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Managerial Accounting CH 18
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Terms in this set (59)
Contribution margin per unit contributes to covering _____ costs and then generating _____ on a per unit basis.
fixed
profits
A(n) _____ cost remains unchanged in amount when the volume of activity varies from period to period within the relevant range.
fixed
The break-even point is the sales level at which a company:
*incurs a loss
*contribution margin equals fixed costs
*has a profit of $0
*has a profit equal to fixed costs
*contribution margin equals variable costs
*has a profit of $0
*contribution margin equals fixed costs
Scatter diagrams:
Based on visual fit and subject to interpertation
High-Low method:
*Uses only two sets of values
*Less precise because it uses the extreme points
Least-squares regression:
*Uses a statistical technique and all data points
*Most precise method
1. Fixed
2. Mixed
3. Variable
1. Production supervisor's salary
2. Sales rep's pay which includes salary plus commission
3. Production line worker's pay, which is an hourly wage
Cost-volume-profit analysis helps managers predict how changes in _____ and _____ levels affect income.
costs
sales
A company has a margin of safety of 20%. If expected sales are $50,000, then break-even sales are:
$40,000
RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. The break-even point in sales dollars is $_____.
$75,000.
$10 - 6 = $4/$10 = 40%. $30,000/40% = $75,000.
The percent by which a product's unit selling price exceeds its total unit variable cost is the:
contribution margin ratio
List the cost estimation methods from the least precise to the most precise, with the least precise on top.
1. Scatter diagrams
2. High-low method
3. Least-squares regression
Fixed:
*Depreciation, $4,500 per month
*Property taxes, $12,000 per year
Variable
*Direct materials, $25 per unit
*Shipping costs, $15 per unit
Mixed
*Water & sewer, $50 per month plus $0.10 per gallon
*Sales rep's pay, $1,000 per month plus 10% sales commission
The formula used in a contribution margin income statement is:
Sales - Variable costs = Contribution margin - Fixed costs = Net Income
High-low method=
Change in cost/Change in units
On a CVP chart, on either side of the break-even point, the vertical distance between the total sales line and the total cost line represents:
*Total loss to the left of the intersection
*Total profit to the right of the intersection
The ABC Company had its highest level of production in May when they produced 4,000 units at a total cost of $110,000 and its lowest level of production in November when they produced 2,500 units at a total cost of $87,500. Using the high-low method, the estimated fixed costs are $______.
$50,000
($110,000 - $87,500)/(4000-2500) = $22,500/1500u= $15/unitl
FC = $110,000 - ($15/unit x 4,000 units) = $50,000
When using the high-low method, the slope of the estimated line of cost behavior represents:
the variable cost per unit
A company sells 800 units at $16 each, has variable costs of $12 per unit, fixed costs of $1,200, and a 40% tax rate. The after-tax income is $______
$1,200
(800 x $16 selling price) - (800 x $12 variable costs) - $1,200 fixed costs x (1- 40%) = $1,200
Which of the following is the correct statement about variable costs?
*The variable cost per unit does not change when volume changes.
*The variable cost per unit will decrease when volume increases
*The variable cost per unit will increase when volume increases.
The variable cost per unit does not change when volume changes.
Variable costs per unit will remain the same. Variable costs in total will increase with volume increases.
The margin of safety is:
*always expressed as a dollar amount (not in units or percentages).
*the amount sales can drop before the company incurs a loss.
*the difference between expected sales and break-even sales divided by expected sales.
*adequate if greater than 15% to 20%
*the amount sales can drop before the company incurs a loss.
*the difference between expected sales and break-even sales divided by expected sales.
RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The sales level in units to achieve the desire profit is $_____.
12,500
($30,000 + $20,000) / ($10 - $6) = 12,500
Jack works on the production line at an assembly plant. Jack receives a base salary plus $1.25 per unit assembled. This is an example of a _____ cost.
mixed
A company produces a product with a contribution margin per unit of $36. If the company incurs $62,ooo in total fixed costs, expects to sell 2,500 units, and has a tax rate of 35%, the pre-tax income is $_____.
28,000
(2,500 x $36) - $62,000 = $28,000
A company has fixed costs of $50,000 while manufacturing a product that has variable costs of $4 per unit and sells for $14 per unit. The break-even point is _____ units.
5,000
$50,000 / ($14 - $4) = 5,000 units
A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The com-any has fixed costs of $3,000 and desires a profit of $10,000. The sales level in dollars to achieve the desired profit is $_____.
26,000
($3,000 + $10,000) / 50% = $26,000
A company has a break-even sales of $200,000. If the company expects sales of $500,000, the margin of safety is _____%
60%
($500,000 - $200,000) / $500,000 = 60%
On a scatter diagram, the estimated line of cost behavior is the best variable fit, so it is easy to determine.
