ACCY 121: Ch.02, Ch.03, Ch.04 (Pre-work)

A company started the year with $185,000 of goods finished and ready for sale. During the year, a total of $700,000 of goods were started in production. Of the goods started, $550,000 were finished during the year. If total cost of goods sold for the year equals $625,000, the company's ending finished goods inventory equals $____

$110,000

Given the following information, calculate profit: Selling price per unit $150.00 Variable cost per unit $120.00 Fixed costs $1,000 Number of units 100

$2,000 Profit = (P-V)X - F = ($150 - 120)x100 -$1,000 = $2,000

Given the following information, calculate break-even volume in sales dollars: Selling price per unit $20 Variable cost per unit $12 Fixed costs $1,000

$2,500 $1,000/($8/$20)

Given the following information, calculate the sales dollars needed to achieve the target profit. Target profit after tax $4,500 Fixed costs $2,000 Contribution margin ratio 40% Tax rate 25%

$20,000 $2,000 + $4,500/(1 -.25) = $8,000/.40 or $20,000

Given the following information, calculate the margin of safety: Sales $100,000 Fixed costs $30,000 Variable costs $60,000

$25,000 Margin of safety = $100,000 - ($30,000/.4)

Given the following information, calculate target volume (in sales dollars): Sales price per unit $30 Variable cost per unit $18 Target profit $8,000 Fixed costs $2,000

$25,000 Target volume (dollars) = (Fixed costs + Target profit)/Contribution margin ratio or $10,000/($12/$30) Contribution margin ratio: [(Sales-Variable)/Sales]

A telephone company sells two models of phones; standard and deluxe. History shows that 80% of sales are standard phones and 20% are deluxe phones. Given the following information, calculate the weighted average contribution margin per unit: Standard's contribution margin per unit $20 Deluxe's contribution margin per unit $60

$28 ($20 x 80%) + ($60 x 20%) = $28

Target volume (sales dollars) =

(Fixed costs + Target profit)/Contribution margin ratio

Target volume (units) =

(Fixed costs + Target profit)/Unit contribution margin

Given current sales of $120,000 and a margin of safety of 12%, sales can fall a total of $___ before the company finds itself operating at a loss.

14,400

A telephone company sells two models of phones; standard and deluxe. For every 500 standard phones sold, the company sells 200 deluxe phone Calculate the break-even point in packages using the fixed product mix method. Standard contribution per unit $20.00 Deluxe contribution margin per unit $60.00 Total fixed costs $55,000

2.5 Packages Contribution margin = (500 × $20) + (200 × $60) = 22,000. $55,000/22,000 = 2.5 packages which is 1,750 total phones

Given the following information, calculate break-even volume (in units): Selling price per unit $14 Variable cost per unit $10 Fixed costs $1000

250 units BE in units = $1000/($14-$10)

Given the following information, calculate margin of safety percentage: Actual sales $100,000 Contribution margin ratio .6 Fixed costs $30,000

50% ($100,000 - ($30,000/.60))/$100,000

Given the following information, calculate target volume (in units): Sales price per unit $25 Variable cost per unit $15 Target profit $5,000 Fixed costs $1,000

600 units (Fixed Cost+Target Profit) / (Sales price per unit + Variable cost per unit) ?

A company currently spends $52,500 per month on fixed costs and produces a product with a contribution margin per unit of $750. The production process involves an engraving machine that can only finish 50 units per month. The company owns one engraving machine. For each additional 50 units, another machine must be rented at a cost of $7,500 per month. The break-even point per month for this product is ___ units.

80

A company has a unit contribution margin of $50, fixed costs of $15,000 and a target profit of $20,000 after-tax. If the tax rate is 20% the company must sell ____units in order to earn the target profit.

800

Excel's Goal Seek may be used to perform ______ analysis.

CVP

An organization's ____ ____ is the proportion of fixed and variable costs to total costs.

Cost structure

Which of the following statements are true?

Differential costs change in response to alternative courses of action. Sunk costs are never differential.

Which of the following is NOT one of the four basic cost behavior categories?

Direct

Which of the following statements are true?

