Chapter 20-21 Accounting Guide

ABC Company has the following data for mixed costs: Total units produced 2,000 units Total costs $30,000 The variable portion of the mixed cost has been calculated at $8.00 per unit. What is the total fixed cost?

$30,000 - ($8.00 x 2,000) = $14,000 fixed cost.

Bold Company has fixed costs totaling $380,000 per month, the variable cost per unit is $100, and the selling price per unit is $260. What is the breakeven point in units?

$380,000 / ($260 - $100) = 2,375 units.

ABC Company sells high quality furniture. The factory supervisor earns $5,000 per month plus $10 for each piece of furniture that is produced defect free. What is the amount paid to the factory supervisor if 200 pieces of furniture are produced this month defect free?

$5,000 + (200 pieces * $10 per piece) = $7,000.

Assume fixed costs total $180,000 per month, the variable cost per unit is $70, and each unit sells for $160. What is the contribution margin ratio (rounded)?

($160 - $70) / $160 = 56%.

Abby Cleaning Service had the following information for the 200 customers served this month: Sales Revenue $20,000 Variable Costs 8,000 What is the contribution margin ratio?

($20,000 in sales - $8,000 in variable costs) / $20,000 in sales = 60% contribution margin ratio.

Jones Company has fixed costs totaling $280,000 per month, the variable cost per unit is $90, and the selling price per unit is $160. How many units must Jones Company sell to earn $140,000 in operating income?

($280,000 + 140,000) / ($160 - $90) = 6,000 units.

Bold Company has fixed costs totaling $380,000 per month, the variable cost per unit is $100, and the selling price per unit is $260. How many units must Bold Company sell to earn $240,000 in operating income?

(Fixed costs + Desired operating income) / Contribution margin per unit. In this case, (380,000 + 240,000) / ($260 - $100) = 3,875 units.

Smith Taxi Service had the following information for the 160 customers served this month: Sales Revenue $13,000 Variable Costs 7,000 Contribution Margin $6,000 What is the average amount charged to each customer (to nearest cent)?

13000 / 160 = $81.25

Jones Company has fixed costs totaling $48,000 per month, the variable cost per unit is $60, and the selling price per unit is $100. How much revenue must Jones Company generate to earn $96,000 in target profit?

= Fixed costs + Target profit / Contribution margin per unit = $48,000 + 96,000 / $100 - 60 = $3,600

Assume that sales are $100,000, variable costs are $40,000, and fixed costs are $10,000. What is the degree of operating leverage?

= Contribution margin Operating income = $100,000 in sales - $40,000 in variable costs / contribution of $60,000 - $10,000 fixed costs = $60,000 / $50,000 = 1.20

Jones Company incurred the following costs while producing 100 chairs: Units produced 100 chairs Direct materials $ 10 per unit Direct labor 15 per unit Variable manufacturing overhead 3 per unit Total fixed manufacturing overhead 2,000 Variable selling and administrative 4 per unit Fixed selling and administrative 8,000 What is the unit product cost using variable costing?

= $10 + $15 + $3 = $28

Jones Company incurred the following costs while producing 100 chairs: Units produced 100 chairs Direct materials $10 per unit Direct labor 15 per unit Variable manufacturing overhead 3 per unit Total fixed manufacturing overhead 2,000 Variable selling and administrative 4 per unit Fixed selling and administrative 3,000 What is operating income using absorption costing if 80 units were sold for $150 each?

= $10 + $15 + $3 + $20 = $48 = $2,000 / 100 = $20

Jones Company incurred the following costs while producing 100 chairs: Units produced 100 chairs Direct materials $10 per unit Direct labor 15 per unit Variable manufacturing overhead 3 per unit Total fixed manufacturing overhead 2,000 Variable selling and administrative 4 per unit Fixed selling and administrative 3,000 What is the ending balance in Finished Goods Inventory using absorption costing if 80 units are sold (assume no beginning inventory in Finished Goods Inventory)?

= $10 + $15 + $3 + ($2,000 / 100 chairs) = $48 There are 20 units left in ending inventory (100 units produced - 80 units sold). In this case, 20 units * $48 cost per unit = $960 in Finished Goods Inventory.

Assumes ABC Company had 50 units in beginning Finished Goods Inventory and sold 1,213 units. Additional data includes: Units produced 1,200 units Direct materials $12 per unit Direct labor 8 per unit Variable manufacturing overhead 2 per unit Fixed manufacturing overhead 7 per unit Using variable costing, what is the dollar amount of ending Finished Goods Inventory?

= $12 + $8 + $2 = $22 = 50 + 1,200 - 1,213 = 37 units =22 x 37 = $814

Assumes Tiger Company had 60 units in beginning Finished Goods Inventory and sold 1,200 units. Additional data includes: Units produced 1,300 units Direct materials $13 per unit Direct labor 9 per unit Variable manufacturing overhead 3 per unit Fixed manufacturing overhead 8 per unit Using variable costing, what is the dollar amount of ending Finished Goods Inventory?

