accounting, Homework 2, Managerial Accounting Chapter 1 -5

The relative proportions in which a company's products are sold is referred to as (1) (2). (Enter only one word per blank.)

1. sales 2. mix

Variable expenses ÷ Sales is the calculation for the (1) (2) ratio. (Enter only one word per blank.)

1. variable 2. expenses

Place the following items in the order in which sales dollars are applied on a contribution margin income statement. - Fixed expenses - Variable costs - Net income

1. variable costs 2. fixed expenses 3. net income

The cost of advertising in the Puget Sound Computer User newspaper. A. Direct labor cost B. Direct materials cost C. Manufacturing overhead cost D. Selling cost E. Administrative cost

D. Selling cost

Which of the following statements is correct?

The higher the margin of safety, the lower the risk of incurring a loss.

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

True

The formula used to calculate the sales volume needed to achieve a target profile is:

Unit sales to attain a target profit = (Target profit + Fixed expenses) /Unit contribution margin

A change in profits that occurs due to a change in sales and fixed expenses may be calculated as ______.

cm ratio × change in sales - change in fixed expenses

To calculate the degree of operating leverage, divide ____ ____ by net operating income.

contribution margin

Assuming the sales price constant, an increase in the variable cost per unit will ____ the contribution margin per unit.

decrease

On a profit graph, the point where the line crosses the y-xis represents ____ costs.

fixed

Total contribution margin equals ______.

fixed expenses plus net operating income

Operating leverage is a measure of how sensitive ____ is to a given percentage change in sales dollars.

net operating income

Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars.

net operating income

How find the amount of manufacturing overhead applied?

predetermined overhead rate * actual cost driver = mf oh applied - POHR= (est fixed manu overhead + est variable manu overhead)/ estimated cost driver

The variable expense ratio is the ratio of variable expense to ______.

sales

The variable expense ratio is the ratio of variable expense to:

sales

The variable expense ratio may be calculated using per unit amounts by dividing variable expense per unit by unit ____ price.

sales

When preparing the break-even analysis for a company that produces and sells multiple products, the assumption is ordinarily made that which of the following will not change?

sales mix

The equation used to solve for the variable expense ratio using per unit values is variable cost per unit divided by:

sales price per unit

When preparing a CVP graph, the horizontal axis represents ______.

sales volume

The break-even point is reached when the contribution margin is equal to ______.

total fixed expenses

Select all that apply At the break-even point ______.

total revenue equals total cost net operating income is zero

To prepare a CVP graph, lines must be drawn representing:

total revenue, total expense, and total fixed expense

When constructing a CVP graph, the horizontal (x) axis represents unit ____.

volume

On a profit graph, the sales volume where profit is ____ is the break-even point.

zero

Seating Galore sells high-end desk chairs. The variable expense per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Seating Galore's chairs is %. (Enter your answer as a whole number.)

1. 45

A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be $(1). (Enter your answer as a whole number.)

1. 5,000

True/False: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

false

Select all that apply The break-even point calculation is affected by ______.

selling price per unit costs per unit sales mix

Solving for the sales needed to attain a target profit of $____ is the same process as solving for the sales level needed to break-even.

$0

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by ______.

$0.35

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______.

$180,000

Marjorie's Mugs sold 300 mugs last year for $20 each. The company incurred variable costs of $7 per unit and total fixed costs of $1,700. Marjorie's Mugs' profit was:

$2,200 Profit = 300 x ($20 - $7) - $1,700 = $2,200

Exercise 2-2 Apply Overhead Cost to Jobs [LO2-2] Luthan Company uses a plantwide predetermined overhead rate of $23.70 per direct labor-hour. This predetermined rate was based on a cost formula that estimated $284,400 of total manufacturing overhead cost for an estimated activity level of 12,000 direct labor-hours. The company incurred actual total manufacturing overhead cost of $268,000 and 10,900 total direct labor-hours during the period. Required: Determine the amount of manufacturing overhead cost that would have been applied to all jobs during the period

$258,330 Explained: $23.70 x 10,900 = $258,330

A company sells 500 sleds per month for $80. Variable costs are $41 per unit and fixed expenses are $3,500 per month. The company thinks that using a new material would increase sales by 70 units per month. If the new material increases variable costs by $4 per unit, the impact on net income would be a ______.

$450 increase

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is ______.

$99,000

Profit equals ______.

