5

Which type of cost changes in total, in direct proportion to changes in activity level?

variable

VL Inc. sells its only product for $10 per unit. Variable costs are $4 per unit and total fixed costs are $40,000. The company is currently selling 10,000 units per year. By how much will profits increase if sales increase 1,500 units?

($10 - $4) = $6 CM × 1,500 units = $9,000.

Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 Variable selling and administrative: $8/unit Fixed selling and administrative: $10,000 Units produced: 10,000 Units sold: 6,000

152

Webster, LLC sells its product for $20 per unit. Variable costs are $11 per unit and total fixed costs are $35,000. The company sells 8,000 units per year. Webster's contribution margin ratio is

20-11=9 9/20=45%

Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 Variable selling and administrative: $8/unit Fixed selling and administrative: $10,000 Units produced: 10,000 Units sold: 6,000

30k/10k=3 3+50+75+27=155

The format used to prepare a contribution income statement is Sales -

Variable expenses = Contribution margin - Fixed expenses = Net income

the high low method uses the highest and lowest level of ___ cost

activity

Full absorption costing can have a different bottom line (profit) than variable costing because of

changes in inventory

The formula to calculate the variable cost per unit using the high-low method is

difference in total cost/ difference in activity

Absorption costing and variable costing net operating income will be equal when___

equal when the number of units produced equals the number of units sold equal when there is no beginning and no ending inventory

costs that remain constant in total and vary per unit

fixed

variable component must be computed before fixed costs can be determined. Fixed costs are computed by subtracting the variable cost from the total cost.

high low fixed cost

Net operating income under absorption costing is generally ___ net operating income under variable costing in periods in which inventory increases.

higher than

Y = a + bX terms

y=total a= fixed cost/ intercept b= cost per unit/slope x= level of activity

Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs equal $15 per unit, 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 variable costing is

90

least-squares regression variables if Ax+B

A= variable cost per customer B= total fixed cost

Contribution margin ratio is

Contribution Margin / Sales

The financial statement that organizes costs by their behavior instead of by their function is the

contribution margin income statement

When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead

deferred in the inventory account on the balance sheet

A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called

least squares regression

___ costs have a fixed and variable component

mixed

The unit contribution margin

sales price per unit - variable cost per unit tells how much each additional unit contributes to profit

___ costs are fixed over a fairly wide range of activity

step fixed

Costs that have a fairly narrow range and rise in multiple steps across the relevant range are called

step variable

t/f The equation for a straight line can be used to express the relationship between mixed costs and the level of activity.

t

t/f The relevant range of activity is approximated by a straight line.

t

t/f for high low, the variable cost uses either the high or low point of the data

t

total contribution margin formula

units sold x unit contribution margin