ACCT 202 Exam 3 Rakow Loyola Chicago
A
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 A. contribution margin B. balance sheet C. gross margin D. traditional
Activity rate
A predetermined overhead rate in an activity-based costing system
$5,000 (NOI = (10 - 6) x 10000 - 35000 = 5000)
A product has a selling price of $10 per unit, variable expenses of $6 per unit, and total fixed costs of $35,000. If 10,000 units are sold, what is net operating income?
Unit, batch, product, facility
In order from small to large, what are the four levels in the hierarchy of activities?
variable
The number of units produced does not affect net operating income when using _____ costing.
Increase in $ Sales x CM Ratio
The impact on NOI/profit of any given dollar change in total sales =
Absorption costing
The method that treats all costs of production as product costs, regardless of whether they are variable or fixed.
Cost structure
The relative proportion of fixed and variable costs in an organization.
traceable
The segment margin equals the segment's contribution margin less the segment's _____ fixed costs.
TP = CM Ratio x Sales - FC (solve for Sales)
To compute the target profit in terms of sales dollars you use either of these equations:
B
Total contribution margin equals _____ A. variable expenses plus net operating income B. fixed expenses plus net operating income C. total sales minus fixed expenses D. total sales minus net operating income
B
Under variable costing, the cost of a unit of inventory does not contain _____. A. direct materials B. fixed manufacturing overhead C. variable manufacturing overhead D. direct labor
B
To simplify CVP calculation, it is assumed that _____ will remain constant A. Total contribution margin B. Selling price C. Unit fixed cost D. Total variable cost
C
Unit-level activities are: A. Performed for specific customers B. Performed for each group of units C. Proportional to the number of units produced D. Related to specific products produced
(TP+FC)/CM (u)
What one formula should you use to find both unit TP and unit BEP? (for anyone else using my quizlet, this is what I am going to use but there are other options if you prefer)
A
When a segment cannot cover its own costs, that segment should _____. A. probably be dropped B. be combined with another profitable segment C. recalculate its segment margin without including common fixed costs
two
The allocation of overhead costs in ABC uses a _____-stage process.
Margin of safety
The amount that sales can decrease before losses would be incurred
Total fixed expenses
The break-even point is reached when the contribution margin is equal to _____
Sales - VC = CM - FC = NOI
The contribution income statement equation
Sales mix
The relative proportion in which a company's products are sold.
0
To use a TP formula/equation to find BEP, input _____ for TP.
Organization-sustaining
Activities that occur regardless of which customers are served, which products are produced, or how many batches are run or units made are facility-level or _____-_____ activities
FC/Units Produced
Fixed MOH =
absorption; variable
Fixed manufacturing overhead costs are expenses as units are sold as part of Cost of goods sold under _____ costing, and expenses in full with period costs under _____ variable costing.
D
Fixed manufacturing overhead costs are included as part of the Work in Process inventory under _____. A. neither variable and absorption costing B. both variable and absorption costing C. variable costing only D. absorption costing only
absorption; variable
For external reporting, income statements are generally prepared using _____ costing, which _____ costing is used for internal decision making purposes.
68 (19 + 40 + 9 = 68; Selling and administrative costs are not product costs. Under variable costing, fixed OH is also not a product cost)
Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced, and variable selling and administrative expense is $13 per frame sold. The company produces 5,000 units each month and the total fixed manufacturing overhead cost per month is $15,000. The unit product cost of each frame using variable costing is $_____.
constant
In CVP analysis, we can assume that selling price is _____.
Margin of Safety/Total Sales
Margin of Safety % =
Total Sales - BEP Sales
Margin of Safety =
A, D
When a segment is eliminated, a _____. A. common fixed cost will remain unchanged B. traceable fixed cost will remain unchanged C. common fixed cost will disappear D. traceable fixed cost will disappear
traceable; common
When building a segmented income statement, fixed costs should be separated into _____ and _____.