(P × Q) - (V × Q) - fixed expenses

how find Predetermined overhead rate for a company

(est. fixed manu overhead + est variable manu overhead)/ estimated cost driver - est variable manu overhead= estimated cost driver * rate

Which of the following are decisions in which using CVP analysis could be useful? (check all that apply) - Deciding which services to offer - Deciding what price to charge for goods/services - Deciding which products to offer - Deciding what cost structure to implement - Deciding to change the sick leave policy for employees - Deciding what marketing strategy to use

- Deciding which services to offer - Deciding what price to charge for goods/services - Deciding which products to offer - Deciding what cost structure to implement - Deciding what marketing strategy to use

Water World sells wake boards and water skis and pays commissions to their salespeople based on each product's sales price. Although the wake boards sell for a higher price than the skis, the skis have a higher contribution margin per unit than t he wake boards. Which of the following are true in reference to sales commissions? (Check all that apply.) - The company should not pay sales commissions on these products. - Sales commissions based on sales price would be ideal to use under these circumstances. - Salespersons will be motivated to sell more wake boards as they will create a higher commission per unit for them. - The company would rather see more skis sold as it creates the higher profit per unit for the company.

- Salespersons will be motivated to sell more wake boards as they will create a higher commission per unit for them. -The company would rather see more skis sold as it creates the higher profit per unit for the company.

Terry's Trees has reached its break-even point and has calculated its contribution margin ratio to be 70%. Each $1 increase in sales will have which of the following effects? (Check all that apply) - Net operating income will increase by $0.30 - Total contribution margin will increase by $0.30 - Total contribution margin will increase by $0.70 - Net operating income will increase by $0.70

- Total contribution margin will increase by $0.70. - Net operating income will increase by $0.70

The profit graph allows users to easily identify: (check all that apply) - the sales volume required to reach the break-even point. - total expenses incurred at any given sales volume. - the profit at any given sales volume.

- the sales volume required to reach the break-even point. - the profit at any given sales volume.

Which of the following statements are correct with regards to a change in a company's sales mix? (check all that apply) - A change in sales mix from high-margin to low-margin items may cause total profits to decrease despite an increase in total sales. - A change in the sales mix resulting in an increase in total sales will always result in an increase in profits. - A change in sales mix from low-margin to high-margin items may cause total profits to increase despite a decrease in total sales. - A change in the sales mix resulting in a decrease in total sales will always result in a decrease in profits.

-a change in sales mix from high-margin to low-margin items may cause total profits to decrease despite an increase in total sales. -a change in sales mix from low-margin to high margin items may cause total profits to increase despite a decrease in total sales.

The contribution margin statement is primarily used for:

-internal decision making

Cartoon cakes has $401,000 of fixed costs per year. The contribution margin ratio is 59%. What amount of sales dollars is required if the company has set a target profit of $720,000 this year?

1,900,000 Sales = (401,000 + 720,000)/ .59

Mickley Company's plantwide predetermined overhead rate is $14.00 per direct labor hour and its direct labor wage rate is $17 per hour. Direct Materials are $231 Direct labor is $153 Made 40 units Find the: 1. total manufacturing cost 2. unit product cost

1. Manufacturing overhead = 126 (153/17=9*14) - add manu overhead, dm, and dl to get 510 2. 510/40=12.75

Contribution margin ratio is equal to (1) (2) divided by (3). (Enter only one word per blank)

1. contribution 2. margin 3. sales

Contribution margin is first used to cover (1) expenses. Once the break-even point has been reached, contribution margin becomes (2). (Enter only one word per blank.)

1. fixed 2. profit

The amount by which sales can drop before losses are incurred is the (1) of (2). (Enter only one word per blank).

1. margin 2. safety

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK-EVEN?

2,800

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______.

7,625

Polly's Day Planners sells its planners for $35 each. Sales this year equals $927,500. The margin of safety is $27,300. What is the firm's margin of safety in units?

780 units =$27,300/$35 = 780 units

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is ______.

8,400

Tommy's Trains is currently selling 55,000 toy trains for $50 per unit. The variable cost per train is $26. Calculate the change in profits if Tommy sells an additional 5,000 trains.

An increase of $120,000 Change in profits= 5,000 x ($50 - $26) = $120,000

The cost of a hard drive installed in a computer. A. Direct labor cost B. Direct materials cost C. Manufacturing overhead cost D. Selling cost E. Administrative cost

B. Direct materials cost

The degree of operating leverage = ______.

Contribution Margin / Net Operating Income

CVP is the acronym for ____ - ____ - ____.

Cost-Volume-Profit

Sales commissions paid to the company's salespeople. A. Direct labor cost B Direct materials cost C. Manufacturing overhead cost D. Selling cost E. Administrative cost

D. Selling cost

A company currently has a contribution margin ratio of 30% and sales of $300,000. Fixed expenses total $225,000. The company has decided to expand production and, as a result, is expecting to increase sales by $70,000. The change will also result in an increase in fixed expenses of $15,000. What will be the impact on net operating income?

Net operating income will increase by $6,000.

Select all that apply Which of the following items are found above the contribution margin on a contribution margin format income statement?

