Study Guide Managerial Accounting

The contribution margin ratio is

the same as the profit-volume ratio

Manley Co. manufactures office furniture. During the most productive month of the year, 4,500 desks were manufactured at a total cost of $86,625. In its slowest month, the company made 1,800 desks at a cost of $49,500. Using the high-low method of cost estimation, total fixed costs are

$24,750 - Total Fixed Costs (highest level) = Total Costs - (Variable Cost per Unit × Machine Hours)

Johnson's Plumbing's fixed costs are $700,000 and the unit contribution margin is $17. What amount of units must be sold in order to realize an operating income of $100,000?

Sales (units) = (Fixed Costs + Target Profit) / ​Unit Contribution Margin = ($700,000 + $100,000)​ / $17 = 47,059 units​

Adirondak Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead.

$14.77 per dlh

With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume, and can immediately see the effects of each change on the break-even point and profit. This is called

"what if" or sensitivity analysis

Blackwelder Factory produces two similar products - small lamps and desk lamps. The total plant overhead budget is $640,000 with 400,000 estimated direct labor hours. It is further estimated that small lamp production will require 275,000 direct labor hours and desk lamp production will need 125,000 direct labor hours. Using the single plantwide factory overhead rate with an allocation base of direct labor hours, how much factory overhead will Blackwelder Factory allocate to small lamp production if actual direct hours for the period is 285,000?

$456,000

Pinacle Corp. budgeted $700,000 of overhead cost for the current year. Actual overhead costs for the year were $650,000. Pinacle's plantwide allocation base, machine hours, was budgeted at 100,000 hours. Actual machine hours were 80,000. A total of 100,000 units was budgeted to be produced and 98,000 units were actually produced. Pinacle's plantwide factory overhead rate for the current year is:

$7.00 Per Machine Hour

If fixed costs are $500,000, the unit selling price is $55, and the unit variable costs are $30, what is the break-even sales (units) if fixed costs are increased by $80,000?

Break-Even Sales (units) = Fixed Costs / Unit Contribution Margin = ($500,000 + $80,000) / ($55 - $30) = 23,200 units​​

Lee Industry sales are $525,000, variable costs are 53% of sales, and operating income is $19,000. What is the contribution margin ratio?

Contribution margin ratio = 100% - Variable costs as a percentage of sales Contribution margin ratio = 100% - 53% = 47%

Which of the following are the two most common allocation bases for factory overhead?

Direct Labor Hours and Machine Hours

Activity rates are determined by

dividing the cost budgeted for each activity pool by the estimated activity base for that pool.

Using a plantwide factory overhead rate distorts product costs when:

products require different ratios of allocation-base usage in each production department. significant differences exist in the factory overhead rates used across different production departments. both A and B are true.

Which of the following conditions would cause the break-even point to increase?

unit variable cost increases

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below.

$16,222(Budgeted Activity Cost/Total Activity Base Usage=Activity Rate)

The Dawson Company manufactures small lamps and desk lamps. The following shows the activities per product and the total overhead information:

$39.17

Challenger Factory produces two similar products - regular widgets and deluxe widgets. The total plant overhead budget is $675,000 with 300,000 estimated direct labor hours. It is further estimated that deluxe widget production will need 3 direct labor hours for each unit and regular widget production will require 2 direct labor hours for each unit.

$391,500

Shubelik Company is changing to an activity-based costing method. They have determined that they will use three cost pools: setups, inspections, and assembly. Which of the following would not be used as the activity base for any of these three activities?

Number of Units to be Produced

Activity-based costing can be used to allocate period costs to various products that the company sells.

True

Estimated activity-base usage quantities are the total activity-base quantities related to each product.

True

Managers depend on accurate factory overhead allocation to make decisions regarding product mix and product price.

True

Managers depend on product costing to make decisions regarding continuing operations and product mix.

True

When a plantwide factory overhead rate is used, overhead costs are applied to all products by a single rate.

True

Costs that vary in total in direct proportion to changes in an activity level are called

Variable Costs

Which of the graphs in Figure 21-1 illustrates the behavior of a total fixed cost?

Which of the graphs in Figure 21-1 illustrates the behavior of a total fixed cost?