Ch.7, SB 6, Chap 5, SB 4, ACT 2, Chapter 2, ACT 2

Least-squares regression is

A statistical method used to analyze mixed costs The goal of this method is to minimize the sum of the squared errors. y = a + bx

In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?

Activity rate

Variable Costs

Are those that change in total in direct proportion to changes in activity. Variable costs are the same per unit, but of course the total variable costs rise/fall as number of units rise/fall.

When is the predetermined overhead rate calculated?

Before the period begins

Which of the following is NOT a method used for basic CVP analysis?

Break-even analysis

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP analysis

Paid a cash dividend to shareholders.

Cash disbursements journal

Paid accounts payable.

Cash disbursements journal

Paid advertising bill.

Cash disbursements journal

Paid employee salaries.

Cash disbursements journal

Paid interest on a loan.

Cash disbursements journal

Paid rent.

Cash disbursements journal

Purchased equipment for cash.

Cash disbursements journal

Purchased office equipment for cash.

Cash disbursements journal

Borrowed $20,000 and signed a note.

Cash receipts journal

Collected an account receivable.

Cash receipts journal

Collected cash from customers on account.

Cash receipts journal

Collected interest on the note receivable.

Cash receipts journal

Issued common stock in exchange for cash.

Cash receipts journal

Sold equipment for cash.

Cash receipts journal

Sold merchandise for cash (the sale only, not the cost of the merchandise).

Cash receipts journal

Sales Revenue - Variable Costs=

Contribution Margin

The financial statement that organizes costs by their behavior instead of by the:

Contribution format income statement

Degree of operating leverage equals ______.

Contribution margin/Net operating income

Cost assumptions are reasonably valid within the [.........] of activity

Cost assumptions are reasonably valid within the RELEVANT RANGE of activity

Paid $158,950 on account for the merchandise purchased in 3.

Debit: Accounts Payable $158,950 Credit: Cash $158,950

Sold goods to customers on account. (To record sale of goods to customers.)

Debit: Accounts Receivable Credit: Sales Revenue

Credit sales for the month totaled $374,000. The cost of the goods sold was $187,000

Debit: Accounts Receivable $374,000 Credit: Sales Revenue $374,000 Debit: Cost of Goods Sold $187,000 Credit: Inventory $187,000

Collected cash from customers for goods sold in 3.

Debit: Cash Credit: Accounts Receivable

Issued common stock in exchange for cash.

Debit: Cash Credit: Common Stock

Received cash for advance payment from customer.

Debit: Cash Credit: Deferred Sales Revenue

Borrowed cash from a bank and signed a note.

Debit: Cash Credit: Notes Payable

Issued 110,000 shares of common stock in exchange for $550,000 cash.

Debit: Cash $550,000 Credit: Common Stock $550,000

Penne Pharmaceuticals sold 6 million shares of its $1 par common stock to provide funds for research and development. If the issue price is $11 per share, what is the journal entry to record the sale of the shares?

Debit: Cash $66,000,000 Credit: Common Stock $6,000,000 Credit: Paid-In Capital - excess of par $60,000,000 Cash (6 million shares × $11 per share) = $66 million Common stock (6 million shares × $1 par per share) = $6 million

The following is a news item reported by Reuters: WASHINGTON, Jan 29 (Reuters)—Crossfire Medical Group, a maker of reconstructive implants for knees and hips, on Tuesday filed to sell 4 million shares of common stock. In a filing with the U.S. Securities and Exchange Commission, it said it plans to use the proceeds from the offering for general corporate purposes, working capital, research and development, and acquisitions. After the sale there will be about 34.5 million shares outstanding in the Arlington, Tennessee-based company, according to the SEC filing. Wright shares closed at $17.45 on Nasdaq. The common stock of Crossfire Medical Group has a par of $0.03 per share. Required: Prepare the journal entry to record the sale of the shares assuming the price existing when the announcement was made and ignoring share issue costs.

Debit: Cash $69,800,000 Credit: Common Stock $120,000 Credit: Paid-In Capital - excess of par $69,680,000 Explanation Cash (4 million shares × $17.45 per share) = $69,800,000. Common stock (4 million shares × $0.03 par per share) = $120,000.