Sales Variable expenses

The CVP graph evaluates CVP relationships over a wide range of ____ levels.

activity

The contribution margin equals sales minus ______.

all variable costs

CVP analysis is based on some ____ that may be violated in practice, but the tool is still generally useful.

assumptions

Contribution margin ______.

becomes profit after fixed expenses are covered

Multiplying unit selling price times the number of units required to break-even is one way to calculate:

break-even sales dollars

To estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit ____ ____.

contribution margin

Contribution margin divided by sales is the formula for ____ ____ ____.

contribution margin ratio

The calculation of contribution margin (CM) ratio is ______.

contribution margin ÷ sales

The calculation of contribution margin (CM) ratio is:

contribution margin/sales

Assuming sales price remains constant, an increase in the variable cost per unit will ______ the contribution margin per unit.

decrease

Select all that apply A company with a high ratio of fixed costs ______.

is more likely to experience a loss when sales are down than a company with mostly variable costs is more likely to experience greater profits when sales are up than a company with mostly variable costs.

If operating leverage is high, a small percentage increase in sales can produce a much ____ percentage increase in net operating income.

larger

The amount by which sales can drop before losses are incurred is the ____ of ____.

margin safety

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as ______.

the degree of operating leverage

Select all that apply Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales ______.

total contribution margin will increase by $0.70 net operating income will increase by $0.70

To prepare a CVP graph, lines must be drawn representing total revenue, ______.

total expense, and total fixed expense

The equation to calculate sales dollars on a per unit basis is:

total sales divided by units

The break-even point is the level of sales at which the profit equals ____,

zero

If a company has sales of $100,000, variable expenses of $60,000, and fixed expenses of $50,000 the company has a:

$10,000 net operating loss Contribution margin ($100,000-$60,000) of $40,000 - fixed exp of $50,000 = a $10,000 loss

A company reports the following for a sales volume of 200 units: $100,000 in sales and $80,000 in variable costs. If the break-even point is 200 units and the company sells 201 units, net profit will be:

$100

Exercise 2-1 Compute a Predetermined Overhead Rate [LO2-1] Harris Fabrics computes its plantwide predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 38,000 direct labor-hours would be required for the period's estimated level of production. The company also estimated $516,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of $3.00 per direct labor-hour. Harris's actual manufacturing overhead cost for the year was $701,814 and its actual total direct labor was 38,500 hours. Required: Compute the company's plantwide predetermined overhead rate for the year.

$16.58 Explained: $516,000 + (38,000 x $3.00) = $630,000 $630,000 / 38,000 = $16.578

Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, net operating income for the year is ______.

$380,000

The break-even point calculation is affected by which of the following items? (check all that apply) - Sales mix - Number of batches produced - Variable cost per unit - Selling price per unit - Total fixed cost

- Sales mix - Variable cost per unit - Selling price per unit - Total fixed cost

Pete's Putters manufactures and sells a specialized golf putter. The company sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information which of the following statements are true? (Check all that apply)

- if Pete's putters sells 12,000 putters, net operating income would be $380,000. 12,000 units x $65 contribution margin = $780,000 - $400,000 = $380,000 - The contribution margin per unit is $65

CVP analysis allows companies to easily identify the change in profit due to changes in: (check all that apply) - selling price - management - volume - costs - location

- selling price - volume - costs

The single point where the total revenue line crosses the total expense line on the CVP graph indicates: (Check all that apply.) - the break-even point - profit equals zero - profit is less than zero - profit is greater than zero

- the break-even point - profit equals zero

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Thus, the degree of operating leverage is (1) for Adams, Inc. and (2) for Baron, Inc. (Enter your answers as whole numbers.)

1. 3 2. 2

Hahn company uses a job order costing system. Its plantwide predetermined overhead rate uses direct labor-hours as the allocation base. The company pays its direct laborers $15 per hour. During the year, the company started and completed only two jobs- Job Alpha, which used 54,500 direct labor hours and Job Omega. The Job cost sheets are as follows: Job Alpha DM ???? DL ??? Manu Overhead applied ??? Cost: 1,533,500 Job Omega: DM 253,000 DL 345,000 Manu Overhead 184,000 Cost: 764,000 1. calculate the plantwide predetermined overhead rate 2. complete the job cost sheet for Job alpha

1. POHR=184000/ (345000/15)= 8 2. DM = cost - (DL+MO) DL= 15*54500 MO= 8*54500=436000 Cost= 1533500

The break-even point is the level of sales at which the profit equals (1). (Enter only one word per blank.)

1. zero

Steel, Inc. has a margin of safety in dollars of $559,740. If actual sales were $2,946,000, Steel's margin of safety percentage is ____%.

