Cost ch 1-3
If the contribution margin ratio is 0.25, targeted operating income is $50,000, and targeted sales volume in dollars is $250,000, then total fixed costs are ________.
(X + $50,000)/0.25 = $250,000; X = 12,500
A band of normal activity or volume in which specific cost-volume relationships are maintained is referred to as the ________.
relevant range
If unit outputs exceed the breakeven point ________.
there will be a profit
R&D costs are treated as period costs because ________.
these costs may increase revenues in the future period
Managers use cost-volume- profit (CVP) analysis to ________.
to study the behavior of and relationship among the elements such as total revenues, total costs, and income
In making product mix and pricing decisions, managers should focus on ________.
total costs
Within the relevant range, if there is a change in the level of the cost driver, then ________.
total fixed costs will remain the same and total variable costs will change
The contribution income statement highlights ________.
variable and fixed costs
Which of the following is true if the volume of sales increases?
variable cost increases
Assume only the specified parameters change in a CVP analysis. The contribution margin percentage increases when ________.
variable costs per unit decrease
When 20,000 units are produced, variable costs are $8 per unit. Therefore, when 10,000 units are produced ________.
variable costs will remain at $8 per unit
When a greater proportion of costs are fixed costs, then
when demand is low the risk of loss is high
Inventoriable costs are expensed on the income statement ________.
when the products are sold
Classifying a cost as either direct or indirect depends upon ________.
whether the cost can be easily traced with the cost object
Outside the relevant range, variable costs, such as direct material costs ________.
will not change proportionately with changes in production volumes
In CVP analysis, focusing on target net income rather than operating income ________.
will not change the breakeven point
Work-in- process inventory would normally include ________.
goods partially worked on but not yet fully completed
Multiple cost drivers ________.
have no unique breakeven point
All else being equal, an increase in advertising expenditures will ________.
reduce operating income
Which of the following is true about the assumptions underlying basic CVP analysis?
Only selling price, variable cost per unit, and total fixed costs are known and constant.
Technical consideration ________.
help managers make wise economic decisions by providing them with the desired information
Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000. How many dresses must the Bridal Shoppe sell to yield after-tax net income of $18,000, assuming the tax rate is 40%?
$1,000N - $400N - $90,000 = $18,000 / (1 - 0.4); $600N - $90,000 = $30,000; N = 200
When fixed costs are $50,000 and variable costs are 60% of the selling price, then breakeven sales are ________.
$50,000 / (1 − 0.60) = $125,000 in BE sales
For last year, Wampum Enterprises reported revenues of $420,000, cost of goods sold of $108,000, cost of goods manufactured of $101,000, and total operating costs of $70,000. Operating income for that year was ________.
$420,000 - $108,000 - $70,000 = $242,000
A nonprofit organization aids the unemployed by supplementing their incomes by $5,000 annually, while they seek new employment skills. The organization has fixed costs of $200,000 and the budgeted appropriation for the year totals $700,000. How many individuals can receive financial assistance this year?
$700,000 − $5,000N − $200,000 = 0; $500,000 = $5,000N; N = 100 people
The following information is for High Corp: Selling price $60 per unit Variable costs $40 per unit Total fixed costs $125,000 The number of units that High Corp must sell to reach targeted operating income of $25,000 is
($125,000 + $25,000)/($60 − $40) = 7,500 units
Winnz sells 8,000 units resulting in $100,000 of sales revenue, $35,000 of variable costs, and $45,000 of fixed costs. To achieve $150,000 in operating income, sales must total ________.
($150,000 + $45,000) / 65% = $300,000 in sales
Shine Jewelry sells 400 units resulting in $7,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs. Contribution margin per unit is ________.
($7,000 − $3,000) / 400 units = $10 per unit
Fixed costs equal $15,000, unit contribution margin equals $25, and the number of units sold equal 1,150. Operating income is ________.
