Ch 17, 18, 19

The contribution margin ratio is interpreted as the percent of:

each sales dollar that remains after deducting unit variable cost

When units produced are less than units sold, net income computed under variable costing will be ______ (greater, less) than net income computed under absorption.

greater

Sales mix is the proportion of _____ for various products.

sales volume

A contribution margin income statement shows:

sales-variable costs

Each of the following are methods used to separate mixed costs into their fixed and variable components except:

low-high method

When units produced are greater than units sold under variable costing, fixed overhead is an expense and results in ______ (lower, higher) net income than under absorption costing.

lower

A ______ cost includes both fixed and variable components.

mixed

When using the high-low method, the slope represents:

the variable cost per unit

The departmental overhead rate method allows individual departments to have

their own overhead rate and allocation base.

Differences in income between variable costing and absorption costing is due to

timing

The high-low method uses ___ points to estimate the cost equation.

two

Activities which are focused at the unit level are called

unit level activities

The cost object of the cost assignment under the plantwide overhead rate method is the

unit of product

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a target income of $20,000. The sales level in dollars to achieve the desired target income is $______

125000

The Factory Services Department incurs costs of $130,000 while maintaining machinery that is operated 1,000,000 machine hours. If Job 276 requires 1,500 machine hours, the amount of costs allocated to the job will be $ ______

195

RST Company produces a product that has a selling price of $10 per unit and variable cost of $6 per unit. The company's fixed costs are $30,000. If the company sells 15,000 units, the degree of operating leverage is

2

A company sells 800 units at $16 each, has variable costs of $12 per unit, and fixed costs of $1,200. Income is $______

2000

A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a target income of $10,000. The sales level in dollars to achieve the desired target income is $______

26000

A company produces a product with a contribution margin per unit of $36. If the company incurs $62,000 in total fixed costs and expects to sell 2,500 units their income would be $______

28000

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin per unit is $ ______

4

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin ratio is ______%

40

The Production Department incurs costs of $250,000 while working 12,500 direct labor hours. If Job 421 requires 25 direct labor hours to assemble, the amount of overhead allocated to the job will be $

500

Cost information from ______ (neither, both) costing method(s) is helpful to management in setting prices.

both

An income statement which separately reports variable costs from fixed costs is known as a(n)

contribution format

An income statement which shows the excess of sales over variable costs is referred to as a ______ ______ income statement.

contribution margin

Sales minus variable costs is called ______ ______

contribution margin

The percent by which a product's unit selling price exceeds its total unit variable cost is the:

contribution margin ratio.

A ______ format income statement reports variable costs separately from fixed costs.

contribution or contribution margin

When preparing a scatter diagram, the estimated line of cost behavior is drawn on a scatter diagram to show the relation between:

cost and unit volume

Cost-volume-profit analysis helps managers predict how changes in ______ and ______ levels affect income.

cost; sales

All of the following are types of activities which cause overhead except:

customer-level

Regardless of whether variable costing or absorption costing is used, if quantity produced differs from quantity sold, income will be ______ (similar, different, indeterminable).

different

When using absorption costing when production is greater than sales, a portion of fixed overhead is allocated to:

ending inventory

When units produced equals units sold, income under variable costing as compared to net income under absorption costing will be

equal to

Production planning is important because producing too much can lead to ______ (excess, insufficient) inventory.

excess

A system of rewarding managers by linking bonuses to income computed under absorption costing may result in:

excess inventory buildup

A ______ cost remains unchanged when the volume of activity changes within the relevant range.

fixed

Under absorption costing, fixed overhead is allocated to products sold, so when production is greater than units sold, net income will be ______ (greater, less) than income calculated under variable costing.

greater

The first step in applying activity-based costing is

identifying the activities.

CVP analysis looks at how ______ is affected by sales price per unit, variable costs per unit, volume, and fixed costs.

income or profit

Assuming all other factors remain constant, if variable cost per unit increases, then the break-even point will:

increase

A company has a degree of operating leverage of 2.5. If sales increase by 10%, then profits will:

increase by 25%

Managers should accept special orders if the special-order price

is greater than variable cost

The plantwide and departmental overhead rate methods are based on readily available information such as direct _____ hours or _____ hours.

labor; machine

A statistical method of identifying cost behavior that is computed using spreadsheet programs or calculators is:

least-squares regression

When units produced are greater than units sold, variable costing net income will be ______ (less, greater) than net income calculated under absorption costing.