Collected $74,800 from customers on account.

Debit: Cash $74,800 Credit: Accounts Receivable $74,800

Sold goods to customers on account. (To record cost of goods sold to customers.)

Debit: Cost of Goods Sold Credit: Inventory

On December 1, 2021, the company received $6,300 in cash from another company that is renting office space in Falwell's building. The payment, representing rent for December, January, and February was credited to deferred rent revenue.

Debit: Deferred Rent Revenue $2,100 Credit: Rent Revenue $2,100

Mazzanti owns a warehouse that it rents to another company. On January 1, 2021, Mazzanti collected $16,800 representing rent for the 2021 calendar year and credited deferred rent revenue.

Debit: Deferred Rent Revenue $4,200 Credit: Rent Revenue $4,200

Recorded depreciation expense of $1,825 for the month on the office equipment.

Debit: Depreciation Expense $1,825 Credit: Accumulated Depreciation $1,825

Depreciation on equipment totaled $12,500 for the year.

Debit: Depreciation Expense $12,500 Credit: Accumulated Depreciation $12,500

Depreciation on the office building is $12,600 for the fiscal year.

Debit: Depreciation Expense $3,150 Credit: Accumulated Depreciaiton $3,150

Paid a cash dividend

Debit: Dividend Credit: Cash

Paid shareholders a cash dividend of $5,500.

Debit: Dividend $5,500 Credit: Cash $5,500

Recorded the amount of prepaid insurance that expired for the month.

Debit: Insurance Expense $210 Credit: Prepaid Insurance $210

The Mazzanti Wholesale Food Company's fiscal year-end is June 30. The company issues quarterly financial statements requiring the company to prepare adjusting entries at the end of each quarter. Assume all quarterly adjusting entries were properly recorded. On December 1, 2020, the company paid its annual fire insurance premium of $2,400 for the year beginning December 1 and debited prepaid insurance.

Debit: Insurance Expense $600 Credit: Prepaid Insurance $600

On November 1, 2021, the company borrowed $210,000 from a bank. The note requires principal and interest at 12% to be paid on April 30, 2022.

Debit: Interest Expense $4,200 Credit: Interest Payable $4,200 210,000 / 0.12 = 25,200 / 6 months = 4,200 each month

On August 31, 2020, the company borrowed $35,000 from a local bank. The note requires principal and interest at 8% to be paid on August 31, 2021.

Debit: Interest Expense $700 Credit: Interest Payable $700

Purchased inventory on account.

Debit: Inventory Credit: Accounts Payable

Purchased inventory on account at a cost of $220,000. The company uses the perpetual inventory system.

Debit: Inventory $220,000 Credit: Accounts Payable $220,000

Purchased office equipment at a cost of $91,250. $36,500 was paid in cash and a note payable was signed for the balance owed.

Debit: Office Equipment $91,250 Credit: Notes Payable: $54,750 Credit: Cash $36,500

A three-year fire insurance policy was purchased on July 1, 2021, for $12,600. The company debited insurance expense for the entire amount.

Debit: Prepaid Insurance $10,500 Credit: Insurance Expense $10,500 12,600 x (30/36) = 10,500

Paid $2,520 to an insurance company for fire and liability insurance for a one-year period beginning June 1, 2021.

Debit: Prepaid Insurance $2,520 Credit: Cash $2,520

Paid rent for the next three months.

Debit: Prepaid Rent Credit: Cash

Paid $4,750 in rent on the store building for the month of June.

Debit: Rent Expense $4,750 Credit: Cash $4,750

On December 1, 2021, the company received $6,300 in cash from another company that is renting office space in Falwell's building. The payment, representing rent for December, January, and February was credited to rent revenue rather than deferred rent revenue for $6,300 on December 1, 2021.

Debit: Rent Revenue $4,200 Credit: Deferred Rent Revenue $4,200

Employee salaries for the month of June 2021 $13,500 will be paid on July 20, 2021.

Debit: Salaries Expense $13,500 Credit: Salaries Payable $13,500

Employee salaries of $17,000 for the month of December will be paid in early January 2022.