19% = $559,740/$2,946,000 = 19%

Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans required to meet the company's goal is:

21,645

Spice sells paprika for $9.00 per bottle. Each bottle incurs $2.43 in variable cost. Spice incurs annual fixed costs of $825,000. The variable expense ratio for paprika is:

27%

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets Blissful Blankets need to sell in order to achieve its target profit is ______.

40,000

Plush & Cushy sells high-end desk chairs. The variable expense per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Plush & Cushy's chairs is:

45%

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK-EVEN?

= $98,000/(50-15) = 2,800

Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance profit is $_____.

= (9,000 x $32) - $120,000 = $168,000

Sales total $500,000, and fixed costs total $300,000. The contribution margin ratio is 68%. Profit = $____.

=($500,000 x .68) - $300,000 =$40,000

The wages of employees who assemble computers from components. A. Direct labor cost B. Direct materials cost C. Manufacturing overhead cost D. Selling cost E. Administrative cost

A. Direct labor cost

Select all that apply Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Which of the following statements are correct?

Baron's net income grows twice as fast as its sales. Adams has a higher degree of operating leverage than Baron.

True or false: Cost structure refers to the relative portion of product and period costs in an organization.

False

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

False

True or false: Without knowing the future, it is best to have a cost structure with high variable costs.

False

Adam's Sports Store has a contribution margin ratio of 55%. The break-even point has already been reached this year. If the shop is able to generate additional sales of $250,000 by the end of the year, how much will its net operating income change as a result of the additional sales?

Net operating income will increase by $137,500. Net operating income change= $250,000 x 55% = $137,500 increase

Which of the following is the equation to solve for profit in terms of sales volume?

Profit = (Unit contribution margin x Unit sales) - Fixed expense

White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates: Departments: Cutting and Finishing Direct labor-hours Cutting: 8,300 Finishing: 87,000 Machine-hours Cutting: 63,500 Finishing: 3,500 Total fixed manufacturing overhead cost Cutting: $370,000 Finishing: $454,000 Variable manufacturing overhead per machine-hour Cutting: $3.00 Finishing: — Variable manufacturing overhead per direct labor-hour Cutting: — Finishing: $4.75 Required: 1. Compute the predetermined overhead rate for each department. 2. The job cost sheet for Job 203, which was started and completed during the year, showed the following: Departments: Cutting and Finishing Direct labor-hours Cutting: 4 Finishing: 18 Machine-hours Cutting: 86 Finishing: 4 Direct materials Cutting: $740 Finishing: $360 Direct labor cost Cutting: $88 Finishing: $396 Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203. 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates?

Required 1. Predetermined Overhead Rate Cutting: $8.83 per MH Finishing: $9.97 per DLH Required 2. Total Manufacturing Cost: $2,523 Required 3. Yes Explained: Required 1. Cutting Department - First we find the estimated variable manufacturing overhead: $3.00 per MH x 63,500 MHs = 190,500 Then we find the estimated total manufacturing overhead cost = estimated fixed manufacturing overhead + estimated variable manufacturing overhead. $370,000 + 190,500 = $560,500 Then we find the Predetermined Overhead Rate for cutting = estimated total Manufacturing overhead / estimated total machine-hours. $560,500 / 63,500 MHs = $8.83 per MH Finishing Department - First we find the estimated variable manufacturing overhead: $4.75 per MH x 87,000 MHs = 413,250 Then we find the estimated total manufacturing overhead cost = estimated fixed manufacturing overhead + estimated variable manufacturing overhead. $454,000 + 413,250 = $867,250 Then we find the Predetermined Overhead Rate for finishing = estimated total Manufacturing overhead / estimated total machine-hours. $867,250 / 87,000 MHs = $9.97 per DLH Required 2. A couple steps need to be taken in this requirement. The total manufacturing cost = direct materials + direct labor + cutting department + finishing department. Direct Materials: $1,100.00 ($740 + $360) Direct Labor: $484.00 ($88 + $396) Cutting Department: $759.38 (86 MHs x $8.83 per MH) Finishing Department: $179.46 (18 DLH x $9.97 per DLH) Total Manufacturing Cost: $2,522.84 (1,100 + 484 + 759.38 + 179.46) Required 3. Yes ; if some jobs require a large amount of machine time and a small amount of labor time, they would be charged substantially less overhead cost if a plantwide overhead rate based on direct labor hours were used. It appears, for example, that this would be true of Job 203 which required considerable machine time to complete, but required a relatively small amount of labor hours.

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying him $20 per unit instead. Sales are currently 200 units per month. Goldin believes that compensation change will increase unit sales by 50%. The current contribution margin is $80 per unit. Should Goldin implement the change?

Yes, income will increase by $7,000. Current income: ($80 x 200) - $5,000 = $11,000 With the change: ($80 - $20) x 200 x 150% = $18,000, an increase of $7,000 per month.

