ACCT 2302 exam 2

Which of the following is false with respect to the margin of safety in dollars?

The margin of safety in dollars divided by the selling price per unit equals margin of safety in units

degree of operating leverage

contribution margin/ net operating income

CM ratio:

contribution margin/ sales

% change in NOI

degree of operating leverage x % change in sales

margin of safety percentage

margin of safety in dollars/ total budgeted sales in dollars

Assume a company produces one product that sells $55, has a variable cost per unit of $35, and has fixed costs of $100,000. How many units must the company sell to earn a target profit of $50,000

(FC 100,000+ target profit 50,000) / (product 55-VC 35)$20 = 7,500

Profit

(P x Q - V x Q) - fixed expenses P x Q= selling price per unit x quantity V x Q= variable expenses per unit x quantity sold

Weighted Average Method: Cost per equivalent unit

(cost of beginning work in process + cost added during the period) / equivalent units of production

profit

(sales-variable expenses) - fixed expenses

Dollar sales to attain the target profit

(target profit + fixed expenses)/ CM ratio

unit sales to attain the target profit

(target profit+fixed expenses)/ unit CM

given the same facts, if the company exactly meets its target profit, what will the margin of safety in dollars be?

(total budgeted sales - breakeven sales) 7,500-5,000= 2,500. 2,500x $55 p. unit= $137,500

Dollar sales for company to break even

(traceable Fixed expenses + common fixed expenses) / Overall CM ratio

Which of the following statement is true?

- one minus the CM ratio = the Variable expense ratio - Incremental analysis focuses only on the costs and revenues that change as a result of a decision. - sales commission based on sales dollars can lead to lower profits than commissions based on contribution margin

Which of the following statement is a common assumption underlying cost-volume profit analysis?

-variable cost per unit remains constant - the selling price per unit remains constant - total fixed costs are constant within the relevant range

Kelley company produced 10,000 units and sold 7,000 unit. DM, DL and MOH, and VC were $12, $8, $2, and $1. FC is $80,000

1. $12 + $8 + $2 = $22 2. 7,000 x $22= 154,000

What is the amount of COGS under absorption cost?

1. $50,000 / 10,000= $5 2. $12 + $8 + $2 + $5= $27 3. 7,000 x $27= $189,000

Smith company produces and sells one product for $40 p.unit. No beg inventory. VC is $18 and variable selling and admin expense $4 p.unit. FC $80,000 and selling-admin expense is $20,000. If company sells 8,000 and sells 7,500. NOI in Absorption costing?

1.FC 80,000/Sells 8,000= $10 P.UNIT 2. VC 18 + FC 10= $28 3. 40 - 28= 12 4. 7,500 x 12= 90,000 5. 7,500 x $4= $30,000 6. 90,000 - 30,000= 60,000 7. 60,000 - 20,000= 40,000

Assume the same facts as above in concept check 3. also, assume that $9,900 of material costs and $14,880 of conversion costs were in the beginning inventory and $180,080 of materials and $409,200 of conversion cost were added to production during the period. What is the total cost per equivalent unit using the weighted average method? 2,280 conversion equivalent units and 2,300 material equivalent units.

180,080 + 9,900= 189,980 409,200 + 14,880= 424,080 (189,980/2,300) + ($424,080/2,280) = 268.60

Which of the following statement is true?

A segment CM - traceable fixed expense = Segment margin A segment's traceable fixed cost should include those costs that would disappear over time if the segment disappeared Fixed costs that are traceable to one segment may be common cost of another segment

When company absorption costing NOI to its variable costing NOI, which of the following is true?

Absorption costing is $15,000 higher 1. 3000 x $5 = $15,000 of FC VC expenses the entire $50,000 during the current period.

which of the following statement is true? A. Job order costing and process costing systems both use the same manufacturing account, including manufacturing overhead, raw materials, work in process, and finished goods B. Process costing is used when a company produces a continuously flow of units that are indistinguishable from on another C. Job-order Costing an process costing systems both provide a mechanism for computing unit product cost

All of them are true

Which of the following statement is false? A. the activity in a processing department is performed uniformly on all units passing through the department B. The output of a processing departing is heterogeneous; in other words, all of the units produced are distinct from one another

B

Smith company produces and sells one product for $40 P.unit. the company has no beg inventories. Its variable manufacture overhead cost p.unit is $18 and the variable selling and admin expense p.unit is $4. The FC and selling and admin expense total 80,000 and $20,000. If company produces 8,000 and sells 7,500 units during the year, then NOI under VC would be:

CM p.unit = $18 (40-18-4) sold 7,500 x 18= 135,000 - FC (80,000 + 20,000) 100,000 = 35,000

Assume the selling price per unit is $30, the contribution margin is 40% and the total fixed cost is $60,000. What is the break-even point in unit sales?

CM p/unit is (40% fo $30) = 12 therefor break even point is $60,000/ $12= 5,000

Change in profit

CM ratio x change in sales - change in fixed expense

dollar sales to break even

fixed expenses/ cm ratio

unit sales to break even:

fixed expenses/ unit cm

Dollar sales for a segment to break even

segment traceable fixed expenses / segment CM ratio

Unit CM

selling price per unit - variable expenses per unit

Margin of safety

total budgeted sales - breakeven sales

Weighted Average Method: Equivalent units of production

units transferred to the next department + equivalent units in ending work in process

The contribution margin ratio always increases when:

variable costs as a percent of sales decrease

once a company hits its break-even point, net operating income will:

Increase by an amount equal to the contribution margin per unit multiplied y the number of units sold above the break-even point

Beginning work in process includes 400 units that are 20% complete with respect to conversion 30% complete with respect to materials. Ending work in process includes 200 units that are 40% complete with respect to conversion and 50% complete with respect to materials. If 2,000 units were started during the period, what are the equivalent units of production for the period according to the weighted-average method?

Materials equivalent units are 2,200 units completed and transferred to the next department plus 100 equivalent units in ending work in process (200x 50%) conversion equivalent units are 2,200 units completed and transferred to the next department plus 80 equivalent units un ending work in process inventory (200x40%) Conversion equivalent units = 2,280 and material equivalent units = 2,300 units.

Which of the following statement is true?

Under variable costing, only those manufacturing costs that vary with output are treated as product cost. under absorption costing, fixed manufacture overhead is treated as a product cost under absorption costing, fixed selling and admin expenses are treated as period cost