C
When units sold exceeds units produced, net income under variable costing will generally be _____ net income under absorption costing. A. lower than B. equal to C. higher than
units produced
When using absorption costing, fixed manufacturing overhead cost per unit = Total fixed manufacturing overhead divided by _____.
Variable costing
Which method is best suited for CVP computations?
low fixed cost
Companies with _____ _____ _____ structures enjoy greater stability in income across good and bad years.
Margin of Safety/Unit Selling Price
Margin of Safety in units =
45% (85.05 / 189 = 0.45 = 45%)
Seating Galore sells high-end desk chairs. The variable expense per chair is $85.05 and the chars sell for $189.00 each. What is the variable expense ratio for Seating Galore?
CM - Traceable FC
Segment Margin =
variable
Segment contribution margin equals segment revenue minus the _____ expenses for the segment.
batch
Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of _____-level activities
Activity-based costing
What does ABC stand for?
B
Which tool can be used to easily calculate the change in profit resulting for a change in sales price, sales volume, variable costs, or fixed costs? A. Return on investment B. CVP analysis C. Fixed cost analysis D. Variable expense ratio
B
Why is CVP analysis more difficult when using absorption costing than when using variable costing? A. CVP analysis requires costs to be broken down into product and period costs, which is not done in absorption costing B. CVP analysis requires costs to be broken down between variable and fixed which is not done in absorption costing C. Selling and administrative costs are ignored when performing CVP analysis D. Fixed manufacturing overhead is ignored when performing CVP analysis
Product
Activities such as research and development that are not dependent on the number of units or batches are _____-level activities
external reporting
Absorption costing is preferred by some managers to use for
product
Absorption costing treats fixed manufacturing overhead as a _____ cost.
Degree of Operating Leverage x % Change in Sales
% Change in NOI =
higher
A (higher/lower) Degree of Operating Leverage is preferable.
Activity dictionary
A complete listing of the activities identified and used in the ABC system with how the activities will be measured.
Where the total revenue and the total expense lines intersect
In a CVP graph, where is the break-even point?
allocation base
In activity-based costing, an activity measure is a(n)
Activity cost pool
A "bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system
$360,000 ((900000/30000) x 12000 = 360000)
A company assigns overhead using a plantwide rate. If total estimated manufacturing overhead is $900,000 and the total estimated activity is 30,000 machine-hours, what is the overhead cost assigned to a product using 12,000 machine-hours?
A, B
Absorption costing and variable costing net operating income will be equal when _____. A. the number of units produced equals the number of units sold B. there is no beginning and no ending inventory C. there is a change in ending, but not beginning, inventory D. the change in beginning inventory is greater than the change in ending inventory
increase (because variable and fixed costs are lumped together)
Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will _____ in total as the number of units produced increases.
Selling and Administrative Expenses
Absorption costing includes what as period costs?
DM, DL, Variable OH, Fixed OH
Absorption costing includes what in the cost of a unit of product?
traceable; common
Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax for the store is a(n) _____ fixed cost for the store, and a(n) _____ fixed cost for each product line sold in the store.
11,834.25 ($76.35 x 155 = $11,834.25)
Blink sells and manufactures frames for eyeglasses. The unit product cost for fram #47320 is $76.35. Last period, Blink produced 200 frames and sold 155 of them. Total cost of goods sold equals $_____.
Profit = 0 and CM = FC
Break-even point is when
C, D, E
CVP analysis allows companies to easily identify the change in profit due to changes in: A. Location B. Management C. Volume D. Selling price E. Costs
selling prices, sales volume, unit variable costs, total fixed costs, mix of products sold
CVP analysis helps managers understand the interrelationships among cost, volume, and profit by focusing on what 5 things?
$130,000 (NOI = (25000 - 15000) x ($25 - $12) = 130000; for every unit above break-even, profit increases by the contribution margin per unit)
Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, what is net operating income?
$334,040 (CM ratio x Sales = CM; 0.72 x 832000 = 599040; CM - Fixed expenses = Profit/Loss; 599040 - 265000 = 334040)
Chrissy's Cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, what is Chrissy's profit (loss)?