Debit: Salaries Expense $17,000 Credit: Salaries Payable $17,000

Purchased supplies for cash.

Debit: Supplies Credit: Cash

At the end of October, recorded the amount of supplies that had been used during the month.

Debit: Supplies Expense Credit: Supplies

Will a debit increase or decrease Accounts Payable?

Decrease

Will a debit increase or decrease Common Stock?

Decrease

Will a debit increase or decrease Interest Revenue?

Decrease

Will a debit increase or decrease Salaries Payable?

Decrease

Will a debit increase or decrease Sales Revenue?

Decrease

Will a debit increase or decrease Utilities Payable?

Decrease

What types of activities are carried out regardless of which products are produced, how many batches are run, or how many units are produced?

Facility-level

True or False? Within the relevant range of activity total variable costs do not change

False Within the relevant range of activity total variable costs remain constant per unit and change in total.

During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders' equity. The articles of incorporation authorized the issue of 9 million common shares, $1 par per share, and 2 million preferred shares, $50 par per share. Feb. 12. Sold 3 million common shares, for $9 per share. 13. Issued 42,000 common shares to attorneys in exchange for legal services. 13. Sold 73,000 of its common shares and 7,500 preferred shares for a total of $1,050,000. Nov. 15. Issued 435,000 of its common shares in exchange for equipment for which the cash price was known to be $4,048,000.

February 12 Debit: Cash $27,000,000 Credit: Common Stock $3,000,000 Credit: Paid-in capital - excess of par, commons $24,000,000 February 13 Debit: Legal expenses $378,000 Credit: Common stock $42,000 Credit: Paid-in capital - excess of par, common $336,000 February 13 Debit: Cash $1,050,000 Credit: Common stock $73,000 Credit: Paid-in capital - excess of par, common $584,000 Credit: Preferred stock $375,000 Credit: Paid-in capital - excess of par, preferred $18,000 November 15 Debit: Property, plant, and equipment $4,048,000 Credit: Common stock $435,000 Credit: Paid-in capital - excess of par, common $3,613,000

What kind of costs remain constant in total and vary per unit?

Fixed Costs

Sold a factory building in exchange for a note receivable.

General Journal

Sold equipment on credit.

General Journal

Recorded accrued interest payable.

General journal

Recorded accrued salaries payable.

General journal

Recorded depreciation expense.

General journal

Which of the following is NOT a question managers need to consider when making a keep-or-drop decision?

How much is the salary of the company CEO?

Which of the following are facility-level activities?

Human resource hiring fairs Paying factory insurance

Will a debit increase or decrease Accounts Receivable?

Increase

Will a debit increase or decrease Cost of Goods Sold?

Increase

Will a debit increase or decrease Depreciation Expense?

Increase

Will a debit increase or decrease Equipment?

Increase

Will a debit increase or decrease Interest Expense?

Increase

Will a debit increase or decrease Inventory?

Increase

Will a debit increase or decrease Prepaid Rent?

Increase

Will a debit increase or decrease Rent Expense?

Increase

Will a debit increase or decrease Utilities Expense?

Increase

What does "a" represent?

Intercept Total fixed cost, an amount that will be incurred regardless of the activity level, and is called the intercept or the constant

Which of the following is NOT a volume-based cost driver?

Machine setups

What document specifies the type and quantity of direct materials used on a specific job?

Materials requisition form

Review 8 and 9 on Chapter 2 Exercises

N/A

Lewelling Company issued 113,000 shares of its $1 par common stock to the Michael Morgan law firm as compensation for 5,300 hours of legal services performed. Morgan's usual rate is $220 per hour. By what amount should Lewelling's paid-in capital - excess of par increase as a result of this transaction?

Paid-in capital—excess of par $1,053,000 Explanation Lewelling's paid-in capital - excess of par will increase by $1,053,000: 5,300 hours × $220 less $113,000 par. General journal Debit: Legal expense (5,300 hours × $220) $1,166,000 Credit: Common stock (113,000 shares × $1 par per share) $113,000 Credit: Paid-in capital - excess of par (remainder) $1,053,000

High/Low Method

Pick the highest and lowest level of volume and their total costs. Calculate the difference in the total costs and divide by the difference in volume: (Total cost high volume) - (Total cost low volume) =Variable Cost Diff (High volume level) - (Low volume level) =Volume Difference

Which of the following are assumptions of cost volume profit analysis?