Distinguishing between manufacturing and nonmanufacturing costs can be difficult. Nonmanufacturing costs are expensed as incurred for financial accounting purposes. For managerial purposes, managers often assign nonmanufacturing costs to products.

Profit = (P - V)X + F

False

At the break-even point, profit = total expenses.

False At the break-even point, profit equals zero. Total revenue = total expenses.

True or false: In both the short and long run, the differential approach leads to the correct pricing decision.

False In both the short and long run, the differential approach indicates only the minimum acceptable price, not necessarily the correct one.

The excess of operating revenues over the operating costs incurred to generate those revenues is net income.

False This is operating profit. Net income is operating profit adjusted for interest, income taxes, and more.

The focus of cost accounting is on expenses.

False The focus of cost accounting is on costs, not expenses.

Break-even volume in units =

Fixed costs/Unit contribution margin

Companies A and B have the same total revenues and operating profits. Company A has a contribution margin ratio of 30% and Company B has a contribution margin ratio of 40%. Which of the following statements is true?

If sales increase by 10%, Company B will have a higher increase in profits than Company A.

Which of the following statements are true?

Labor is the most important single cost for many service organizations. Information technology represents the major cost for some service organizations.

Which of the following statements are true?

Per unit fixed costs are only valid at one volume. Putting fixed costs on a per unit basis makes it appear that they are variable costs.

Which of the following statements are true?

Retailers have an entire category of amounts that do not appear on service company income statements. Gross margin reflects the ability of a wholesaler to price products.

Margin of safety =

Sales volume - Break-even sales volume

To calculate cost of goods sold during the year, take total cost of goods manufactured and:

add beginning finished goods and subtract ending finished goods inventory

To calculate cost of goods manufactured during the year, take total manufacturing costs and ______.

add beginning work in process and subtract ending work in process inventory

Under variable costing, ______.

all costs except variable manufacturing costs are period costs

The process of assigning indirect costs is called cost _____.

allocation

Cost-volume-profit analysis includes all of the following except _____

assets

Product costs for unsold units are ______.

assigned to inventory under both absorption and variable costing

CVP analysis relies on certain ___that might limit the applicability of results for decision making.

assumptions

The volume level at which profits equal zero is called the ___ -___ point

break - even

A sacrifice of resources is a(n)

cost

When compared to the Cost-Volume-Profit graph, the ______ lines are collapsed on the Profit-Volume graph.

cost and revenue

The way costs respond to changes in activity levels is called

cost behavior

An organization's___ ____ is the proportion of fixed and variable costs to total costs.

cost structure

Comparing alternative actions with the status quo in order to make decisions is the focus of ______.

differential analysis

The process of estimating revenues and costs of alternative actions and comparing them to the status quo is called ___ ___.

differnetial analysis

The three major categories of product costs are ____ materials, ____ ____, and manufacturing ___.

direct direct labor overhead

Costs that can be unambiguously related to cost objects are ____ costs whereas costs that cannot be unambiguously related to cost objects are ____ costs.

direct indirect

Product costs that can be identified with units at a relatively low cost are _____ manufacturing costs and all other product costs are _____ manufacturing costs.

direct indirect

The two types of product costs are ____ and_____.

direct indirect

When preparing financial statements, ____ are deducted from revenues associated with an accounting period.

expenses

To calculate net income, operating profit is adjusted for ____

extraordinary items interest expense other required regulatory adjustments

Cost of goods sold includes the actual cost of goods that were sold and the costs required to sell them.

false

On a CVP graph, the intercept of the total cost line is the___ cost for the period.

fixed

Costs that do not change as volume changes are ___ costs and costs that change in direct proportion with a change in volume are ___ costs.

fixed variable

Full cost includes all ___

fixed and variable costs of manufacturing and selling a unit of product

The difference between full cost and full absorption cost is ____

fixed and variable selling costs are included in full cost but not in full absorption cost

The intercept of the profit-volume line equals the loss at zero volume, which equals ___ ___

fixed cost

When doing multi-product break-even analysis, a company defines a package or bundle of products in the typical product mix and then computes break-even when using the ___ ___ ___ method

fixed product mix

CVP analysis can be performed using Excel's

goal seek

Operating leverage ______.

