Accounting 102

A cost which remains constant per unit at various levels of activity is a
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A cost which remains constant per unit at various levels of activity is a
variable cost.
Which of the following costs are variable?

Cost 10,000 Units 30,000 Units
1. $100,000 $300,000
2. 40,000 240,000
3. 90,000 90,000
4. 50,000 150,000
1 and 4
In applying the high-low method, what is the fixed cost?
Month Miles Total Cost
January 86000 $182000
February 64000 160000
March 78000 178000
April 96000 220000
$220000 - $160000) / (96000 - 64000) = $1.88; $220000 - ($1.88 x 96000) = $40000

(High: Total Cost - Low: Total Cost) / (High: Miles - Low: Miles) = unit variable cost; High: Total Cost - ((unit variable cost) x High: Miles) = Fixed Cost
Which one of the following is not an assumption of CVP analysis?
all costs are variable costs
Which of the following would not be an acceptable way to express contribution margin?
Sales minus unit costs.
Vaughn Manufacturing has a product with a selling price per unit of $200, the unit variable cost is $160, and the total monthly fixed costs are $300000. How much is Vaughn's contribution margin ratio?
($200 - $160) / $200 = 0.20 or 20%

(Selling price per unit - variable cost) / selling price per unit = contribution margin ratio
Fixed costs are $900000 and the variable costs are 80% of the unit selling price. What is the break-even point in dollars?
$900000 / (1 - 0.80) = $4500000

Fixed Costs / CM Ratio = Break-even point in dollars
Sheridan Company has fixed costs of $2300000 and variable costs are 20% of sales. What are the required sales if Sheridan desires net income of $400000?
($2300000 + $400000) / (1 - 0.20) = $3375000

(Fixed Costs + Net Income) / Contribution Margin Ratio = Required sales for desired net income
The following monthly data are available for Coronado Industries. which produces only one product: Selling price per unit, $44; Unit variable expenses, $14; Total fixed expenses, $42000; Actual sales for the month of June, 5000 units. How much is the margin of safety for the company for June?
$42000 / (($44 - $14) / $44) = $61600; (5000 x $44) - $61600 = $158400