Production volume is equal to sales volume. All costs can be classified as either fixed or variable. In multi-product companies, the sales mix is constant.

Purchased merchandise on account.

Purchases journal

Cost assumption are reasonably valid within the [...] of activity?

Relevant Range

Fixed costs

Remain the same in total, regardless of activity level. Again, assuming we are in the relevant range. Fixed costs per unit change (rise/fall), depending upon the fall/rise in the number of units.

Contribution margin ratio

Revenues- Variable Costs= Contribution Margin ratio

Sold merchandise on credit (the sale only, not the cost of the merchandise).

Sales journal

Which of the following is not a manufacturing cost category?

Selling & administrative costs

Which of the following is NOT another term for relevant costs?

Sunk costs

How do we calculate Total Costs?

Total Costs = VC/unit (# units) + Total Fixed Costs

The equation for the profit equation method is ______.

Total Sales Revenue - Total Variable Costs - Total Fixed Costs = Profit

How is total variable cost per unit calculated?

Total variable cost per unit = total VC/# units (per unit, this will remain constant when # of units change..........total VC will change as # of units change

An important consideration in a keep-or-drop decision is the impact on the costs and revenues of other segments.

True

Incremental analysis is a decision-making approach that compares the relevant costs and benefits of decision alternatives.

True

True or False? Outside of the relevant range cost behavior conclusions may not be valid.

True

True or False? The relevant range of activity is approximated by a straight line.

True

True or False? Within the relevant range of activity, fixed costs remain constant in total?

True

True or False? the Key to most managerial decision is understanding cost behavior.

True

During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2021, you discover the following: A. An insurance policy covering three years was purchased on January 1, 2021, for $3,300. The entire amount was debited to insurance expense and no adjusting entry was recorded for this item. B. During 2021, the company received a $600 cash advance from a customer for merchandise to be manufactured and shipped in 2022. The $600 was credited to sales revenue. No entry was recorded for the cost of the merchandise. C. There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $540 were on hand on December 31. D. Hales borrowed $14,000 from a local bank on October 1, 2021. Principal and interest at 12% will be paid on September 30, 2022. No accrual was recorded for interest. E. Net income reported in the 2021 income statement is $29,000 before reflecting any of the above items. Required: Determine the proper amount of net income for 2021.

Unadjusted net income $29,000 Adjustments: a. Insurance expense overstated $2,200 b. Sales revenue overstated $(600) c. Supplies expense overstated $540 d. Interest expense understated $(420) Adjusted net income $30,720

How do you estimate Cost behavior?

Use least-squares regression

Which type of cost changes in total, in direct proportion to changes in activity level?

Variable Cost

How is Sales Revenue computed?

Variable Costs - Contribution Margin= Sales Revenue

Variable cost per unit is

Variable cost per unit is

Within the relevant range of activity, variable costs:

Vary in total Remain constant per unit

Which of the following statements are true?

When materials are purchased they are recorded in the Raw materials inventory account. Raw materials inventory represents the cost of materials not yet used in production.

Within the relevant range, [...] costs remain constant on a per unit basis.

Within the relevant range, VARIABLE COSTS remain constant on a per unit basis.

How do we estimate cost behavior?

Y (TOTAL COST) = Total Fixed Costs + (Variable Cost per Unit)* # units of activity. Y is the dependent variable and the # units is the independent variable.

Mixed costs contain

a fixed portion that is incurred and a variable portion that increases with usage. Utilities typically behave in this manner.

A technique that attempts to assign overhead costs to products based on the actions they require is called

activity based costing

Cost per cup declines as

activity increases

Per unit mixed costs decrease as

activity increases

Total FIXED costs remain constant as

activity increases

Total VARIABLE costs increase as

activity increases.