B, C, D
Common mistakes made by companies when assigning costs to segments include _____. A. inappropriately allocating variable costs B. arbitrarily allocating common fixed costs C. omitting costs that should be included D. inappropriately assigning traceable fixed costs
$380,000 (NOI = 30000 x ($40 - $19) - $250000 = $380000)
Daisy's Dolls sold 30,000 dolls this year for $40 each. Each doll's variable cost was $19. If Daisy incurred $250,000 of fixed expenses, what is net operating income for the year?
CM/NOI
Degree of Operating Leverage =
A, C
Departmental overhead rates: A. May use different allocation bases in different departments B. Usually have multiple predetermined overhead rates for each department C. May not assign overhead correctly when a company has a range of products D. Work well with complex overhead costs
A
Once the break-even point has been reached, the sale of an additional unit will lead to an increase in contribution margin that is _____ the increase in net operating income A. equal to B. less than C. greater than
2, 5, 1, 4, 3
Place the following items in order to construct a contribution format income statement. 1. Contribution margin 2. Sales 3. Net operating income 4. Fixed expenses 5. Variable expenses
A, D
Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales, _____ A. total contribution margin will increase by $0.70 B. net operating income will increase by $0.30 C. total contribution margin will increase by $0.30 D. net operating income will increase by $0.70
$2.10 per machine hour
Using an ABC system, a company has estimated overhead of $2,100,000. They expect to use 1,00,000 machine hours and 500,000 labor hours. ABC has identified this as a machine-hour related activity. What is the activity rate for this activity?
VC/Sales
VC ratio =
1
VC ration + CM ratio =
Sales volume
When preparing a CVP graph, the horizontal axis represents what?
substantially; substantially; high; increasing
Write the correct word from the parentheses: The cost of implementing an ABC system may outweigh the benefits. However, the benefits are more likely to outweigh the costs when: - Products (don't/slightly/substantially) differ in volume, batch size, and in the activities they require. - Conditions have (not/slightly/substantially) changed since the existing system was established. - Overhead costs are (low/high) and (decreasing/increasing) and nobody seems to understand why.
D (An increase in selling price of $5 will increase the contribution margin $5 (from $27 to $32). The increased contribution margin of $74,000 ((10,750 x $32) - (10,000 x $27)) - the additional fixed cost of $50,000 = a profit increase of $24,000)
A company is currently selling 10,000 units of product monthly for $40 per unit. The unit contribution margin is $27. The company believes that spending $50,000 per month on advertising will allow them to increase the selling price to $45 and that sales will increase by 750 units per month. The company should _____ A. accept the idea because profit will increase by $3,750 B. reject the idea because profit will decrease by $29,750 C. accept the idea because profit will increase by $74,000 D. accept the idea because profit will increase by $24,000
high fixed cost
A disadvantage of a _____ _____ _____ structure is that income will be comparatively lower in bad years.
Traceable Fixed Cost
A fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated.
Common Fixed Cost
A fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments.
high; low
Activity-based costing shifts costs from _____-volume products to _____-volume products.
B
Activity-based costing: A. Excludes direct labor from product costs B. Computes product costs in the same manner as traditional costing C. Only considers manufacturing overhead when computing product costs D. Always leads to higher product costs than traditional costing
Eliminating waste and reducing delays and defects
Activity-based management focuses on what?
high fixed cost
An advantage of a _____ _____ _____ structure is that income will be comparatively higher in good years.
B
An example of a traceable fixed cost for General Motors' Corvette Division is the _____. A. direct materials used in the production of the Corvettes B. depreciation cost on the equipment used to manufacture the Corvettes C. salary of the General Motors Chief Executive Officer D. utility costs of the General Motors corporate headquarters
common
An otherwise profitable segment may appear to be unprofitable if _____ fixed costs are allocated to it.
