A306 Exam 1 Healy
Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is
($520000+320000) / 21= 40,000
Given a sales price of $100, variable costs of $70 and a break-even point of 500 units, net operating profit for sale of 501 units will be $
(100-70)= $30
A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is
(1430,000*.67)-657000= 301000
A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is $773,000 $958,100 ($185,100) $301,100
(1430000*.67)-657000)=301,100
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
(320,000+200,800) / ($90-$28)= 8,400 units
Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is
(520000+320000) / 21 =40,000
Which of the following are most likely fixed costs? -Factory insurance -Electricity to operate factory machines -Administrative salaries -Factory rent
-Factory insurance -Administrative salaries -Factory rent
Which of the following are most likely fixed costs? -Factory rent -Factory insurance -Electricity to operate factory machines -Administrative salaries
-Factory rent -Factory insurance -Administrative salaries
Indirect labor costs include ______. -assembly-line worker wages -assembly-line supervisor salary -factory security guard wages -administrative assistant salary
-assembly-line supervisor salary -factory security guard wages
Nonmanufacturing costs include -company president's salary -insurance on plant equipment -sales commissions -assembly-line worker wages
-company president's salary -sales commissions
Cost classifications for predicting cost behavior are used on -neither traditional nor contribution format income statements -contribution format income statements only -traditional format income statements only -both traditional and contribution format income statements
-contribution format income statements only
Cost objects include: -anything for which revenue data is desired. -customers. -anything for which cost data is desired. -organizational subunits.
-customers. -anything for which cost data is desired. -organizational subunits.
Period costs ______. -are included as part of the cost of goods -include all costs that are not product costs -flow through the inventory accounts -are expensed in the period incurred
-include all costs that are not product costs -are expensed in the period incurred
As the level of activity moves outside of the relevant range, fixed costs, ___ -do not increase or decrease -Fixed costs do not increase or decrease within the relevant range -increase or decrease in a linear fashion -increase or decrease in discrete steps
-increase or decrease in discrete steps
When making a decision, the decision maker should consider -relevant costs -relevant benefits -irrelevant benefits -irrelevant costs
-relevant costs -relevant benefits
Period costs are always expensed on the income statement in the period in which -the related goods are sold -the cash for the expense changes hands -they are incurred
-they are incurred
The break-even point is reached when the contribution margin is equal to: -total variable expenses. -profit. -total fixed expenses. -total sales.
-total fixed expenses.
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
184,000-85,000=99,000
Company A sold 200,000 units. Selling price is $7 per unit, contribution margin is $4 per unit, and the fixed expenses total $632,000. Company A's profit (loss) is
200,000* $4-632,000= 168,000
Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is Blank______.
30,000 ($40-19)-250000=380000
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 Blank______. 7,625 12,725 5,100
305000/40= 7,625
High low method formula for fixed cost
Highest activity cost- (variable cost per unit * highest activity units)
Given: Sales of $360,000, Gross Margin of $140,000, Contribution Margin of $110,000, and Total Selling & Administrative Exp. of $60,000, net income using the traditional income statement format equals ______. $160,000 $80,000 $190,000 $50,000
Net income= Gross Margin of 140,000- Total Selling & Admin Expenses of 60,000= 80,000
T/F The finished product of one company can become raw materials for another company.
True
How individual costs react to changes in activity level is referred to as cost ____
behavior
Sales revenue minus variable expenses equals ___ _____
contribution margin
Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach. gross margin traditional balance sheet contribution margin
contribution margin
Any item for which cost data is desired is called a(n) ___ ____
cost object
Cost objects include: - customers. - anything for which revenue data is desired. - organizational subunits. - anything for which cost data is desired.
customers, organizational subunits, anything for which cost data is desired
Costs that can be easily and conveniently traced to a specific product are called ___ costs.
direct
A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.
direct materials
To be traced to a cost object such as a particular product, the cost must be incurred to make the product.