A predetermined overhead rate in an activity-based costing system is called a(n)

activity rate

The formula to apply overhead to products is ______.

activity rate times activity

A method that attempts to assign overhead costs based on what is required to produce products is ______ costing.

activity-based

Contribution margin equals sales minus ______.

all variable costs

A predetermined overhead rate in an activity-based costing system is called ______.

an activity rate

Step costs

are fixed over a range of activity and then increase in a step-like fashion. Mixed costs (aka semi-variable costs) have both a fixed and variable component.

In deciding whether to sell a product or continue to process it, costs incurred to get the product into its current condition ______ relevant to the decision.

are not

Indirect costs ______.

are not easily traced to products or services

Non-volume-based cost drivers ______.

are used in ABC systems allow more indirect costs to be allocated to products

Total mixed costs increase

as activity increases.

The final step in activity-based costing is ______.

assigning indirect costs to products or services

At a minimum, an ABC system should have ______.

at least one non-unit-level activity cost pool

The basic formula for process costing is ______.

average unit cost = total manufacturing cost/total units produced

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ___-level activities.

batch

What types of activities are performed each time a group of units is processed, regardless of how many units are in the group?

batch

Costs at the batch level depend on the number of ______.

batches processed

If a company raises the price of a product with no change in costs, the unit contribution margin and contribution margin ratio will ______.

both increase

Activity-based costing systems typically include ______ cost drivers.

both volume- and non-volume-based

A(n) ______ limits a system's overall output.

bottleneck

Solving for the sales level needed to achieve a profit of zero is ______ analysis.

break-even

Managers must prioritize how products are produced when faced with a(n) _____ resource.

constrained

When a limited resource of some type restricts a company's ability to satisfy demand, the company has a(n) _____resource.

constrained

The amount each unit sold contributes towards fixed costs and profit is the unit ___ ___.

contribution margin

To calculate the degree of operating leverage, divide ___ ___ by net operating income.

contribution margin

When a constraint exists, companies need to focus on maximizing ______.

contribution margin per unit of constraint

How much contribution margin is generated per dollar of sales revenue is the ___ ___ ___.

contribution margin ratio

The contribution margin stated as a percentage of sales dollars is the ______.

contribution margin ratio

The weighted-average ___ ___ ___ is based on the relative percentage of total sales revenue in dollars, not units

contribution margin ratio

The formula to compute activity proportion is ______.

cost driver for product / cost driver for all products

A group of similar activities that have been combined together is an activity ______.

cost pool

A group of similar activities that have been combined together is called an activity

cost pool

Contribution margin ______.

covers fixed cost and profit

Once you have identified a problem, the next step is to determine the possible solutions, which are called ____ _____.

decision alternatives

When a company increases the selling price of a product with no change in variable cost per unit or total fixed costs, the break-even point for that product will ______.

decrease

An increase in sales will increase net operating income by a multiple of that increase in sales. The multiple is known as the ______.

degree of operating leverage

The first step in assigning manufacturing overhead costs using a predetermined overhead rate is to ______.

determine the cost driver

A fixed cost that can be traced to a specific business segment is called a(n) _______ fixed cost.

direct

One of the benefits of dropping a product line is that a company can eliminate the product line's _____ fixed costs.

direct

Major inputs such as lumber and fixtures that can be easily traced to a specific job are called

direct materials

The formula for a predetermined overhead rate is ______.

estimated total manufacturing overhead cost / estimated total cost driver

A predetermined overhead rate is calculated by dividing the ______ total manufacturing overhead by the ______ total cost driver.

estimated; estimated

Ideally an allocation base should ______.

explain or influence the amount of overhead incurred

Activities that occur regardless of how many products are produced or how many batches are run or units made are ___ - ___ activities

facility Level

True or false: CVP analysis is only used for break-even and target profit analysis.

false

True or false: Cost structure refers to how a company uses product and period costs in an organization.

false

True or false: The best reason to implement an ABC system is to obtain more accurate information about the cost of products and services.

false

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

false

True or false: The terms operating leverage and financial leverage refer to the same concept.

false

Decisions about the use of debt versus equity affects a company's ___ ___.