The equation used to calculate margin of safety in dollars is:

budgeted (or actual) sales minus break-even sales

Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will ______.

decrease by $2,000

When constructing a CVP graph, the vertical (y) axis represents ____.

dollars

When constructing a CVP graph, the vertical axis represents ______.

dollars

Select all that apply When a company produces and sells multiple products ______.

each product most likely creates a unique total of fixed costs. a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin.

A company's current sales are $300,000 and fixed expenses total $225,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will ______.

increase by $6,000

A company currently has sales of $700,000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8,000, the company expects to increase sales to $735,000. If this is done and these results occur, net operating income will ______.

increase by $7,750

Net income can be estimated for any sales volume above the break-even point by ____ the number of units sold above the break-even point by the unit contribution margin.

multiplying

Select all that apply Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable costs of $10 and total fixed costs are $700. If Ellie sells 35 elephants this month, ______.

total sales = $1,925 total variable costs = $350 profits = $875

Variable costs per unit is calculated by dividing total variable costs by total ____.

units

The term "cost structure" refers to the relative proportion of ____ and ____ costs in an organization.

variable fixed

The contribution margin is equal to sales minus ______.

variable expenses

The contribution margin is equal to:

sales minus variable expenses

The relative proportions in which a company's products are sold is referred to as ____ ____.

sales mix

The term used for the relative proportion in which a company's products are sold is ______.

sales mix

Which of the following are assumptions of cost volume profit analysis? - Variable costs per unit increase over the relevant range of activity. - In multi product companies, the sales mix is constant. - Fixed costs per unit stay the same within the relevant range. - In a manufacturing company, the number of units of inventory produced equals the number of units sold.

- In multi product companies, the sales mix is constant. - In a manufacturing company, the number of units of inventory produced equals the number of units sold.

Factors which determine whether a cost structure with higher variable costs is better than one with higher fixed costs include: (check all that apply) - Average sales price per unit - Long-run trends in sales - the attitude of owners toward risk - year-to-year fluctuations in the level of sales

- Long-run trends in sales - the attitude of owners toward risk - year-to-year fluctuations in the level of sales

Tasty Tangerine is currently selling 50,000 boxes of tangerines for $25 per box. Variable cost per box Is $17 and fixed costs total $260,000. A plan Is being considered to Increase the visual appeal of its packaging and reduce the selling price. The design change would result In a $60,000 increase to fixed costs. Management believes the design change along with a $2 reduction in the selling price per box would Increase sales volume by 24,000 boxes. Which of the following Is true? - Net operating income would increase by $44,000. - Net operating income would increase by $132,000. -Net operating income would decrease by $16,000. - Net operating income would decrease by $104,000.

- Net operating income would decrease by $16,000. (If the change is implemented, total contribution margin would increase by $44,000 ((74,000 boxes x $6) - (50,000 boxes x $8)). Additional contribution margin of $44,000 -$60,000 in new fixed costs = a net operating income decrease of $16,000.

Which of the following statements apply to companies that sell multiple products? (check all that apply) - The contribution margin ratio approach to target profit analysis would likely be the approach which is more easily applied to such companies. - The contribution margin per unit approach to target profit analysis would likely be the approach which is more easily applied to such companies. - Multiple products will more than likely have different contribution margin ratios for each individual product. - Profits earned will more likely depend on the sales mix of products.

- Profits earned will more likely depend on the sales mix of products. - Multiple products will more than likely have different contribution margin ratios for each individual product. - The contribution margin ratio approach to target profit analysis would likely be the approach which is more easily applied to such companies.

Which of the following items are needed to solve for net operating income at any projected sales volume above the break-even point? (Check all that apply) - Total variable expenses - Projected unit sales - Total contribution margin - Break-even unit sales - Number of units produced - Contribution margin per unit

- Projected unit sales - Break-even unit sales - Contribution margin per unit

When using incremental analysis, which of the following items are considered when making a decision? (Check all that apply.) - The change in sales dollars resulting specifically from the decision - The volume that would occur regardless of the decision - The complete old income statement in comparison to the complete new income statement - The change in cost resulting specifically from the decision - The change in volume resulting specifically from the decision

- The change in sales dollars resulting specifically from the decision - The change in cost resulting specifically from the decision - The change in volume resulting specifically from the decision

Candle Central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units, which of the following statements would be true? (Check all that apply) - The variable cost per unit is $2.40 - Total fixed cost is $1,440. - Total variable cost is $1,200 - Sales are $3,600

- The variable cost per unit is $2.40 $1,440/600= $2.40 per unit - Total variable cost is $1,200 $1,440/600= $2.40 per unit x 500 units = $1,200 total variable cost

Profit = (selling price per unit x quantity sold) - (variable expense per ____ x quantity sold) - ____ expenses.