false, the cost must be caused by the cost object
Costs that remain constant in total are ______ costs.
fixed
Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the ____
income statement
Salaries of factory supervisors and factory maintenance personnel are examples of Blank______ labor costs.
indirect
Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.
indirect
Minor items such as nails and glue are usually considered to be ____
indirect materials
The best fitting line minimizes the sum of the squared errors when using
least square regression
Direct materials and direct labor are both ____ costs.
manufacturing
Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as
manufacturing overhead
Factory materials, such as cleaning supplies, that are not components of finished products are classified as ____
manufacturing overhead
The accrual concept that costs incurred to generate revenue are expensed in the same period the revenue is recognized is known as the _____ principle.
matching
A cost that contains both variable and fixed cost elements is a(n) ___ cost.
mixed
A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n) ___ ____
opportunity cost
On a traditional income statement, cost of goods sold reports the _____ costs attached to the merchandise sold and selling and administrative expenses report all _____ costs that have been incurred. (Enter only one word per blank.)
product (manufacturing, period
The assumption that cost behavior is strictly linear is reasonably valid within the _______ ______ of activity
relevant range
The variable expense ratio equals variable expenses divided by -net income -sales -fixed expenses -contribution margin
sales
Which type of cost changes in total, in direct proportion to changes in activity level? -Variable -Fixed -Differential -Opportunity
variable
CM ratio is equal to 1 - ______ ______ ratio.
variable expense
A company's current sales are $300,000 and fixed expenses total $85,000. 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
(70,000*.30)-15,000= 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
(735,000-700,000)*.45-8,000 = 7,750
Chrissy's Cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, Chrissy's profit (loss) is
(832000*.72)-265000= 334040
Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $
(9,000*32)-120,000= 168,000
Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $____
(9000*32)-120,000=168,000
High low method formula for variable cost per unit
(highest activity cost-lowest activity cost)/(highest activity units- lowest activity units)
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.
At the break-even point - the company is experiencing a loss - net operating income is zero - total revenue equals total cost - the company is earning a profit
- net operating income is zero - total revenue equals total cost
Which of the following are differences between the traditional and contribution format to income statements? -The traditional income statement is for internal use, while the contribution format income statement is for external use. -Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. -Contribution format statements make it easier to predict how decisions affect the future.
-Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. -Contribution format statements make it easier to predict how decisions affect the future.
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. -The traditional income statement is for internal use, while the contribution format income statement is for external use. -Contribution format statements make it easier to predict how decisions affect the future.
-Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. -Contribution format statements make it easier to predict how decisions affect the future.
Which of the following is needed to calculate profit? -Unit contribution margin, unit sales, and total fixed costs -Unit contribution margin and total fixed costs -Contribution margin ratio and total fixed costs -Contribution margin ratio, unit sales, and total fixed costs
-Unit contribution margin, unit sales, and total fixed costs
Differential cost is ______. -also known as incremental cost -never relevant to a product decision -the same as opportunity cost -the difference in cost between two alternatives
-also known as incremental cost -the difference in cost between two alternatives
The break-even point is reached when the contribution margin is equal to: -total sales. -total variable expenses. -total fixed expenses. -profit.
-total fixed expenses.
Anne's Antique Store has a contribution margin ratio of 29%. The break-even point has been reached. If the store generates an additional $600,000 of sales for the year, net operating income will increase by
174,000
Labor costs that can be easily and conveniently traced to specific products are ___ costs
direct labor
The materials that go into the final product are called ____ materials.
raw
The variable expense ratio is the ratio of variable expense to ___
sales
The variable expense ratio is the ratio of variable expense to___ net operating income the contribution margin sales fixed expense
sales
Cost of goods sold for a merchandising company, direct materials and commissions are all examples of _____ costs.
variable
When using the high-low method, the slope of the line equals the _____ cost per unit of activity.
variable
The contribution margin income statement allows users to easily judge the impact of a change in __ ___ and __ on profit.
volume, cost, selling price