financial leverage

The ______ step in the decision-making process is to identify the decision problem.

first

Step-FIXED costs are

fixed over a fairly wide range of activities

Sales price per unit - manufacturing cost per unit = ______ per unit.

gross profit per unit

What does "b" represent?

he slope of the line, the unit variable cost, which tells us how much the total cost (y) will increase for each unit increase in activity (x)

CVP analysis can help answer the question of _____.

how net income can be increased

Segment margin ______.

includes both variable and direct fixed costs

Comparing the relevant costs and benefits of alternative decision choices is called ______ analysis.

incremental

Determining decision alternatives ______.

is a critical step in the decision-making process

The process of making a decision ______.

is basically the same for all decisions

Continue-or-discontinue decisions are commonly known as ________-or- ________ decisions.

keep drop

Deciding to carry out an activity internally or buy externally from a supplier is called a ______ decision.

make-or-buy

To calculate manufacturing overhead cost per unit using ABC, divide the total ______.

manufacturing overhead cost by the number of units produced

Once Stage 2 allocation has been completed it is possible to compute total ______.

manufacturing overhead per product

The excess of the budgeted (or actual) sales dollars over break-even sales is called the ___ of ___.

margin safety

An allocation base is a(n) ______

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

Opportunity costs are ______.

only relevant when capacity is limited

Decisions about whether to use fixed or variable costs to run a business affects a company's ___ leverage.

operating

Decisions about whether to use fixed or variable costs to run a business impact a company's ___ ___.

operating leverage

If a company has a resource that could be used for something else, the ______ cost is the profit that could be derived from the best alternative use of the resource.

opportunity

When considering a keep-or-drop decision, it is important to consider ___________ _____________, such as whether the elimination of the segment will free resources that could be used in another way.

opportunity costs

Make-or-buy decisions are also referred to as ______ decisions.

outsourcing

Indirect costs are also referred to as ___ costs

overhead

The predetermined overhead rate is multiplied by the actual cost driver usage for a job to calculate the ______ the job.

overhead applied to

Total manufacturing overhead under activity-based costing consists of all ______.

overhead assigned during Stage 2 allocations

According to the assumptions of CVP, ______ will not change as the volume of a product increases or decreases.

price

Activities performed to design a new type of service to be offered are ______-level activities.

product

Activities incurred for each product produced and not dependent on the number of units or batches are

product level activities

Research and development is a(n)

product-level activity

Implementing an ABC system ______.

provides information for cost management

Costs and benefits that always differ between alternatives are called ______ costs and benefits.

relevant

When making a decision to drive or take the train on a trip, the cost of the train ticket is a(n) ______ cost

relevant

When planning a trip and deciding to drive your car or take the train, gasoline is a(n) ______ cost.

relevant

Step-VARIABLE costs

rise in multiple steps across the relevant range

Gross profit margin calculates gross margin as a percentage of

sales

When preparing a multi-product break-even analysis, the assumption is ordinarily made that the ______ will not change.

sales mix

The break-even point can be affected by ______.

sales mix total fixed costs product mix

Contribution Margin

sales price of a product - variable costs = Contribution margin

Sales revenue minus all fixed and variable costs attributable to a particular division is called ______.

segment margin

Deciding what to do with a product that is salable or could be enhanced is a ______ decision.

sell-or-process-further

When constructing a CVP graph, the ___ of the line represents variable cost per unit.

slope

A one-time order that is not considered part of the company's normal ongoing business is called a ______ order.

special

Deciding to accept a sales request that is outside the scope of normal sales is called a(n) ______ - _______ decision

special order

Indirect costs can be assigned to products or services using ______.

the activity rate method the activity proportion method

What does "x" represent?

the activity that causes total cost (y) to change. Activity (x) is also called the cost driver, or the independent variable

In the equation Y=a+bX, b denotes

the variable cost per unit of activity and slope of the line

The activity rate is computed by dividing the ______ by the ______.

total activity cost; total cost driver

What does "Y" represent and where is it plotted on a scatter graph?

total cost, which is plotted on the vertical axis, and is called the dependent variable