- Unit - Fixed

If a company with excess capacity has an opportunity to take an order in addition to its regular sales, the sales price per unit must cover which of the following costs? - total fixed costs - Fixed costs per unit for units included in the order - Variable manufacturing cost per unit - Any cost incurred by accepting the order

- Variable manufacturing cost per unit - Any cost incurred by accepting the order

Which of the following must be subtracted from sales to reach the contribution margin? (check all that apply) - Variable overhead - Fixed overhead - Variable direct labor - Variable selling and administrative costs - Fixed selling and administrative costs - Variable direct materials

- Variable overhead - Variable direct labor - Variable selling and administrative costs - Variable direct materials *Note: any variable expense

The contribution margin income statement allows users to easily judge the impact of a change in ____ on profit. (Check all that apply) - Organizational structure - Volume of sales - Total fixed costs - Variable cost per unit - Selling price per unit

- Volume of sales - Total fixed costs - Variable cost per unit - Selling price per unit

Target profit analysis: (check all that apply) - can be calculated using the formula method or the equation method - is one of the key uses of CVP analysis - target profit analysis estimates what sales are needed to obtain the target profit

- can be calculated using the formula method or the equation method - is one of the key uses of CVP analysis

Once the break-even point has been reached, the sale of an additional unit will lead to an increase in contribution margin that is ____ the increase in net operating income. - lesser than - equal to - greater than

- equal to

Exercise 2-5 Computing Total Job Costs and Unit Product Costs Using Multiple Predetermined Overhead Rates [LO2-4] Braverman Company has two manufacturing departments—Finishing and Fabrication. The predetermined overhead rates in Finishing and Fabrication are $25.00 per direct labor-hour and 110% of direct materials cost, respectively. The company's direct labor wage rate is $31.00 per hour. The following information pertains to Job 700: Direct materials Finishing: $485 Fabrication: $110 Direct labor Finishing: $310 Fabrication: $186 Required: 1. What is the total manufacturing cost assigned to Job 700? 2. If Job 700 consists of 15 units, what is the unit product cost for this job?

1. Total Manufacturing Cost: $1,462 2. Unit Product Cost: $97.47 per unit Explained: 1.Find total direct labor hours required for both Finishing and Fabrication Finishing Direct Labor Cost: $310 Direct Labor Wage Rate Per Hour: $31 Total direct labor hours: $310 / 31 = 10 Manufacturing Overhead Applied ($23 per DLH x 10 DLHs): $230 Fabrication 110% x 110 = $121 Total Manufacturing Cost: ($485 + 110) + ($310 + 186) + $250 + $121 = $1,462 2. Find unit product cost. Total Manufacturing Cost: $1,462 Number of units in this job: 10 Unit product cost: $1,462 / 15 = $97.47

Exercise 2-3 Computing Total Job Costs and Unit Product Costs Using a Plantwide Predetermined Overhead Rate [LO2-3] Mickley Company's plantwide predetermined overhead rate is $21.00 per direct labor-hour and its direct labor wage rate is $12.00 per hour. The following information pertains to Job A-500: Direct materials $250 Direct labor $240 Required: 1. What is the total manufacturing cost assigned to Job A-500? 2. If Job A-500 consists of 50 units, what is the unit product cost for this job?

1. Total Manufacturing Cost: $910 2. Unit Product Cost: $18.20 per unit Explained: 1. Find total direct labor hours required. Direct Labor Cost: $240 Direct Labor Wage Rate Per Hour: $12 Total direct labor hours: $240 / 12 = 20 Manufacturing Overhead Applied ($21 per DLH x 20 DLHs): $420 Total Manufacturing Cost: $420 + 250 + 240 = $910 2. Find unit product cost. Total Manufacturing Cost: $910 Number of units in this job: 50 Unit product cost: $910 / 50 = $18.20

Exercise 2-4 Computing Total Job Costs and Unit Product Costs Using Multiple Predetermined Overhead Rates [LO2-4] Fickel Company has two manufacturing departments—Assembly and Testing & Packaging. The predetermined overhead rates in Assembly and Testing & Packaging are $23.00 per direct labor-hour and $19.00 per direct labor-hour, respectively. The company's direct labor wage rate is $25.00 per hour. The following information pertains to Job N-60: Direct materials Assembly: $395 Testing & Packaging: $47 Direct labor Assembly: $250 Testing & Packaging: $25 Required: 1. What is the total manufacturing cost assigned to Job N-60? (Do not round intermediate calculations.) 2. If Job N-60 consists of 10 units, what is the unit product cost for this job?