(1,150 × $25) − $15,000 = $13,750
If the contribution margin ratio is 0.40, targeted operating income is $80,000, and targeted sales volume in dollars is $500,000, then the degree of operating leverage is ________.
0.40 = X / $500,000 = $200,000 contribution. Operating leverage = $200,000 / $80,000 = 2.50
If the breakeven point is 1,000 units and each unit sells for $50, then ________.
1,000 × $50 = $50,000 of BE sales
The following information pertains to Alleigh's Mannequins: Manufacturing costs $1,500,000 Units manufactured 30,000 Units sold 29,500 units sold for $85 per unit Beginning inventory 0 units What is the amount of gross margin?
29,500 × ($85 - ($1,500,000 / $30,000)) = $1,032,500
If a company has a degree of operating leverage of 3.0 and sales increase by 25%, then ________.
3.0 × 25% = 75%
Pederson Company reported the following: Manufacturing costs $2,000,000 Units manufactured 50,000 Units sold 47,000 units sold for $75 per unit Beginning inventory 0 units What is the amount of gross profit margin?
47,000 × ($75 - ($2,000,000 / $50,000)) = $1,645,000
Which of the following statements is true of direct costs?
A direct cost of one cost object can be an indirect cost of another cost object.
________ is the process of varying key estimates to identify those estimates that are the most critical to a decision.
A sensitivity analysis
Sky High sells helicopters. During the current year, 100 helicopters were sold resulting in $820,000 of sales revenue, $250,000 of variable costs, and $342,000 of fixed costs. The number of helicopters that must be sold to achieve $300,000 of operating income is ________.
A) Number of helicopters to be sold to achieve an operating income of $300,000 = ($342,000 + $300,000) / $5,700 = 112.6 units = 113 units
Stones Manufacturing, sells a marble slab for $1,000. Fixed costs are $30,000, while the variable costs are $400 per slab. The company currently plans to sell 200 slabs this month. What is the margin of safety assuming 75 slabs are budgeted?
Breakeven in number of slabs = $30,000 / ($1,000 − $400) = 50 slabs Actual sales 75 slabs × $1,000 = $75,000 Breakeven sales 50 slabs × $1,000 = $50,000 Margin of safety 25 slabs $25,000
The Marietta Company has fixed costs of $60,000 and variable costs are 75% of the selling price. To realize profits of $10,000 from sales of 50,000 units, the selling price per unit ________.
Breakeven sales = ($60,000 + $10,000) / 0.25 = $280,000 Selling price = $280,000 / 50,000 units = $5.60 per unit
Alex Furniture sells a table for $850. His fixed costs are $25,000, while his variable costs are $500 per table. He currently plans to sell 175 tables this month. What is the budgeted revenue for the month assuming that Alex sells 175 tables?
Budgeted revenue = 175 × $850 = $148,750
Period costs ________.
are treated as expenses in the period they are incurred
Star Jewelry sells 500 units resulting in $75,000 of sales revenue, $28,000 of variable costs, and $18,000 of fixed costs. The number of units that must be sold to achieve $40,000 of operating income is ________.
C) ($75,000 − $28,000) / 500 = $94 The number of units that must be sold to achieve $40,000 of operating income = ($18,000 + $40,000) /$94 = 617 units
Star Jewelry sells 500 units resulting in $75,000 of sales revenue, $28,000 of variable costs, and $18,000 of fixed costs. Breakeven point in units is ________.
Contribution margin per unit = ($75,000 − $28,000) / 500 = $94 Breakeven point = $18,000 / $94 = 191.49 units. Hence breakeven is approximately 192 units.
Sales total $400,000 when variable costs total $300,000 and fixed costs total $50,000. The breakeven point in sales dollars is ________.
Contribution margin percentage = ($400,000 − $300,000) / $400,000 = 25%; BE sales = $50,000 / 0.25 = $200,000
Which of the following is the mathematical expression of contribution margin ratio?