The weighted-average contribution margin ratio is calculated using the ______.

total sales mix

True or false: When computing unit costs, the direct materials and direct labor costs are the same, regardless of whether ABC or a volume-based costing system is used.

true

The amount that each unit sold contributes to fixed costs and profit is ______.

unit contribution margin

Methods that can be used to model the relationship between revenues, costs, profit and volume include the ___ contribution margin method and the contribution ___ ___ method

unit; Margin Ratio

The weighted average unit contribution margin is the average unit contribution margin of multiple products weighted according to ______.

units sold

The term cost structure refers to how a company uses ___ costs versus ___ costs in its operations.

varaible; fixed

When preparing a CVP graph, the slope of the total cost line represents ______.

variable cost per unit

When constructing a CVP graph, the vertical axis represents ______.

variable costs Rationale: This is only partially correct. The vertical axis represents dollars. Sales, variable costs, and fixed costs are all measured in dollars.

In the profit equation, total ______ is a function of the number of units sold (Q).

variable costs sales revenue

Contribution margin equals sales minus ______.

variable manufacturing costs variable selling and administrative costs

Direct labor hours and machine hours are both examples of ___ -based cost drivers.

volume

CVP analysis can be useful in deciding ______.

which products to offer which services to offer what marketing strategy to use what price to charge for goods or services what cost structure to implement

Costs of partially completed units are accounted for in ______.

work in process

The Greenery sells three products. Product A has a contribution margin of $10 per unit, Product B has a contribution margin of $15 per unit and Product C has a contribution margin of $12 per unit. Sales are: 25% A, 35% B and 40% C. The weighted average unit contribution for The Greenery is ______.

$12.55 Rationale: ($10 × 25% + $15 × 35% + $12 × 40%) = $12.55

Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour.

$19.53 Rationale: $625,000/(8,000 × 4) = $19.53

Sweet Dreams sells 15,000 pillows per year for $25 per unit. Variable cost per unit is $14. Sweet Dreams wants to improve customer satisfaction by using higher quality direct materials which will increase the variable cost per unit to $19. Fixed costs per year total $90,000. If sales increase by 5,000 units per year, what price will Sweet Dreams have to charge to earn the same profit it is earning now ($75,000 per year)?

$27.25 Rationale: Costs + Target Profit: ($19 × 20,000 + $90,000 + $75,000) = $545,000 / 20,000 = $27.25

Adele's Attic assigns overhead to products based on direct labor hours. For the upcoming year the business plans to use a total of 25,000 machine hours and 5,000 direct labor hours. Total overhead cost is expected to be $35,000. How much overhead would be assigned to a job that used 180 machine hours and 40 direct labor hours?

$280 Rationale: Predetermined overhead rate = $35,000/5,000 or $7 per direct labor hour × 40 hours = $280.

A fixed cost remains fixed [.....] within the relevant range of activity.

A fixed cost remains fixed IN TOTAL within the relevant range of activity.

Jacki's Jewels sells 10,000 necklace & earring sets per year. Fixed costs are $80,000 and variable costs are $20 per set. Jacki is planning to increase the quality of the stones, which will increase variable costs by $8 per set and increase sales by 25%. If Jacki increases the quality of the stones, what price will she need to charge to attain her target profit of $60,000 per year?

$39.20 Rationale: Costs + Target Profit = ($28 x 12,500 + $80,000 + $60,000) = $490,000/12,500 = $39.20

A company's activity rate for the general factory is $2.00 per machine hour. Product A used 3,000 machine hours and 1,000 labor hours. General factory overhead assigned to Product A is ______.

$6,000 Rationale: $2 × 3,000 = $6,000

A company sells two products. Product A sells for $10.00 per unit and Product B sells for $8.00 per unit. Variable costs are $3.00 for Product A and $2.50 for Product B. If the sales mix is 70% Product A and 30% Product B, the weighted average contribution margin is ______.

$6.55 Rationale: $7.00 × 70% + $5.50 × 30% = $6.55

Larson Productions LLC has an activity cost pool called product design and redevelopment. The cost driver for this pool is design hours. A total of 1,000 design hours were used, 620 for Model XLT and 380 for Model TXT. The total cost assigned to the cost pool was $118,000. Using the activity proportion method, determine how much cost should be allocated to each product.