1. Total Manufacturing Cost: $966 2. Unit Product Cost: $96.60 per unit Explained: 1.Find total direct labor hours required for both Assembly and Testing & Packaging Assembly Direct Labor Cost: $250 Direct Labor Wage Rate Per Hour: $25 Total direct labor hours: $250 / 25 = 10 Manufacturing Overhead Applied ($23 per DLH x 10 DLHs): $230 Testing & Packaging Direct Labor Cost: $25 Direct Labor Wage Rate Per Hour: $25 Total direct labor hours: $25 / 25 = 1 Manufacturing Overhead Applied ($19 per DLH x 1 DLHs): $19 Total Manufacturing Cost: ($395 + 47) + ($250 + 25) + $230 + $19 = $966 2. Find unit product cost. Total Manufacturing Cost: $966 Number of units in this job: 10 Unit product cost: $966 / 10 = $96.60

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company currently sells 1,200 pillows per month and expects that the improved materials would increase sales to 1,500 per month. The impact of this change on total contribution margin would be a(n) (1) (increase/decrease) of $(2). (Enter either increase or decrease and the dollar amount as a whole number.)

1. decrease 2. 3,000

A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating (1). (Enter only one word per blank.)

1. leverage

Click and drag on elements in order Place the following items in the correct order in which they appear on the contribution margin format income statement.

1. sales 2. variable expenses 3. contribution margin 4. fixed expenses 5. net operating income

Profit = (selling price per unit × quantity sold) - ( (1) expense per unit × quantity sold) - (2) expenses. (Enter only one word per blank.)

1. variable 2. fixed

The term "cost structure" refers to the relative proportion of (1) and (2) costs in an organization. (Enter only one word per blank.)

1. variable 2. fixed

Tech Solutions is a consulting firm that uses a job-order costing system. Its direct materials consist of hardware and software that it purchases and installs on behalf of its clients. The firm's direct labor includes salaries of consultants that work at the client's job site, and its overhead consists of costs such as depreciation, utilities, and insurance related to the office headquarters as well as the office supplies that are consumed serving clients. Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 80,000 direct labor-hours would be required for the period's estimated level of client service. The company also estimated $680,000 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firm's actual overhead cost for the year was $692,000 and its actual total direct labor was 83,000 hours. Required: 1. Compute the predetermined overhead rate. 2. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job: Required: 1. Compute the predetermined overhead rate. 2. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job: Direct materials: $38,000 Direct labor cost: $21,000 Direct labor hours worked: 280 Compute the total job cost for the Xavier Company engagement

1.PredeterminedOverheadrate=VariableOverheadRate+FixedOverheadRate= $0.50+($680,000÷80,000)= $9.00​ 2.TotalJobCost=DirectMaterials+DirectLabor+OverheadCost= $38,000+$21,000+($9×280)=$61,520​

The Cutting Edge sells ice skates. Total sales are $845,000, total variable expenses are $245,050 and total fixed expenses are $302,000. The variable expense ratio is ______.

29%

Pool Time reported sales of $1,452,000 last summer. The company incurred variable expenses of $958,320 and fixed expenses of $354,000. Calculate the contribution margin ratio.

34% Contribution margin ratio =($1,452,000 - $958,320)/$1,452,000 = 34%

Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15.00 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is ______.

4,800

Taveras Corporation uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: Machine-Hours 165,000 Fixed Manu Overhead 1,980,000 Variable Manu Overhead 2 - compute the plantwide predetermined overhead rate

POHR= (1980000 +(165000*2))/165000= 14

Tech Solutions is a consulting firm that uses a job-order costing system. Its direct materials consist of hardware and software that it purchases and installs on behalf of its clients. The firm's direct labor includes salaries of consultants that work at the client's job site, and its overhead consists of costs such as depreciation, utilities, and insurance related to the office headquarters as well as the office supplies that are consumed serving clients. Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 85,000 direct labor-hours would be required for the period's estimated level of client service. The company also estimated $935,000 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firm's actual overhead cost for the year was $952,900 and its actual total direct labor was 89,050 hours. Required: 1. Compute the predetermined overhead rate. 2. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job: Direct materials: $44,100 Direct labor cost: $30,800 Direct labor hours worked: 340 Compute the total job cost for the Xavier Company engagement

Required 1. Predetermined Overhead Rate: $11.50 Required 2. Direct Materials: $44,100 Direct Labor: 30,800 Overhead applied: 3,910 Total Manufacturing Cost: $78,810 Explained: Required 1. Find Estimated Total Overhead Cost:$935,000 + ($0.50 x 85,000) = $977,500 Then you find the predetermined overhead rate:$977,500 / 85,000 = $11.50 Required 2. Direct Materials: $44,100 (given) Direct Labor: 30,800 (given) Overhead applied: 3,910 (340 x $11.50) Total Manufacturing Cost: $78,810 (44,100 + 30,800 + 3,910)

Exercise 2-9 Job-Order Costing and Decision Making [LO2-1, LO2-2, LO2-3] Taveras Corporation is currently operating at 50% of its available manufacturing capacity. It uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: Machine-hours required to support estimated production: 245,000 Fixed manufacturing overhead cost: $4,410,000 Variable manufacturing overhead cost per machine-hour: $2.00 Required: 1. Compute the plantwide predetermined overhead rate. 2. During the year, Job P90 was started, completed, and sold to the customer for $4,100. The following information was available with respect to this job: Direct materials: $1,886 Direct labor cost: $1,353 Machine-hours used: 88 Compute the total manufacturing cost assigned to Job P90.

