ACC Exam 2

Contribution ratio

Contribution margin / Sales Rev

Variable Costing Unit Product Cost

DM + DL + VMOH

Margin of Safety

Difference between your actual or expected profitability and the break even point

Variable costing treats _____ manufacturing costs as product costs.

only variable

Absorption costing treats fixed manufacturing overhead as a ______ cost.

product

Contribution margin

Sales Rev - Variable Cost

Frames, Inc. picture frames each require $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame and variable selling and administrative expense is $13 per frame sold. Total fixed manufacturing overhead cost per month is $15,000 and the company produces 5,000 frames each month. The unit product cost of each frame using variable costing is $

$68

participative budgeting

A budgetary approach that starts with input from lower-level managers and works upward so that managers at all levels participate.

What is the master budget

A set of interrelated budgets that constitutes a plan of action for a specific time period

Absorption vs. Variable Costing

Absorption includes all costs, including fixed costs, in figuring the cost of production, while variable costing only includes the variable costs related to production

Margin of Safety

Actual or expected

Combined Cash Budget

Beginning Cash Balance + Cash Collections - Cash Payments = *Cash Balance Before Financing* +/- Cash Borrowed/Repaid/Interest Paid = *Ending Cash Balance*

Break Even Formula

Fixed costs / contribution per unit

Which of the following statements is true with respect to a contribution format income statement?

It subtracts variable expenses from sales to derive a contribution margin

Target Income Formula

Multiply the expected number of units to be sold by their expected contribution margin to arrive at the total contribution margin for the period. Subtract the total amount of expected fixed cost for the period. The result is the target income level.

Self-imposed budget

Prepared with the full cooperation and participation of managers at all levels

Product vs. Period Costs

Product: Direct Materials, Direct Labor, Variable Manufacturing Overhead Period:Fixed Selling and Administrative Expenses, Variable Selling and Administrative Expenses,Fixed Manufacturing Overhead

Which of the following statements are correct regarding income statements prepared under variable and absorption costing?

Reported net income on the statements often differ. Both income statements include product and period costs.

Variable Cost Ratio

Variable cost / Sales

Product costs under absorption costing include

direct materials variable manufacturing overhead fixed manufacturing overhead direct labor

Break even in units

fixed costs / contribution margin per unit

Break even

fixed costs/contribution margin ratio

contribution margin per unit

sales price per unit - variable cost per unit

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.

Fixed manufacturing overhead costs are expensed as units sold as part of cost of goods sold under __________ costing, and expensed in full with period costs under direct __________ costing.

Absorption Variable

R squared

Coefficient of determination

Segment Margin

Contribution Margin - Traceable fixed costs

Contribution Margin Ratio

Contribution Margin / Sales

Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is ______.

DM + DL + VMOH + FMOH 45+37+8+ 58000/2000 = 119

Assume a company's estimated sales for January, February, and March are 43,000 units, 44,000 units, and 42,000 units, respectively. The company always maintains ending finished goods inventory equal to 15% of next month's unit sales. What is the required production in units for January?

Production Budget: Unit Sales in Jan: 43k + Desired End Inventory (44K*15%) +6600 - Less Beginning Inventory (43k*15%) (6450) Est Production in January: 43150

Contribution Format Income Statement

Sales (Variable Expenses) =Contribution Margin (Fixed Expenses) =Net Profit

Assume a company has four divisions. Division A has sales, variable expenses, and traceable fixed expenses of $100,000, $70,000, and $20,000, respectively. What is Division A's segment margin?

Segment margin = Sales - Variable expenses - Traceable fixed expenses Division A segment margin = $100,000 - 70,000 - 20,000 Division A segment margin = $10,000 Hence option $10,000 is correct.

Overall Contribution Margin Ratio

Total contribution margin/total sales