Chapter 20 Acct 42

Theory of Constraints

A specific approach used to identify and manage constraints in order to achieve the company's goals.

Some fixed manufacturing overhead costs of the current period are deferred to future periods under variable costing. True or false?

False

Variable costing is the approach used for external reporting under generally accepted accounting principles. true or false?

False

sales mix

The relative proportions in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.

If a company has limited machine hours available for production, it is generally more profitable to produce and sell the product with the highest contribution margin per hour true or false?

True

Net income can be increased or decreased by changing the sales mix. True or false

True

Bramble Corp. sells its product for $7600 per unit. Variable costs per unit are: manufacturing, $4200, and selling and administrative, $125. Fixed costs are: $18,000 manufacturing overhead, and $24,000 selling and administrative. There was not beginning inventory at 1/1/15. Production was 20 units per year in 2015-2017. Sales were 20 units in 2015, 16 units in 2016, and 24 units in 2017. Income under variable costing for 2017 is: a. 36,600 b.33,000 c.31,150 d. 28,200

a (36,600)

The following information is available for Chap Company Sales: 350,000 Cost of goods sold: 120,000 Total fixed expenses: 60,000 Total variable expenses: 100,000 Which amount would you find on Chap's CVP income statement? a. contribution margin of 250,000 b. contribution margin of 190,000 c. gross profit of 230,000 d. gross profit of 190,000

a (contribution margin of 250,000) (350,000-100,000=250,000) (gross profit is not a feature on the CVP)

Stevens Company has a degree of operating leverage of 3.5 at a sales level of $1,200,000 and net income of $200,000. If Stevens' sales fall by 10%, Stevens can be expected to experience a: a. decrease in net income of $70,000 b. decrease in contribution margin of 7,000 c. decrease in operating leverage of 35% d. decrease in net income of $175,000

a (decrease in net income of $70,000) (200,000 x 3.5 x 10% decrease= 70,000 decrease)

Which one of the following describes the break-even point? a. it is the point where total sales equal total variable plus total fixed costs b.it is the point where the contribution margin equals zero c. it is the point where total variable costs equal total fixed costs d. it is the point where total sales equal total fixed costs

a (it is the point where total sales equal total variable plus total fixed costs)

Net income will be: a. greater if more higher-contribution margin units are sold than lower-contribution margin units b. greater if more lower-contribution margin units are sold than higher-contribution margin units c. equal as long as total sales remain equal, regardless of which products are sold) d. unaffected by changes in the mix of products sold

a (net income will be greater if more higher-contribution margin units are sold than lower-contribution margin units)

Marigold Corp. sells its product fo $50 per unit. During 2016, it produced 60,000 units and sold 50,000 units (there was no beginning inventory). Costs per unit are: direct materials $15, direct labor $7, and variable overhead $3. Fixed costs are $720,000 manufacturing overhead, and $90,000 selling and administrative expenses. Cost of goods sold under absorption costing is a. 1,480,000 b. 1,850,000 c. 1,250,000 d. 1,650,000

b (1,850,000) (15+7+3= 25)(720,000/60,000 units=12) (25+12=37) (50,000 x 37= 1,850,000)

Crane Company sells its product for $6600 per unit. Variable costs per unit are: manufacturing, $3400, and selling and administrative, $75. Fixed costs are: $18,000 manufacturing overhead, and $24,000 selling and administrative. There was no beginning inventory at 1/1/15. production was 20 units per year in 2015-2017. Sales were 20 units in 2015, 16 units in 2016, and 24 units in 2017. Income under absorption costing for 2016 is a. 9400 b.11600 c.16200 d. 4600

b (11,600)

If the unit contribution margin is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is: a. 25 b.5 c.4 d. none of the answer choices are correct

b (5) (15/3=5)

Which cost is not charged to the product under variable costing? a. variable manufacturing overhead b. fixed manufacturing overhead c. direct materials d. direct labor

b (fixed manufacturing overhead)