Contribution margin ratio = Contribution margin percentage × Revenues (in dollars)
Which of the following differentiates cost accounting and financial accounting?
Cost accounting measures information related to the costs of acquiring or using resources in an organization, whereas financial accounting measures a financial position of a company to investors, banks, and external parties.
Which of the following statements about customer value is true?
Creating value for customers is an important part of planning and implementing strategy.
________ is a strategy that integrates people and technology in all business functions to enhance relationships with customers, partners, and distributors.
Customer relationship management
________ is an after-sale support provided to customers.
Customer service
If selling price per unit is $40, variable costs per unit are $25, total fixed costs are $20,000, the tax rate is 30%, and the company sells 5,000 units, net income is ________.
Net income = [(($40 − $25) × 5,000) − $20,000] × (1.0 − 0.3) = $38,500
________ is the detailed planning and engineering and testing of products, services, or processes.
Design
Place the four business functions in the order they appear along the value chain: Customer service Design Marketing Production
Design, Production, Marketing, Customer Service
How many units would have to be sold to yield a target operating income of $23,000, assuming variable costs are $25 per unit, total fixed costs are $2,000, and the unit selling price is $30?
Desired sales = ($2,000 + $23,000) / ($30 − $25) = 5,000 units
Dave Rigby is paid $30 an hour for straight-time and $40 an hour for overtime. One week he worked 45 hours, which included 5 hours of overtime, and 3 hours of idle time caused by material shortages. What is the direct labor cost incurred to the company?
Direct labor (45 - 3 = 42 hours × $30) = $1,260
Which of the following companies is part of the service sector of our economy?
Ernst &Young
Sky High sells helicopters. During the current year, 100 helicopters were sold resulting in $820,000 of sales revenue, $250,000 of variable costs, and $342,000 of fixed costs. Breakeven point in units is ________.
Explanation: Contribution margin per unit = ($820,000 - $250,000) / 100 = $570,000 / 100 = $5,700 per unit. Breakeven point = $342,000 / $5,700 = 60 units
At the breakeven point of 2,000 units, variable costs total $4,000 and fixed costs total $6,000. The 2,001st unit sold will contribute ________ to profits.
Fixed costs of $6,000/2,000 units = Contribution Margin of $3 per unit.
Which of the following statements about the direct/indirect cost classification is true?
Indirect costs are always allocated.
________ are all manufacturing costs that are related to the cost object but cannot be traced to that cost object.
Indirect manufacturing costs
Which of the following is true of a budgeting system?
It compels managers to plan ahead.
Which of the following is true of financial accounting information?
It focuses on the past-oriented financial performance of a company.
Which of the following is true of planning in decision making?
It helps an organization to select goals and strategies.
Which of the following is true of sustainability?
It helps the development and implementation of strategies to achieve long-term financial, social, and environmental goals.
Which of the following is true of line management?
It is directly responsible for achieving the goals of the organization.
Which of the following is true of planning?
It makes predictions about the future.
Which of the following statements about a company's supply chain is true?
Management accountants provide information to enhance a company's supply chain.
________ sector companies purchase materials and components and convert them into finished goods.
Manufacturing
Which of the following is true of net income?
Net income is operating income plus nonoperating revenues minus nonoperating costs minus income taxes.
Sales of Blistre Autos are 350,000, variable cost is 200,000, fixed cost is 75,000, tax rate is 20%. Calculate the operating leverage of the company.
Operating income $350,000 - $200,000 - $75,000 = $75,000 Operating leverage $150,000 / $75,000 = 2 times
If Beta Corps net income is $210,000 and the tax rate is 30%, then the company;s planned operating income is ________.
Operating income = $210,000 / (0.70) = $300,000
Mario Garcia is paid $20 an hour for straight-time and $30 an hour for overtime. One week she worked 42 hours, which included 2 hours of overtime. What is the overhead incurred to the company?