$73,160 to Model XLT and $44,840 to Model TXT Rationale: 620/1000 = 62% to Model XLT and 380/1000 = 38% to TXT

A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. The activity rates are ______.

$8 per customer call and $15 per development hour Rationale: $200,000/25,000 = $8 per customer call and $300,000/20,000 = $15 per development hour.

The activity proportion method uses ___ to assign overhead costs to products

%

Advantages of dropping a division or other segment include ______.

- avoiding more direct fixed costs than the company loses in contribution margin -an overall increase in net operating income

When evaluating a make-or-buy decision, managers should consider ______.

- qualitative factors - opportunity factors -all variable production cost

Which of the following statements are true?

-Direct fixed costs are avoidable if a segment is eliminated. -Advertising for a specific product line is a direct fixed cost.

The weighted average unit contribution margin ______.

-assumes that the percentage of each product sold is constant -is used instead of the single product contribution margin in multi-product break-even analysis -is based on the relative percentage of each unit sold

CVP ______.

-can be used for "what-if" analysis -can be used to make many different decisions -allows managers to see how changing one variable can impact another

Multi-product target profit analysis ______.

-depends upon the sales mix -is calculated the same way as single product analysis

Presented below is income statement information of the Schefter Corporation for the year ended December 31, 2021. Sales revenue $520,000 Salaries expense 85,300 Interest revenue 7,000 Advertising expense 11,750 Gain on sale of investments 9,500 Cost of goods sold 286,000 Insurance expense 14,750 Interest expense 4,000 Income tax expense 42,500 Depreciation expense 25,000 Required: Prepare the necessary closing entries at December 31, 2021.

1. Dec. 31, 2021 Debit: Sales revenue $520,000 Debit: Interest revenue $7,000 Debit: Gain on sale of investments $9,500 Credit: Retained earnings $536,500 2.Dec. 31, 2021 Debit: Retained earnings $469,300 Credit: Salaries expense $85,300 Credit: Advertising expenses $11,750 Credit: Cost of goods sold $286,000 Credit: Insurance expense $14,750 Credit: Interest expense $4,000 Credit: Income tax expense $42,500 Credit: Depreciation expense $25,000

A company assigns overhead based on direct labor costs. The predetermined overhead rate is $3.00 per direct labor dollar. A job that used a total of 20 direct labor hours ($400 in total direct labor costs) would be assigned $ ___ in total overhead.

1200

SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is $

2

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?

2,800 Rationale: $98,000/($50 - $15) = 2,800

Given sales of $110,000, a contribution margin of $75,000 and net operating income of $30,000, operating leverage is ______.

2.5 Rationale: $75,000/$30,000 = 2.5

Desks by Daisy sells a student desk for $100 per unit. The variable cost per desk is $40 and Daisy's fixed costs of producing the desks equals $15,000 per month. Daisy needs to sell ___ desks per month in order to break-even.

250

Given net operating income of $50,000, contribution margin of $150,000 and sales of $300,000, the degree of operating leverage of ___.

3

Anders Inc. assigns overhead using activity proportions and has a machine setup cost pool. Last year there were 27,500 setups at a total cost of $550,000. Product R3D used a total of 8,250 of those setups and should be assigned ___% of the total setup cost.

30

A company sells 15,000 units of product per month. The sales price per unit is $5.00, variable costs are $2.80 per unit and and total fixed costs equal $3,000. The contribution margin ratio is ______.

44% Rationale: ($5.00 - $2.80) / $5.00 = 44%

Plaster Company expects to have a total cost of $400,000 in its activity cost pool. The total expected activity is 800 machine setups. The activity rate is $ ___ per setup.

500

Given sales of 10,000 units per month, sales price per unit of $4.00, variable costs of $1.80 per unit and and total fixed costs of $5,000, the contribution margin ratio is ___%.

55

What does a Contribution Margin income statement identify?

A contribution Margin income statement Separates costs into their fixed and variable components Can assist with management decision making