant product mix for CVP calculations
- The contribution income statement helps managers assess the impact on profits of changes in selling price, cost, or volume
- The contribution margin is the amount remaining from sales revenue after variable expenses have been deducted
- Sales, variable expenses, and contribution margin can be expressed on a per unit basis
- The contribution format income statement can be expressed in an equation
- It simplifies the estimation of profits at a particular sales volume by multiplying the units sold above break-even by the contribution margin per unit
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Description
Test your knowledge of Cost-Volume-Profit (CVP) analysis with this quiz. Explore the applications and assumptions of CVP analysis, including break-even analysis, targeted income determination, margin of safety, and the contribution income statement. Evaluate your understanding of how CVP analysis aids in decision-making and performance assessment in business.