(Break-even sales = Fixed Cost / Contribution Margin Ratio; Actual Sales - Break even Sales = Margin of Safety
The amount by which actual or expected sales exceeds break-even sales is referred to as
margin of safety
For Crane Company at a sales level of 4000 units, sales is $65000, variable expenses total $40000, and fixed expenses are $21000. What is the contribution margin per unit?$65000 - $40000 = $25000; $25000 / 4000 = $6.25 (Sales - Variable expenses = Contribution Margin; Contribution Margin / Units sold = contribution margin per unit)Waterway's CVP income statement included sales of 4500 units, a selling price of $50, variable expenses of $30 per unit, and net income of $25000. Fixed expenses are((4500 x ($50 - $30)) - $25000 = $65000 (Units Sold x (Selling price - variable expense per unit)) - Net Income = Fixed Expenses)In 2019, Vaughn Manufacturing sold 3000 units at $400 each. Variable expenses were $340 per unit, and fixed expenses were $270000. The same selling price, variable expenses, and fixed expenses are expected for 2020. What is Vaughn's break-even point in units for 2020?$270000 / ($400 - $340) = 4500 (Fixed expenses / (Selling price - Variable expense per unit) = Break-even point in units)Margin of safety in dollars isActual (Expected) Sales - Break-Even SalesSales mix isthe relative percentage in which a company sells its multiple products.Swifty Corporation sells two types of computer hard drives. The sales mix is 30% (Q-Drive) and 70% (Q-Drive Plus). Q-Drive has variable costs per unit of $45 and a selling price of $90. Q-Drive Plus has variable costs per unit of $60 and a selling price of $135. The weighted-average unit contribution margin for Swifty is(.30 x ($90 - $45)) + (.70 x ($135 - $60)) = $66 (Q-Drive Sales mix X (Selling price - Variable cost per unit) + (Q-Drive Plus Sales Mix x (Selling price - Variable costs per unit) = Weighted-average unit contribution margin)Swifty Corporation can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $44 and takes two machine hours to make and Fancy has a unit contribution margin of $45 and takes three machine hours to make. There are 2400 machine hours available to manufacture a product. What should Swifty do?$44 / 2 = $22; $45 / 3 = $15 ( 22 - 15= 7 more profit) (Unit Contribution Margin: Plain / Machine Hours to Make = Contribution Margin per unit of limited resources: Plain; Unit Contribution Margin: Fancy / Machine hours to Make = Contribution Margin per unit of limited resources Fancy)Cost structurerefers to the relative proportion of fixed versus variable costs that a company incurs.The degree of operating leverageis computed by dividing total contribution margin by net income.Lazaro Inc. sells two product lines. The sales mix of the product lines is: Standard, 60%; and Deluxe, 40%. The contribution margin ratio of each line is: Standard, 40%; and Deluxe, 45%. Lazaro's fixed costs are $1,575,000. What is the dollar amount of Deluxe sales at the break-even point?Standard: 60% ร— 40% = 24 % Deluxe: 40% ร— 45% = 18 % Weighted-average contribution margin ratio 42 % $1,575,000 รท 42% = $3,750,000 break-even point in dollars Dollar amount of Deluxe sales at the break-even point: $3,750,000 ร— 40% = $1,500,000.A company is contemplating the acceptance of a special order. The order would not affect regular sales and could be filled without exceeding plant capacity. However, a new stamping machine would have to be purchased in order to stamp the customer's name on the product. Which of the following is likely?Both variable and fixed costs will be relevant.A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10000 units: Direct materials $ 4 Direct labor 10 Variable overhead 8 Fixed overhead 6 A foreign company wants to purchase 3800 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is(3800 x $25) - ((3800 x ($4 + $10 + $8)) + ($4000) = $7400 income ((Special order units x Special order price) - ((Special order units x (Direct materials per unit + Direct labor per unit + Variable overhead per unit)) - Special Stamping machine cost = Income from accepting the order)Which of the following is not a qualitative factor to be considered in a make-or-buy decision?Incremental benefit from buying outside.Bonita Industries incurs the following costs to produce 11200 units of a subcomponent: Direct materials $9408 Direct labor 12656 Variable overhead 14112 Fixed overhead 16200 An outside supplier has offered to sell Bonita the subcomponent for $2.85 a unit. If Bonita accepts the offer, by how much will net income increase (decrease)?($2.85 x 11200) - ($9408 + $12656 + $14112) = $4256 ((Special order price x Units) - (Direct Materials - Direct Labor - Variable Overhead) = Net Income Increase)Oriole Company incurs the following costs to produce 9700 units of a subcomponent: Direct materials $8148 Direct labor 10961 Variable overhead 12222 Fixed overhead 16200 An outside supplier has offered to sell Oriole the subcomponent for $2.85 a unit. If Oriole could avoid $3000 of fixed overhead by accepting the offer, net income would increase (decrease) by($8148 + $10961 + $12222) - ($2.85 x 9700) = $3686 + $3000 = $6686 ((Direct Materials - Direct Labor - Variable Overhead) - (Special order price x Units) = Net Income Increase + Fixed Overhead Avoided = Adjusted Net Income Increase)Sheridan Company incurs the following costs to produce 9700 units of a subcomponent: Direct materials $8148 Direct labor 10961 Variable overhead 12222 Fixed overhead 16200 An outside supplier has offered to sell Sheridan the subcomponent for $2.85 a unit. If Sheridan accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3600. The