A306 CH!

A company purchased a 12 month insurance policy on October 1 at a cost of $1,200. On the December 31 annual financial statements:

$300 is reported as a expense and $900 is reported as an asset

Variable Cost % = 36% Fixed Cost = 1,280 What is Revenue need to Breakeven?

(1,280)/(64%)

Break Even point in unit sales w/ increased fixed salaries

(Fixed Expenses + Increase in salaries)/(Unit CM - Invoice Costs)

Net Operating Income

(actual units - break even units) x (Unit CM)

When a company only produces a single product, the total variable cost can be calculated with the equation:

(variable cost per unit) * (quantity of units sold)

Which of the following are differences between the traditional and contribution format to income statements?

- Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. - contribution format statements provide management with a tool to make decision making easier.

Cost objects include:

- anything for which cost data is desired - organizational subunits - customers

ABC costing

- backbone of how most companies allocate fixed costs - use multiple pools to allocate fixed costs

Indirect labor costs include:

- factory security guard wages - assembly-line supervisor salary

CM = 168,000 Units = 14,000 Sale Price = 25 How much will profit increase if 1 additional unit is sold?

168,000/14,000 = 12$

Direct Materials = 200 Direct Labor = 10 hours at 15$ an hour Estimated Overhead = 760,000 Estimated Direct Labor Hours = 20,000 What is the cost?

200 + 10(15) + ((760,000/20,000)*10)

Predetermined Overhead Rate

= (estimated total manufacturing overhead cost) / (estimated total amount of the allocation base)

Selling Price

= (total manufacturing cost) + (Total manufacturing cost * Markup)

Unit Cost

= (total manufacturing cost) / Units

Total Indirect Manufacturing Cost Formula

= Total manufacturing overhead

CM Ratio

CM/Sales

Product Costs =

COGS

Which income statement format would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

Contribution IS

Degree of Operating Leverage

Contribution Margin / Net Operating Income

Return earned on investments, $3,000 per year

Cost Behavior: None manufacturers: None Financial Statement: none Decision Making: opportunity cost

Rental revenue forgone, $30,000 per year

Cost Behavior: None manufacturers: none Financial Statement: none Decision Making: opportunity cost

Rental cost of equipment, $4,000 per month

Cost Behavior: fixed manufacturers: manufacturing overhead Financial Statement: product Decision Making: none

Supervisor's salary, $3,500 per month

Cost Behavior: fixed manufacturers: manufacturing overhead Financial Statement: product Decision Making: none

Depreciation of the annex space, $8,000 per year

Cost Behavior: fixed manufacturers: manufacturing overhead Financial Statement: product Decision Making: sunk cost

Advertising cost, $50,000 per year

Cost Behavior: fixed manufacturers: none Financial Statement: Period Decision Making: none

Rental cost of warehouse, $500 per month

Cost Behavior: fixed manufacturers: none Financial Statement: period Decision Making: none

Direct materials cost, $80 per unit

Cost Behavior: variable manufacturers: Direct materials Financial Statement: product Decision Making: none

Direct labor cost, $60 per unit

Cost Behavior: variable manufacturers: direct labor Financial Statement: product Decision Making: none

Electricity for machines, $1.20 per unit

Cost Behavior: variable manufacturers: manufacturing overhead Financial Statement: product Decision Making: none

Shipping cost, $9 per unit

Cost Behavior: variable manufacturers: none Financial Statement: period Decision Making: none

Total Conversion Costs Formula

Direct Labor + Manufacturing Overhead

Prime Cost

Direct Materials + Direct Labor

Total Prime Cost Formula

Direct Materials + Direct Labor

total direct manufacturing cost formula

Direct Materials + Direct Labor

total variable cost

Direct materials + Direct labor + variable manufacturing overhead + (variable selling expense/sales commission) + variable administrative expense

Break-even point in unit sales

Fixed Expenses / Unit CM

Break Even point in unit sales w/ incentive commission "x"

Fixed Expenses/(unit CM - commission x)

Minor items such as nails and glue are usually considered to be:

Indirect materials

Income Statement

Sales (-) COGS Gross Margin (-) Selling (-) Administrative Net Income

Contribution Margin Income Statement

Sales Variable Expenses: (-) COGS (-) Administrative (-) Selling Contribution Margin Fixed Expenses: (-) Selling (-) Administrative Net Operating Income

selling price per unit

Sales / Quantity Sold

Total Overhead Cost

X part of y=a+bx

margin of safety formula

actual sales - break even sales

Manufacturing Overhead

all manufacturing costs except direct materials and direct labor

Cost behavior:

categorizes costs as fixed, mixed and variable

How individual costs react to changes in activity level is referred to as:

cost behavior

Period Costs

costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued

The difference in costs between two alternatives is called a

differential cost

Product Cost Formula

direct materials + direct labor + manufacturing overhead

Total Manufacturing Costs

direct materials + direct labor + manufacturing overhead

Total Variable Manufacturing Cost

direct materials + direct labor + variable manufacturing overhead

incremental cost

direct materials + direct labor + variable manufacturing overhead

Period costs:

do not flow through inventory accounts

break-even point in sales dollars

fixed expenses / contribution margin ratio

Average manufacturing overhead cost per unit usually varies from one period to the next because:

fixed manufacturing overhead remains constant in total even when production changes

Differential cost is also known as

incremental cost

The contribution margin statement is primarily used for:

internal decision making

Indirect materials and indirect labor are classified as

manufacturing overhead

The manufacturing overhead account contains:

many different kinds of indirect costs

An allocation base is a

measure of activity used to assign overhead costs to products and services

The level of activity within which variable and fixed cost assumptions are valid is known as the

relevant range

Period Cost Formula

selling expense + administrative expense

Total Non-Manufacturing Costs

total Selling expense + Total Administrative Expenses

Direct Labor is also called:

touch labor

Cost of goods sold for a merchandising company, direct materials and commissions are all examples of

variable costs

Formula to determine numerator

y=a+bx y = estimated total fixed manufacturing overhead cost a = estimated total fixed manufacturing overhead cost b = estimated variable manufacturing overhead cost per unit of the allocation base x = estimated total amount of the allocation base