= $13 + $9 + $3 = $25 = 60 + 1,300 - 1,200 = 160 units 25 x 160 = $4,000

Which method is required by GAAP for external financial statements?

Absorption costing

What is the primary difference when calculating the cost per unit between the variable costing and absorption costing?

Absorption costing includes fixed manufacturing overhead as a product cost.

Which of the follow statements is true regarding the relevant range?

All of the statements are true. It is the volume where total fixed costs and variable cost per unit remain constant. Total fixed costs can differ from one relevant range to another. The variable cost per unit can differ in various relevant ranges.

Which statement is true?

An absorption costing income statement calculates gross profit; a variable costing income statement calculates contribution margin.

Abby Cleaning Services planned to provide cleaning services to 50 customers for $30 per hour during the month. Each job was expected to take 4 hours. The company actually served 5 less customers than expected and spent an average on each job of 4.5 hours. What is Abby Cleaning Services Revenue for the month?

Planned revenues for month were 50 customers x $30 per hour x 4 hours average per job = $6,000. Actual revenues were 45 customers x $30 per hour x 4.5 hours average per job = $6,075. Therefore, the company made $75 more than expected ($6,075 actual - $6,000 expected).

__________ is a "what if" technique that estimates profit or loss results if sales price, costs, volume, or underlying assumptions change

Sensitivity analysis

Which statement is true of a CVP graph?

Total sales revenue starts at zero on both the Y and X axis.

ABC Company has the following data for mixed costs: High month: Total units produced 2,000 units Total costs $10,000 Low month: Total units produced 500 units Total costs $7,000 What is the variable cost per unit?

Variable cost per unit = (Highest cost ∙ Lowest cost) / (Highest volume ∙ Lowest volume). In this case, ($10,000 - $7,000) / (2,000 - 500) = $2.00 per unit.

Smith Company sells hot tub covers. The price of a cover is $200. Variable product costs are $120 per unit and commissions are $10 per unit. Fixed overhead is $20,000. 2,000 units were produced and sold. Smith Company's contribution margin ratio is:

Variable costs are $120 for variable product cost + $10 in sales commissions = $130. The contribution margin ratio is ($200 selling price - $130 total variable costs) / $200 selling price = 35%.

An identifiable part of the company for which financial information is available is called __________.

a business segment

Absorption costing income statements are prepared primarily for __________.

all listed creditors government investors

On a CVP graph, where the total cost line intersects the total revenue line is the __________.

breakeven point

Jones Company has fixed costs totaling $48,000 per month, the variable cost per unit is $60, and selling price per unit is $100. Current sales are 1,500 units. What is the margin of safety in units?

calculate breakeven in units by Fixed costs / Contribution margin per unit. In this case, $48,000 / ($100 - $60) = 1,200 units. Then take current sales of 1,500 - 1,200 units for breakeven = 300 units margin of safety.

The __________ is the amount that contributes to covering the fixed costs and then to providing operating income.

contribution margin

Smith Taxi Service had the following information for the 160 customers served this month: Sales Revenue $13,000 Variable Costs 7,000 Contribution Margin $6,000 What is the variable cost per customer (to the nearest cent)?

divide total variable costs of $7,000 by 160 customers, giving you $43.75 variable cost per customer.

Monthly rent on a factory building is a __________.

fixed cost

If a company decreases its sales price per unit, the new breakeven point will __________.

increase

If a company decreases the fixed costs for Product A, the contribution margin per unit will __________.

remain the same

Wages of production workers would be considered a __________.

variable cost

Assume fixed costs total $180,000 per month, the variable cost per unit is $70, and each unit sells for $160. What is the contribution margin per unit?

$160 - $70 = $90 per unit.

Assume fixed costs total $280,000 per month, the variable cost per unit is $140, and each unit sells for $200. What is the contribution margin per unit?

$200 - $140 = $60 per unit.

Jones Company sells an average of 200 chairs per week, of which 30% are regular chairs and 70% are executive chairs. Regular chairs sell for $100 each and incur variable costs of $62. Executive chairs sell for $170 each and incur variable costs of $125. Which type of chair should Jones Company promote to maximize profits?

Executive chair because it contributes the highest contribution margin.

Jones Company sells an average of 200 chairs per week, of which 30% are regular chairs and 70% are executive chairs. Regular chairs sell for $100 each and incur variable costs of $62. Executive chairs sell for $170 each and incur variable costs of $125. The contribution margin per unit and total contribution margin for regular chairs is:

For total contribution margin take 60 regular chairs sold x $38 contribution margin per chair = $2,280 contribution margin.

CVP analysis assumes which of the following for the relevant range?

Managers can classify each cost as variable, fixed, or mixed.