increase (decrease) in net income from accepting the offer would be($8148 + $10961 + $12222) - ($2.85 x 9700) = $3686 + $3600 = $7286 ((Direct Materials + Direct Labor + Variable Overhead) - (Special order price x Units) = Net Income Increase + Additional Income = Adjusted Net Income Increase)Bonita Industries has old inventory on hand that cost $19500. Its scrap value is $26000. The inventory could be sold for $65000 if manufactured further at an additional cost of $19500. What should Bonita do?Manufacture further and sell it for $65000Which of the following is not involved in the sell or process further decision?Fixed costsThe cash disposal value of old equipment is considered to be a (an)relevant cost.Sheffield Corp. produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows: Wood Aluminum Hard Rubber Total Sales $640000 $330000 $65000 $1035000 Variable expenses 390000 270000 58000 718000 Contribution margin 250000 60000 7000 317000 Fixed expenses 75000 35000 22000 132000 Net income (loss) $175000 $ 25000 $(15000) $185000 Assume none of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?$175000 + $25000 - $22000 = $178000 (Wood: Net Income + Aluminum: Net Income - Hard Rubber: Fixed Expenses = Total Net Income if the line is dropped)Factors that can affect pricing decisions include all of the following exceptAnswer: cost considerations. environment. pricing objectives.The calculation to determine target cost issales price - desired profit.Sheridan Companywants to produce and sell a new flavored water. In order to penetrate the market, the product will have to sell at $2 per 12 oz. bottle. The following data has been collected: Annual sales 50000 bottles Projected selling and administrative costs $8500 Desired profit $62000 The target cost per bottle is?$2 - ($62000 / 50000) = $0.76 (Target selling price per bottle - (Desired profit / Annuals Sales) = Target cost per bottle)Bramble Corp. produces high definition television sets. The following information is available for this product: Fixed cost per unit $450 Variable cost per unit 750 Total cost per unit 1200 Desired ROI per unit 420 Bramble Corp.'s markup percentage would be($1620 - $1200) / $1200 = .35 or 35% ((Total cost per unit + Desired ROI per unit = Targeted selling price per unit; (Target selling price - Total cost per unit) / Total cost per unit = Markup percentage)Bramble Corp. produces high definition television sets. The following information is available for this product: Fixed cost per unit $400 Variable cost per unit 750 Total cost per unit 1150 Desired ROI per unit 200 The target selling price for this television is$1150 + $200 = $1350 (Total cost per unit + Desired ROI per unit = Target selling price)Bramble Corp. has the following budgeted costs for the next year: Time Charges Material Charges Shop employees' wages and benefits $120000 $- Parts manager's salary and benefits - 40000 Office employee's salary and benefits 37500 10000 Other overhead 22500 30000 Invoice cost of parts and materials - 350000 Total budgeted costs $180000 $430000 The labor rate to be used next year assuming 7500 hours of repair time and a profit margin of $25 per labor hour is$180000 / 7500 = $24; $24 + $25 = $49 ((Total budgeted cost / units) + Profit margin per labor hour = Labor rate used next year)Sheridan Company has the following budgeted costs for the next year: Time Charges Material Charges Shop employees' wages and benefits $140000 $- Parts manager's salary and benefits - 45000 Office employee's salary and benefits 40000 15000 Other overhead 15000 40000 Invoice cost of parts and materials - 400000 Total budgeted costs 195,000. 500,000 The material loading charge to be used next year assuming a 30% markup on material cost is($500000 - $400000) + ($400000 x .30) = $220000 / $400000 = .63 or 63% ((Total budgeted materials charges - Invoice cost of parts and materials) + (Invoice cost of parts and materials x Mark-up percentage)) / Invoice cost of parts and materials = Material loading charge)Jaycee Auto Repair has the following budgeted costs for the next year: Time Charges Material Charges Shop employees' wages and benefits $120,000 $- Parts manager's salary and benefits - 45,000 Office employee's salary and benefits 30,000 15,000 Other overhead 15,000 40,000 Invoice cost of parts and materials - 400,000 Total budgeted costs $165,000 $500,000 The materials loading charge is 65% and the labor charge per hour is $47. Jaycee estimates that the repairs to a Cadillac Escalade damaged in an accident will take 45 hours of labor and $3,500 in parts and materials. The total cost of the repairs is$3,500 + ($3,500 x .65) + ($47 x 45) = $7,890 (Parts and Materials + (Parts and Materials x Material Loading charge) + (Labor rate per hour x labor hours) = Total cost of the repairs)The overall objective in the determination of a transfer price is tomaximize the return to the whole company.The Lumber Division of Sheridan Company produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period: Lumber Division: Capacity 140000 board feet Price per board foot $4.50 Variable production cost per bd. ft. $1.25 Variable selling cost per bd. ft. $0.50 Construction Division: Board feet needed 40000 Outside price paid per bd. ft. $4 If the Lumber Division sells to the Construction Division, $0.25 per board foot can be saved in shipping costs. If current outside sales are 70000 board feet, what is the minimum transfer price that the Lumber Division could accept?$1.25 + $0.50 - $0.25 = $1.50 (Variable production cost per board foot + Variable selling cost per board foot - Shipping cost per board foot savings = Minimum transfer price)