less

Over the ______ run, selling prices must cover both fixed and variable costs.

long

Jack works on the production line at an assembly plant. Jack receives a base salary plus $1.25 per unit assembled. This is an example of a ______ cost.

mixed

CVP analysis relies on all of the following assumptions except:

mixed costs can be used

One of the characteristics of activity-based costing is that it allows ______ (more, less) effective control over costs.

more

If a company uses activity-based costing, the most appropriate cost driver for the production department would be the:

number of direct labor hours

Each of the following are types of ______ allocation methods: plantwide rate method, departmental overhead rate method and activity-based costing method.

overhead

The weakness of the departmental and the plantwide overhead rate methods is that

overhead cost is often too complex to be explained by direct labor hours or machine hours.

Sales mix is the ______ (volume/proportion/mix) of the sales volume for each product.

proportion

Contribution margin is the excess of

sales - variable costs.

In activity-based costing, activities in each cost pool should be (similar / dissimilar) ______

similar

When using activity-based costing, it is very important that the activities in each cost pool are

similar

The break-even point can be expressed as sales in ______ or ______

units; dollars

A company has the following activities and costs: machine setup of $5,000 per setup and factory services of $100 per square foot. If product 1 uses 2 setups and has 10,000 square feet, overhead allocated to product 1 is $

$1,010,000

A company has a margin of safety of 20%. If expected sales are $50,000, then break-even sales are:

$40,000

Scatter diagrams - High-low method -

-Based on visual fit and subject to interpretation -Uses only two sets of values

Fixed - Variable - Mixed -

-Depreciation -Direct Materials -Water and electricity

Fixed - Variable - Mixed -

-Office salaries -Sales rep pay which includes salary plus commission -direct materials

Strengths of the departmental overhead rate method and the plantwide overhead method include all of the following: (Check all that apply.)

-They comply with GAAP. -They are based on readily available information. -They are easy to implement.

Advantages of the activity-based costing include: Check all that apply.

-accurate assignment of costs to products -more effective overhead cost control -better production and pricing decisions

Maker's Company produces a product that has a variable cost of $4 per unit. The company's fixed costs are $40,000. The product sells for $12 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $3, but increase fixed costs by $5,000. The revised break-even point in dollars is $______

60000

A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. The contribution margin ratio is ______%

64

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $4, but increase fixed costs by $15,000. The revised break-even point in dollars is $______

75000

When units produced equals units sold, income under absorption costing will be ______ (>,<,=) net income under variable costing.

=

______ (absorption, variable) costing is acceptable for external reporting under U.S. GAAP.

Absorption

Which costing method can be helpful to management in setting prices because it reflects full costs that sales must exceed for the company to be profitable?

Absorption costing

A report which focuses on individual customers and shows total profit margin generated by specific customers is known as a ______ profitability report.

customer

A report which focuses on providing gross profit margin per customer, is referred to as a

customer profitability report.

True or false: On a scatter diagram, costs are plotted on the horizontal axis.

False

True or false: The plantwide overhead rate method uses multiple rates to allocate overhead costs to products.

False

Assuming all other factors remain constant, if sales price per unit increases, then the break-even point will:

decrease

The ______ overhead rate method uses a different overhead rate per production department.

departmental

The overhead rate method which uses a different overhead rate for each department is the

departmental method

______ (Identifying, Assigning,Tracing) activities is the first step in applying activity-based costing.

Identifying

A statistical method for identifying cost behavior is called ______

Least-squares regression

Which of the following is the correct statement about fixed costs?

The fixed cost per unit will decrease when volume increases.

Which of the following is the correct statement about variable costs?

The variable cost per unit does not change when volume changes.

True or false: One of the advantages of the departmental overhead rate method over the plantwide overhead rate method is that in the departmental overhead rate method, individual departments can have their own overhead rate and allocation base.

True

True or false: The cost object of the plantwide overhead rate method is the unit of product.

True

True or false: The departmental overhead rate method uses a three-step process where costs are assigned to cost pools in the first step and overhead is allocated to cost objects in the last step.

True

True or false: When units produced are less than units sold, net income under absorption costing will be less than net income computed under variable costing.