impacts how profits increase after breakeven can vary within an industry is the extent a firm's cost structure is made up of fixed costs

Pricing a product in a market where there is considerable leeway in setting prices is an example of a(n) ___-___ pricing decision.

long run

Any new costs incurred when adding a product are considered product costs under ____ costing.

managerial

The full cost of a product equals all ______.

manufacturing and selling costs (both fixed and variable)

Major categories of product costs include ___

manufacturing overhead direct materials direct labor

The excess of the projected (or actual) sales over the break-even sales level is called the ___ ___ ___

margin of safety

Costs required to obtain customer orders are ____ costs and costs required to manage the organization are _____ costs

marketing administrative

Assume total units produced equals total units sold. If the company prepares a gross margin income statement and a contribution margin income statement, ______.

marketing and administrative costs will be the same on both statements operating profit will be the same on both statements

Putting fixed cost on a per unit basis ______.

may be misleading for decision making

A cost ___

may be recorded as an asset is a sacrifice of resources

Any end to which a cost is assigned is a cost___

object

Departments, units of products, and product lines are all examples of cost____.

object

Contribution margin divided by operating profit =

operating levearge

Nonmanufacturing costs are also called _____ costs and manufacturing costs are also called _____ costs.

period product

Cost of goods manufactured and sold statements are ____

prepared as part of a company's internal reporting system

Companies with low overhead costs focus on managing ______ costs, whereas companies with high overhead costs focus on managing ______ costs.

prime conversion

The sum of direct materials and direct labor ____ costs and the sum of direct labor and manufacturing overhead equals ____ costs.

prime conversion

Costs assigned to units of production and expensed when the units are sold are ____ costs, whereas ___ costs are expensed as incurred.

product period

On a CVP graph,

profit = TR - TC TR = TC at breakeven

The contribution margin___ is the contribution margin as a percentage of sales revenue.

ratio

Beginning work in process inventory plus total manufacturing costs equals ______.

resources put into production during the year

Assumptions that may be considered important limitations of CVP analysis include constant ______.

selling price unit variable costs

Customers are provided with an intangible product by ___ companies.

service

If a company is not operating at full capacity, accepting a(n) ___ ___ from a customer will not affect other sales and is usually a short-run occurrence.

special order

The full-cost fallacy occurs when decision makers ______.

think that fixed costs are variable

When doing an analysis, an advantage of the ______ format is that it provides information to managers about all resources required.

total

When considering the differential costs versus total costs approach, the ______.

total cost approach provides information regarding total resources required differential format can be derived from the total format

If a company is focused on trying to eliminate waste and reduce costs, financial statements can be developed that classify costs into___ - ____ and ____ - ____ activities

value-added nonvalue-added

If a company is focused on trying to eliminate waste, income statement costs can be divided into ______.

value-added vs. nonvalue-added activities

A company that is labor intensive has a cost structure with a high proportion of ___ costs.

variable

Direct materials and sales commissions are most likely ____ costs, whereas many manufacturing overhead costs such as rent and supervisor salaries are ___ costs

variable fixed

Which of the following types of costs may or may not be differential?

variable fixed

The process where managers understand the relationships between revenues, costs, volume and profit is called cost -___ ___ ___

volume profit analysis

When a company is doing multi-product break-even analysis and assumes a constant product mix, the contribution margin is the____ - ____ contribution margin of all of its products.

weighted-average

Goods that have been started in production but are not yet completed are called ___

work in process

Products that have been started but not yet completed are called ___ ___ ___

work in process

Which of the following statements are true?

The cost of goods manufactured and sold statement focuses on both current costs and inventories. Cost of goods manufactured and sold statements can be effective communication devices. Managerial reports are tailored to the individual company's needs.

In general, companies with lower fixed costs are better able to survive tough times than companies with higher fixed costs.

True

Whether a cost is direct or indirect depends on the cost object.

True

For a manufacturer, finished goods inventory is optional.

True If goods are shipped directly from the production line, no finished goods inventory exists.