Fixed manufacturing overhead costs are recognized as: a. period costs under absorption costing b. product costs under absorption costs c. product costs under variable costing d. part of ending inventory costs under both absorption and variable costing

b (product costs under absorption costs)

Gabriel Corporation has fixed costs of $180,000 and variable costs of $8.50 per unit. It has a target income of $268,000. How many units must it sell at $12 per unit to achieve its target net income? a.51,429 units b. 128,000 units c. 76,571 units d. 21,176 units

b(128,000 units) (180,000+268,000/12-8.50=128,000)

A high degree of operating leverage: a. indicates that a company has a larger percentage of variable costs relative to its fixed costs b. is computed by dividing fixed costs by contribution margin c. exposes a company to greater earnings volatility risk d. exposes a company to less earnings volatility risk

c (exposes a company to greater earnings volatility risk)

Net income computed under absorption costing will be: a. higher than net income computed under variable costing in all cases b. equal to net income computed under variable costing in all cases c. higher than net income computed under variable costing when units produced are greater than units sold d. higher than net income computed under variable costing when units produced are less than units sold

c (higher than net income computed under variable costing when units produced are greater than units sold)

When a company has a limited resource, it should apply additional capacity of that resource to providing more units of the product or service that has: a. the highest contribution margin b. the highest selling price c. the highest gross profit d. the highest unit contribution margin of that limited resource

d ( the highest unit contribution margin of that limited resource)

Mackey Corporation has fixed costs of $150,000 and variable costs of $9 per unit. If sales price per unit is $12, what is break-even sales in dollars? a. 200,000 b.450,000 c. 480,000 d. 600,000

d (600,000) (150,000/ (3/12)= 600,000)

Sales mix is: a. important to sales managers but not to accountants b. easier to analyze on absorption costing income statements c. a measure of the relative percentage of a company's variable costs to its fixed costs d. a measure of the relative percentage in which a company's products are sold

d (a measure of the relative percentage in which a company's products are sold)

The degree of operating leverage: a. can be computed by dividing total contribution margin by net income b. provides a measure of the company's earnings volatility c. affects a company's break-even point d. all of the answer choices are correct

d (all of the answer choices are correct)

Net income under variable costing is contribution margin less a. fixed manufacturing overhead and variable manufacturing overhead b. variable selling and administrative expenses and fixed selling and administrative expenses c. cost of good sold d. fixed manufacturing overhead and fixed selling and administrative expenses

d (fixed manufacturing overhead and fixed selling and administrative expenses)

Which one of the following is the format of a CVP income statement? a. sales-variable costs=Fixed costs + net income b. Sales-fixed costs- variable costs-operating expenses=net income c. sales - cost of goods sold - operating expenses= net income d. sales - variable costs - fixed costs= net income

d (sales -variable costs - fixed costs= net income)

Croc Catchers calculates its contribution margin to be less than zero. Which statement is true? a. its fixed costs are less than the variable costs per unit b. its profits are greater than its total costs c. the company should sell more units d. the selling price is less than its variable costs

d (the selling price is less than its variable costs)

MEM manufactures two products. Product X has a contribution margin of $26 and requires 4 hours of machine time. Product Y has a contribution margin of $14 and requires 2 hours of machine time. Assuming that machine time is limited to 3,000 hours, how should it allocate the machine time to maximize its income? a. use 1,500 hours to produce x and 1,500 hours to produce y b. Use 2,250 hours to produce x and 750 hours to produce y c. use 3,000 hours to produce only x d. use 3,000 hours to produce only y

d (use 3,000 hours to produce only y) (Product X: 26/4=6.5) (Product Y: 14/2=7) (pick the higher one)

Degree of Operating Leverage

provides a measure of a company's earnings volatility and can be used to compare companies

Operating Leverage

refers to the extent to which a company's net income reacts to a given change in sales

cost structure

the relative proportion of fixed vs variable costs that a company incurs

The degree of operating leverage provides a measure of a company's earnings volatitility. True or false?

true