True

______ (Unit, Batch, Product) activities are performed on each product unit.

Unit

The costing system which is considered acceptable for external reporting under U.S. GAAP is

absorption costing

In order for a service provider to use activity-based costing, they should classify costs by ____ level

activity

The basic principle of activity-based costing is that a(n) ______ is what causes overhead cost to be incurred.

activity

The basis of the activity-based costing method is a(n)

activity

ABC can be used by service providers who usually classify costs by

activity level

A ______ cost changes in proportion to changes in volume of activity.

variable

In ______ costing, only costs that change in total with changes in production levels are included in product costs.

variable

Service firms should focus on _____ costs in managerial decisions.

variable

Under a _____ costing income statement, only variable costs related to production are included in product costs.

variable

Under the ______ (absorption,variable) costing method only variable costs are assigned to products.

variable

Since service firms do not produce inventory, they should focus primarily on

variable costs.

Managers make assumptions in CVP analysis. These assumptions include: (Check all that apply.)

-costs can be classified as variable or fixed. -costs are linear within the relevant range.

production - setup - factory services - design -

-direct labor hours -Number of setups -square feet -Number of design changes

The break-even point is the sales level at which a company: (Check all that apply.)

-has income of $0. -contribution margin equals fixed costs.

Makum Company is using a traditional (absorption) costing system. Which of the items below would you see on Makum's income statement?

-net income -cost of goods sold -gross profit

Makum Company is using variable costing. Which of the items below would you see on Makum's income statement?

-net income -variable expenses -contribution margin

Which of the following are a type of overhead allocation method? (Check all that apply).

-plantwide overhead rate method -departmental overhead rate method -activity-based costing method

If management incentives are tied to income under absorption costing, which of the following may occur:

-possible obsolescence -increased storage costs. -increased financing costs

The three methods used to classify costs into their fixed and variable components includes

-regression -high-low method -scatter diagrams

The margin of safety is: (Check all that apply.)

-the difference between expected sales and break-even sales divided by expected sales. -the amount sales can drop before the company incurs a loss.

Activities causing overhead include all of the following:

-unit-level -facility-level -batch-level

The variable costing method includes all of the following costs (select all that apply):

-variable overhead -direct labor -direct materials

LMN Company produces a product that sells for $1. The company has production costs of $600,000, half of which are fixed costs. Assuming production and sales of 750,000 units, the contribution margin per unit is $ ______

0.6

Commonwealth Company has the following unit costs: direct materials $2, direct labor $4, variable overhead $1, fixed overhead $3. Under the absorption costing method, what is the total unit cost?

$10

Loudon Company has the following unit costs: direct materials $6, direct labor $3, variable overhead $2, fixed overhead $1. Under absorption costing, total unit cost is:

$12

Landen Company uses a single plantwide overhead rate based on direct labor hours. Total budgeted overhead costs are $200,000. Total budgeted direct materials are $50,000 and total budgeted direct labor hours are 80,000. What is the plantwide overhead rate per direct labor hour?

$2.50

Spring Company uses activity-based costing to allocate their overhead costs. Setup costs of $100,000 are based on number of setups. Factory services of $65,000 are based on square footage. Spring Company has identified 500 setups and has 10,000 square feet in their factory. What is the activity rate for the setup activity cost pool.

$200.00

Jackson Company uses activity-based costing to allocate their overhead costs. Setup costs of $850,000 are based on number of batches. Design modification costs of $155,000 are based on number of design changes. Jackson Company has identified 40,000 batches and has 5,000 design changes in their factory. What is the activity rate for setup.

$21.25

A company uses the departmental overhead rate method. Total overhead costs are $6,000,000. Of this total, the machining department is assigned overhead costs of $4,000,000 and the assembly department is allocated the remainder. The machining department uses machine hours as their allocation base and has 80,000 machine hours. The assembly department uses direct labor hours as their allocation base and has 50,000 direct labor hours. Calculate the overhead rate for the assembly department.

$40 per direct labor hour

Johnson Company has the following overhead costs: machine setup $25,000; factory services $10,000; design of $15,000; and selling expenses of $5,000. What is the total overhead costs using activity-based costing?

$50,000.

A company uses the departmental overhead rate method. Total overhead costs are $5,000,000. Of this total, the machining department is assigned overhead costs of $4,000,000 and the assembly department is allocated the remainder. The machining department uses machine hours as their allocation base and has 80,000 machine hours. The assembly department uses direct labor hours as their allocation base and has 50,000 direct labor hours. Calculate the overhead rate for the machining department.

$50.00 per machine hour

The departmental overhead rate method uses a three-step process to allocate cost objects. List these steps in the correct order

1. Assign overhead costs to departmental costs pools 2. Select an allocation base and compute overhead allocation rate for each department 3. Allocate overhead costs to cost objects