Required 1. Predetermined Overhead Rate: $20 per MH Required 2. Direct Materials: $1,886 Direct Labor: $1,353 Overhead Applied: $1,760 Total Manufacturing Cost: $4,999 Explained: Required 1. First we need to find the estimated variable overhead: $2 per MH x $245,000 = 490,000 Then you add it to the estimated fixed overhead. $4,410,000 + 490,000 = $4,900,000 Then we have to find the Predetermined Overhead Rate. Predetermined Overhead Rate = Estimated Total Overhead / Estimated Total Machine-Hours $4,900,000 / 245,000 = $20 per MH Required 2. Direct Materials: $1,886 (given) Direct Labor: $1,353 (given) Overhead Applied: $1,760 (88 x 20) Total Manufacturing Cost: $4,999 (1,886 + 1,353 + 1,760)

Exercise 2-7 Job-Order Costing; Working Backwards [LO2-1, LO2-2, LO2-3] Hahn Company uses a job-order costing system. Its plantwide predetermined overhead rate uses direct labor-hours as the allocation base. The company pays its direct laborers $18.00 per hour. During the year, the company started and completed only two jobs—Job Alpha, which used 65,400 direct labor-hours, and Job Omega. The job cost sheets for the these two jobs are shown below: Job Alpha Direct materials: ? Direct labor: ? Manufacturing overhead applied: ? Total job cost: $2,302,000 Job Omega Direct materials: $410,600 Direct labor: 561,600 Manufacturing overhead applied: 343,200 Total job cost: $1,315,400 Required: 1. Calculate the plantwide predetermined overhead rate. 2. Complete the job cost sheet for Job Alpha.

Required 1. Plantwide Predetermined Overhead Rate: $11.00 Required 2. Direct Materials: $405,400 Direct Labor: 1,177,200 Overhead applied: 719,400 Total Manufacturing Cost: $2,302,000 Explained: Required 1. First find total direct labor hours worked: direct labor cost / direct labor wage rate per hour $561,600 / $18.00 = $31,200 Then find the Plantwide Predetermined Overhead Rate = Manufacturing Overhead applied to Job Omega / Direct labor hours worked on Job Omega $343,200 / 31,200 = $11.00 Required 2. Numbers not given so you need to do calculations once other numbers are acquired. Direct Materials = Cost - (DL + MO) [we will get back to this] Direct Labor: 18 x 65,400 = $1,177,200 Manufacturing Overhead = 11 x 65,400 = 719,400 Total Job Cost (provided in Job Alpha): 2,302,000 Now we find Direct Materials: 2,302,000 - (1,177,200 + 719,400) = $405,400

Exercise 2-6 Job-Order Costing for a Service Company [LO2-1, LO2-2, LO2-3] Tech Solutions is a consulting firm that uses a job-order costing system. Its direct materials consist of hardware and software that it purchases and installs on behalf of its clients. The firm's direct labor includes salaries of consultants that work at the client's job site, and its overhead consists of costs such as depreciation, utilities, and insurance related to the office headquarters as well as the office supplies that are consumed serving clients. Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 85,000 direct labor-hours would be required for the period's estimated level of client service. The company also estimated $935,000 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firm's actual overhead cost for the year was $952,900 and its actual total direct labor was 89,050 hours. Required: 1. Compute the predetermined overhead rate. 2. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job: Direct materials: $44,100 Direct labor cost: $30,800 Direct labor hours worked: 340 Compute the total job cost for the Xavier Company engagement

Required 1. Predetermined Overhead Rate: $11.50 Required 2. Direct Materials: $44,100 Direct Labor: 30,800 Overhead applied: 3,910 Total Manufacturing Cost: $78,810 Explained: Required 1. Find Estimated Total Overhead Cost: $935,000 + ($0.50 x 85,000) = $977,500 Then you find the predetermined overhead rate: $977,500 / 85,000 = $11.50 Required 2. Direct Materials: $44,100 (given) Direct Labor: 30,800 (given) Overhead applied: 3,910 (340 x $11.50) Total Manufacturing Cost: $78,810 (44,100 + 30,800 + 3,910)

Once the break-even point has been reached, the sale of an additional unit will lead to an increase in contribution margin that is ______ the increase in net operating income.

equal to

A company that has a high margin of safety is:

not likely to incur a loss