Overtime premium (2 hrs × $10) = $20
Which one of the following items is a direct cost?
Printing costs incurred for payroll check processing; payroll check processing is the cost object.
Genosis Metals provided the following information for last month: Sales $20,000 Variable costs 8,000 Fixed costs 4,000 Operating income $8,000 If sales reduce to half the amount in the next month, what is the projected operating income?
Projected operating income = ($20,000 × 0.5) − ($8,000 × 0.5) − $4,000 = $2,000
Eigen Manufacturing Corp. provided the following information for last month: Sales $40,000 Variable costs 14,000 Fixed costs 10,000 Operating income $16,000 If sales reduce to half of the amount in the next month, what is the projected operating income?
Projected operating income = ($40,000 / 2) − ($14,000 / 2) − $10,000 = $3,000
Strategy specifies ________.
how an organization matches its own capabilities with the opportunities in the marketplace
Blistre Company operates on a contribution margin of 20% and currently has fixed costs of $500,000. Next year, sales are projected to be $3,000,000. An advertising campaign is being evaluated that costs an additional $80,000. How much would sales have to increase to justify the additional expenditure?
Required sales = $80,000 / 0.2 = $400,000
________ is the generation of, and experimentation with, ideas related to new products, services, or processes.
Research and development
________ are the acquisition costs of all materials that eventually become part of the cost object and can be traced to the cost object.
Sales taxes paid to acquire materials
Which of the following statements concerning an organization's strategy is true?
Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives.
Cost behavior refers to ________.
how costs react to a change in the level of activity
Which of the following is true of cost-volume- profit analysis?
The theory assumes that units manufactured equal units sold.
Which of the following statements refers to management accounting information?
There are no regulations governing the reports.
Which of the following statements is true?
There is a cause-and- effect relationship between the cost driver and the amount of cost.
Which of the following is an assumption of CVP analysis?
Total costs can be divided into a fixed component and a component that is variable with respect to the level of output.
________ is a philosophy in which management improves operations throughout the value chain to deliver products and services that exceed customer expectations.
Total quality management
Which of the following is true of CVP analysis?
Total revenues and total costs are linear in relation to output units.
What is the breakeven point in units, assuming a product's selling price is $100, fixed costs are $16,000, unit variable costs are $20, and operating income is $5,200?
Unit contribution margin = $100 − $20 = $80. Breakeven point in units = $16,000 / $80 = 200 units
If the contribution margin ratio is 0.40, targeted operating income is $50,000, and fixed costs are $75,000, then sales volume in dollars is ________.
X = (50,000 + 75,000)/.4; X = $312,500
An Enterprise Resource Planning System can best be described as ________.
a single database that collects data and feeds it into applications that support each of the company's business activities, such as purchases, production, distribution, and sales
A cost system determines the cost of a cost object by ________.
accumulating and then assigning costs
Production is the ________.
acquisition, coordination, and assembly of resources to produce a product or deliver a service
Which of the following is a fixed cost for an automobile manufacturing plant?
administrative salaries
For an automobile manufacturer, period costs include the cost of ________.
advertising
Fixed costs depend on the ________.
amount of resources acquired
A revenue driver is defined as ________.
any factor that affects revenues
At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually ________.
are considered a fixed cost
Inventoriable costs ________.
are expensed in the accounting period in which the products are sold
Control measures should ________.
be linked by feedback to help future planning
For a manufacturing company, direct labor costs may be included in ________.
both work-in- process inventory and finished goods inventory
The most important planning tool is a ________.
budget
The margin of safety is the difference between ________.
budgeted revenues and breakeven revenues
Strategy is formulated ________.
by identifying the most important customers
One of the first steps to take when using CVP analysis to help make decisions is ________.
identifying the variable and fixed costs
The contribution margin income statement ________.
can be used to predict future profits at different levels of activity
For merchandising companies, inventoriable costs include ________.