A
Arbot Co. manufactures appliances at three manufacturing facilities in the US. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and or each product manufactured in the plant. The salary of each plant manager is a _____ for the individual product lines made in the plant. A. traceable fixed cost to the plant and a common fixed cost B. common fixed cost for both the plant and C. common fixed cost for the plant and a traceable fixed cost D. traceable fixed cost for both the plant and
A
Contribution margin _____ A. becomes profit after fixed expenses are covered B. equals sales minus fixed expenses C. is not affected by changes in activity D. is first used to cover variable expenses
variable; absorption
Costs are separated between variable and fixed expenses when using _____ costing, whereas _____ costing separates costs between product and period.
B
Direct labor hours is an accurate allocation base when: A. Overhead costs include setups and testing B. Factors other than direct labor have an insignificant effect on overhead costs C. Management wants a fast and simple way to compute costs
segments
Divisions, product lines, and sales channels are all examples of
segment; contribution
From a decision making point of view, _____ margin is most useful for major capacity decision and _____ margin is most useful for short-term sales volume decisions.
C
Generally, when simplifying an activity based costing system, activities and costs should only be combined if: A. The combined dollar amount is immaterial in amount B. They are labor-based C. They fall within the same level in the cost hierarchy
$30 (100 - 70 = 30; for every unit above break-even, profit increases by the contribution margin per unit)
Given a sales price of $100, variable costs of $70, and a break-even point of 500 units, what is net operating profit for the sale of 501 units?
34% (CM ratio = (1452000 - 958320) / 1452000 = 0.34 = 34%)
Given sales of $1,452,000, variable expenses fo $958,320, and fixed expenses of $354,000, what is the contribution margin ratio?
Net loss
If the total contribution margin is less than the total fixed expenses, what occurs?
Activity
In ABC, any event that causes consumption of overhead resources
linear; variable; fixed
In CVP analysis, we can assume that costs are _____ and can be accurately divided into _____ and _____ elements.
constant
In CVP analysis, we can assume that in multiproduct companies, the sales mix is _____.
unit volume; dollars
In a CVP graph, _____ is represented on the horizontal (X) axis and _____ on the vertical (Y) axis.
the area above the total revenue line but below the total expense line
In a CVP graph, loss is represented by...
the area above the total expense line but below the total revenue line
In a CVP graph, profit is represented by...
total contribution margin; total sales; unit contribution margin; unit selling price
The contribution margin ratio can be found either by dividing _____ by _____ OR dividing _____ by _____.
Two
The costs in the activity cost pools are allocated to products using activity rates and activity measures. This is part of stage _____ in allocating overhead costs to products
B (A special order bulk sale will not increase fixed costs and therefore they should not be considered in setting a price. Variable costs are what will be incurred to complete the order)
The equation that should be used in setting a target selling price for a special order bulk sale that does not affect a company's normal sales is: selling price per unit = ? A. contribution margin per unit divided by fixed cost per unit B. variable cost per unit divided by desired profit per unit C. variable cost per unit divided by fixed cost per unit
Variable costing
The method that treats only those costs of production that vary with output as product costs
B
To calculate the effect on profits of a planned increase in sales, you need the increase in units sold, any change in fixed costs, and... A. selling price B. contribution margin per unit C. contribution margin ratio D. total contribution margin
incremental
When the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision is being made using _____ analysis
A, C
When the number of units produced equals the number of units sold, _____. A. absorption costing net income is equal to variable costing net income B. absorption costing net income is greater than variable costing net income C. under both absorption costing and variable costing, all fixed overhead incurred flows to the income statement D. absorption costing total expense is greater than variable costing total expense D. absorption costing net income is less than variable costing net income E. absorption costing total expense is less than variable costing total expense
C
When units produced _____ units sold, the absorption and variable costing methods report the same net operating income. A. < B. > C. =
B
When units produced _____ units sold, the absorption costing income is greater than variable costing income. A. < B. > C. =
A
When units produced _____ units sold, the absorption costing income is less than variable costing income. A. < B. > C. =
C
When units produced exceeds units sold, net income will generally be _____. A. higher under variable costing than under absorption costing B. the same under both absorption costing and variable costing C. higher under absorption costing than under variable costing
A, B
Which of the following are assumptions of cost-volume-profit analysis? A. In multi-product companies, the sales mix is constant B. Costs are linear and can be accurately divided into variable and fixed elements C. Fixed costs per unit stay the same within the relevant range D. Variable costs per unit increase over the relevant range of activity
A, B, C
Which of the following are reasons that companies are moving away from a plant-wide overhead rate like direct labor? A. A variety of products are made by companies B. Direct labor is no longer directly correlated to overhead for many products C. Many tasks are now done with automated equipment D. Direct labor and overhead are moving in the same direction
common
A fixed cost that supports the operations of more than one segment, but is not traceable in whole or prat to any one segment is a(n) _____ fixed cost.
