ch 2

If a company has a variable expense ratio of 35%, its CM ratio must be __

65

a factor that causes overhead costs is called a ...

cost driver

formula for pre-determined overhead rate

estimate total manufacturing overhead / estimated total amount of the allocation

break even point formula

fixed costs / cm per unit

when is break-even point reached

contribution margin = total fixed expenses

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 ___

- (target profit + fixed costs) / cm - 40,000

overhead applied to the job calculation

predetermined overhead rate * actual allocation base incurred by a job

overhead application

process of assigning manufacturing overhead cost to jobs

what does contribution margin become after fixed expenses are covered

profit

for reach unit sold above break-even, what happens to profit

profit increases by the margin

what does the term "cost structure" refer to

relative proportion of fixed and variable costs in an organization

total manufacturing overhead tends to...

remain fairly constant

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 __

(change in sales - current sales)) - fixed expenses - increase by 6000 (70,000*30%)-1500

profit calculation

(cm ratio * sales) - fixed expenses - change in profit = CM ratio * change in sales - change in fixed expenses

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 ___

- cm ratio * total sales ) - fixed expenses - 301,100

what are the most widely used allocation bases in manufacturing

- direct labor - hours - direct labor costs - machine-hours - units of product

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK-EVEN?

- fixed costs / cm (unit $ - variable expenses) - 2800

company with lower fixed costs and higher variable costs...

- greater profit stability - lower net income in good years - better protection from loss in bad years

a company w 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

what are the categories of manufacturing costs

- manufacturing overhead - direct labor - direct materials

Murphy Manufacturing estimated total manufacturing overhead for the year to be $100,000 and that 5,000 direct-labor hours would be used. Actual overhead was $120,000 and actual direct labor-hours were 7,500. The overhead applied to a job completed during the year that used 200 direct labor-hours was

- predetermined overhead rate = 100,000/5000 direct labor hours = $20 per direct labor hours * 200 direct labor hours = $4000

at the break even point...

- total revenue equals total cost - net operating income is 0

variable expense ratio formula

- variable expenses / sales - ratio of variable expense to sales

contribution margin formula

CM = sales - variable expenses

contribution margin ratio formula

Contribution Margin / Sales

net operating income formula

NOI = contribution margin - fixed expenses

what should an allocation base be

a cost driver - factor such as machine-hours, bed occupied that causes overhead costs

what is a time ticket

a document that is used to record the amount of time an employee spends on various activities

when does cost-plus pricing occur

a markup percentage is added to the cost of a job

plantwide overhead rate

a single predetermined overhead rate that is used throughout a plant

margin of safety

amount by which sales can drop before losses are incurred

Companies use a predetermined overhead rate rather than an actual overhead rate because

an actual rate is not known until the end of the period

When is the predetermined overhead rate calculated?

before the period begins

allocation base

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

what does a higher margin of safety mean

the lower the risk of incurring a loss

sales mix

the term used for the relative proportion in which a company's products are sold

Why is the unit product cost different from the cost that would be incurred if another (additional) unit were produced?

the unit product cost is an average not an incremental cost

Jones Company uses a job-order costing system with a predetermined overhead rate of 120% of direct labor cost. The job cost sheet for Job #420 listed $4,000 in direct materials cost and $5,000 in direct labor cost to manufacture 7,500 units. The unit cost of Job #420 is

total cost of #420 = direct materials + direct labor + overhead (predetermined overhead rate * direct labor cost) = $4000 + $5000 + 1.2 * $5000 = $15,000 unit product cost = $15000 / 7500 units = $2/unit

when using high-low method, what does the slope of the line equal

variable cost per unity of activity

what is CM ration equal to

variable expense ration

average manufacturing overhead per unit tends to...

vary from one period to the next