incoming freight costs
Managers use management accounting information to ________.
communicate, develop, and implement strategies
If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is ________.
considered to be a direct variable cost
The selling price per unit less the variable cost per unit is the ________.
contribution margin per unit
As per CVP, operating income calculations use ________.
contribution margins and fixed costs
Comparing budgeted costs to actual costs helps managers to improve ________.
control
The ________ function supports the six functions of value-chain analysis.
controlling
The general term used to identify both the tracing and the allocation of accumulated costs to a cost object is ________.
cost assignment
The approaches and activities of managers in short-run and long-run planning and control decisions that increase value for customers and lower costs of products and services are known as ________.
cost management
The determination of a cost as either direct or indirect depends upon the ________.
cost object chosen
The income statement of a manufacturing firm reports ________.
cost of goods sold
The scenario that resources should be spent if the expected benefits to the company exceed the expected costs describes ________.
cost-benefit approach
The primary user of financial accounting information is a ________.
current shareholder
Which of the following forms a part of decision making in CVP analysis?
decision to improve the efficiency of the work force
Which of the following is included in product cost for pricing and product-mix decisions?
design costs
In the cost classification system used by manufacturing firms, assembly worker; wages would be included in ________.
direct manufacturing costs
Conversion costs include ________.
direct manufacturing labor and manufacturing overhead costs
Wages paid to machine operators on an assembly line are classified as a ________.
direct manufacturing labor cost
Prime costs include ________.
direct materials and direct manufacturing labor costs
Total manufacturing costs is comprised of ________.
direct materials costs, direct manufacturing labor costs, and manufacturing overhead costs
Direct materials inventory would normally include ________.
direct materials in stock and awaiting use in the manufacturing process
For a manufacturing company, direct material costs may be included in ________.
direct materials inventory, work-in- process inventory, and finished goods inventory accounts
Total manufacturing costs equal ________.
direct materials plus conversion costs
The planned operating income is calculated by ________.
dividing net income by 1 − tax rate
A unit cost is computed by ________.
dividing total cost by the number of units produced
Which one of the following is a variable cost for an insurance company?
electricity expenses
Which of the following is a guideline used by management accountants to assist in strategic and operational decision making?
employing a cost-benefit approach
Cost assignment ________.
encompasses allocating indirect costs to a cost object
In a cost-benefit approach, managers should spend resources if the ________.
expected benefits to the company exceed the expected costs
Which of the following is true if the production volume decreases?
fixed cost per unit increases
The breakeven point revenues is calculated by dividing ________.
fixed costs by contribution margin percentage
Breakeven point in units is ________.
fixed costs divided by contribution margin per unit
Management accounting ________.
focuses on estimating future revenues, costs, and other measures to forecast activities and their results
Which of the following is a direct manufacturing cost?
fringe benefits paid to machine operators
Finished goods inventory would normally include ________.
goods fully completed but not yet sold
Variable costs ________.
increase in total when the actual level of activity increases
When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will ________.
increase to $20 per unit; Fixed costs are $320,000 ($16 × 20,000 units). Dividing $320,000 by 16,000 units = $20.
Manufacturing overhead costs are also referred to as ________.
indirect manufacturing costs
Manufacturing overhead costs in an automobile manufacturing plant most likely include ________.
indirect material costs such as lubricants
Costs that are initially recorded as assets and expensed when goods sold are called ________.
inventoriable costs
Product costs for financial statements may refer to ________.
inventoriable costs for external reporting purposes
A budget ________.
is an aid to coordinating what needs to be done to execute a plan
An actual cost is ________.
is the cost incurred
Management accounting is considered most likely to be successful when it ________.
is timely
In designing strategy, a company must match its opportunities in the marketplace with ________.
its resources and capabilities
In a company with low operating leverage,
less risk is assumed than in a highly leveraged firm
Staff management includes ________.