False
RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin ratio is _____%
40
($10 - $6) / $10 = 40%
*
per unit is "4"
*
LMN Company produces a product that sells for $1. The company has production costs of $600,000, half of which are fixed costs. Assuming production and sales of 750,000 units, the contribution margin per unit is $_____.
0.60
VC = $300,000 / 750,000 units = $0.40/unit; CM = $1 - $0.40 = $0.60
A manufacturing company incurs rent costs of $12,500 per month. The company manufactured 250,000 units in May and 300,000 units in June. The cost per unit in May and June, respectively, is:
$0.05 and $0.04
$12,500 / 250,000 and $12,500 / 300,000
Managers make assumptions in CVP analysis. These assumptions include:
*constant total variable costs.
*constant selling price per unit.
*constant sales volume.
*constant total fixed costs.
*constant variable cost per unit.
*constant fixed cost per unit.
*constant selling price per unit.
*constant total fixed costs.
*constant variable cost per unit.
Assuming all other factors remain constant, if fixed costs increase, then the break-even point will:
increase
The three methods used to classify costs into their fixed and variable components includes
*scatter diagrams
*least-square regression
*high-low method
RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin per unit is $_____.
4
$10 - $6 = $4
A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. The contribution margin ration is _____%.
64
($125,000 - $45,000) / $125,000 = 64%
RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. How many units must be produced to earn $20,000 profit?
12500
($30,000 + $20,000) / ($10 - $6) = 12,500 units
When preparing a scatter diagram, the estimated line of cost behavior crosses the vertical axis at the:
amount of fixed costs
A company has pre-tax income of $125,000 and an income tax rate of 35%. The after-tax income is $_____.
$81,250
$125,000 x (1 - 35%) = $81,250
A company sells 800 units at $16 each, has variable costs of $12 per unit, fixed costs of $1,200, and a 40% tax rate. The pre-tax income is $______
$2,000
(800 x $16) - (800 x $12) - $1,200 = $2,000
A company sells two models of a product - basic and premium. If the company sells 5,000 basic models and 2,500 premium models, then the sales mix can be expressed as:
2:1
5,000/2,500 = 2:1
A company has a degree of operating leverage of 2.5. If sales increase by 10%, then profits will:
increase by 25%
A statistical method of identifying cost behavior that is computed using spreadsheet programs or calculator is:
least-squares regression
A company incurs $12,000 in direct labor costs when they produce 480 units and $12,500 in direct labor costs when they produce 500 units. The direct labor cost per unit is $_____.
$25
Under a _____ costing income statement, only variable costs are included in the computation of total cost per unit.
Variable
In CVP analysis, the relevant range of operations is the _____ operating range for a business.
normal
The cost accountant at Company C used the high-low method to determine a cost equation of $14,000 plus $1.50 per unit. If the company plans to produce 200,500 units next month, then the total estimated cost will be $_____.
$314,750
Acme Manufacturing recently added another shift, which required the company to hire another production supervisor. The supervisor's salary would be considered a:
step-wise cost
In multiproduct CVP analysis, a(n) _____ unit is a specific number of units of each product in proportion to their expected sales mix.
composite
The extent, or relative size, of fixed costs in the total cost structure is known as:
operating leverage
RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. If the company sells 15,000 units, the degree of operating leverage is _____.
2
Contribution margin = 15,000 x $4 = $60,000; pre-tax income = $60,000 - $30,000; Degree of operating leverage = $60,000 / $30,000 = 2
A company sells two models of a product - basic and premium. The basic model has a variable cost of $75 and sells for $100. The premium model has a variable cost of $100 and sells for $150. If the company usually sells 5,000 basic models and 2,500 premium models, then the contribution margin per composite unit is $
100
2 x ($100 - $75) + 1 x ($150 - $100) = $100
A company sells two models of a product - basic and premium. The basic model has a variable cost of $75 and sells for $100. The premium model has a variable cost of $100 and sells for $150. If the company usually sells 5,000 basic models and 2,500 premium models, then the break-even point is composite units is _____ units.
150
$15,000 / (2 x ($100 - $75) + 1 x ($150 - $100)) = 150 units
A company sells two models of a product - basic and premium. The basic model has a variable cost of $75 and sells for $100. The premium model has a variable cost of $100 and sells for $150. If the company usually sells 5,000 basic models and 2,500 premium models, then the weighted-average contribution margin per composite unit is $_____ (round to 2 decimal places)
33.34
$25 x 2/3 + $50 x 1/3 = $16.67 + $16.67 = $33.34
Sales mix is the (volume/ration/mix) _____ of the sales volumes for a various products.
ratio
RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $4, but increase fixed costs by $15,000. The revised break-even point in dollars is $_____.
75000
($30,000 + $15,000) / ($10 - $4) / $10 = $45,000 / 60% = $75,000
A(n) _____ costs is one that increases at a nonconstant rate as volume increases.
curvilinear
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