Operating leverage
A measure of how sensitive NOI/profit is to the percent change in sales.
Segment
A part or activity of an organization about which managers would like cost, revenue, or profit data.
Activity-based costing
A technique that uses numerous allocation bases in an attempt to assign overhead costs more accurately to products than the plant wide and departmental approaches.
$137,500 (250000 x 0.55 = 137500)
Adam's Sports Store has a contribution margin ratio of 55% and has already passed the break-even point for the year If Adam's generates additional sales of $250,000 by the end of the year, by what amount will net operating income increase?
C (Current NOI = ($100 x $250) - $5750 = $19250. With the change, salary becomes a variable cost and net operating income would be: ($100 - $30) x 250 x 150% = $26250, an increase of $7000 per month)
Bluin Corporation pays its salesperson a flat salary of $5,750 per month and is considering paying her $30 per unit instead. Current unit sales are 250 per month, but Bluin believes the compensation change will increase unit sales by 50%. Bluin's current contribution margin is $100 per unit. If Bluin switches the compensation and sales grow as expected, net operating income will _____ per month. A. increase by $1,250 B. decrease by $5,500 C. increase by $7,000 D. decreae by $7,500
TP = Unit CM x Q - FC (solve for Q) OR TP (u) = (TP + FC)/CM (u)
To compute the number of units that must be sold to attain a specified target profit you can use either of these equations:
Activity rates
Total cost of each activity divided by the total activity is the computation of
Fixed OH, Selling and Administrative Expenses
Variable costing includes what as period costs?
DM, DL, Variable OH
Variable costing includes what in the cost of a unit of product?
B
Variable costing income statements are based upon a _____ format. A. traditional B. contribution margin C. product vs. period costs
internal decision making
Variable costing is preferred by some managers to use for
$99,000 (NOI = 184000 - 85000 = 99000)
Vivian's Violins has sales of $326,000, contribution margin of $184,000, and fixed costs totaling $85,000. Vivian's Violins net operating income is _____.
Cost-volume-profit
What does CVP stand for?
Contribution format
What income statement format should be used when building segmented income statements?
Contribution margin
What is leftover to cover fixed costs
Contribution margin divided by sales
What is the contribution margin ratio?
Activity rate x Activity
What is the formula to apply overhead to product?
Variable expenses divided by sales
What is the variable expense ratio?
Variable costing
What method must be used when an income statement is prepared in the contribution format?
A
Which of the following is not generally part of the design of an activity-based costing system? A. Identifying and including all activities that cause overhead costs B. Deciding what activities to include in the costing system C. Creating an activity dictionary that defines the activities to be included in the ABC system D. Determining what method will be used to measure the activities
B, C
Which of the following statements are true? A. ABC costing assumes that overhead resources are consumed in direct proportion to labor or machine hours B. Traditional costing systems can distort product costs C. Products do not all use resources in the same way
improves; increases; homogeneous; activity measures
Write one word per blank: Evaluation of activity-based costing _____ the accuracy of product costs in three ways: 1. It ____ the number of cost pools used to accumulate overhead costs 2. It uses activity cost pools that are more _____ than departmental cost pools 3. It assigned overhead costs using _____ _____ that cause those costs rather than relying solely on direct labor-hours.