management accountants
Which of the following is a responsibility of the CFO?
managing short-term and long-term financing
Under GAAP, only ________ can be assigned to inventories in the financial statements.
manufacturing costs
Product costs used for external reporting generally include
manufacturing costs only
Which of the following cost is included in cost of goods sold?
manufacturing labor cost
For a manufacturing-sector company, the cost of factory depreciation is classified as a ________.
manufacturing overhead cost
Which of the following is an inventoriable cost?
manufacturing overhead cost
Indirect manufacturing costs ________.
may include both variable and fixed costs
Cost accounting ________.
measures the costs of acquiring or using resources in an organization
Which of the following is a fixed cost?
monthly rent payment
Financial accounting ________.
must comply with GAAP (generally accepted accounting principles)
The most likely cost driver of distribution costs is the ________.
number of miles driven
The most likely cost driver of direct labor costs is the ________.
number of production hours
To apply CVP analysis in the hotel industry, which of the following is the most important measure of output?
number of room-nights occupied
Under GAAP, for the purposes of calculating inventory costs, product costs include ________.
only inventoriable costs
Target reports ________.
only merchandise inventory
At breakeven point, ________.
operating income is equal to zero
Assume only the specified parameters change in a cost-volume- profit analysis. If the contribution margin increases by $6 per unit, then ________.
operating profits increases by $6 per unit
Which of the following is a function of a controller?
operations administration
Which of the following influences the make or buy decision to the company?
opportunity cost
Which of the following is a manufacturing overhead cost?
overtime premiums paid to plant workers
A report showing the actual financial results for a period compared to the budgeted financial results for that same period would most likely be called a ________.
performance report
The income statement of a service-sector firm reports ________.
period costs only
Budgeted costs are ________.
planned or forecasted costs
For manufacturing firms, inventoriable costs include ________.
plant supervisor salaries
Financial accounting provides the primary source of information for ________.
preparing the income statement for shareholders
Which of the following is an example of an extrinsic reward?
promotions based on performance
Service-sector companies ________.
provide intangible products
Merchandising-sectors ________.
purchase and then sell tangible products without changing their basic form
Which of the following is an area that customers want to see improved levels of performance?
quality of the product
Which of the following is an example of an intrinsic reward?
recognition of job well done
All else being equal, a reduction in selling price will ________.
reduce operating income
The breakeven point is the activity level where ________.
revenues equal the sum of variable and fixed costs
Contribution margin equals ________.
revenues minus variable costs
A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of indirect cost for the soccer equipment line is the ________.
salary paid to plant supervisor
Which of the following is a period cost?
sales promotion expenses
Globus Autos sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs. If a change is made in one parameter of CVP analysis, it is an example of ________.
sensitivity analysis
Yahoo, an Internet search firm, would be classified as a(n) ________.
service-sector company
14) A data warehouse or infobarn ________.
stores information used by different managers for multiple purposes
________ describes the flow of goods, services, and information from the purchase of materials to the delivery of products to consumers, regardless of whether those activities occur in the same organization or with other organizations.
supply chain
Management accounting information typically includes ________.
tabulated results of customer satisfaction surveys, the cost of producing a product, the percentage of units produced that are defective
A well-conceived plan allows managers the ability to ________.
take advantage of unforeseen opportunities
Cost tracing is ________.
the assignment of direct costs to the chosen cost object
Cost allocation is ________.
the assignment of indirect costs to the chosen cost object
Cost accumulation is ________.
the collection of cost data in some organized way by means of an accounting system
The primary user of management accounting information is a(n) ________.
the controller
Which of the following factors affect the direct/indirect classification of a cost?
the design of the operation
Marketing is the ________.
the manner by which companies promote and sell their products or services to customers or perspective customers
Customer response time involves ________.
the speed at which an organization responds to customer requests
R&D, production, and customer service are business functions that are all included as part of ________.
the value chain
