Cost Accounting Exam 2 - Dr. Long

CVP

cost volume profit

when computing the cost per equivalent unit, the weighted average method of process costing considers

costs incurred during the current period + cost of beginning work in process inventory

a company with a high ratio of fixed costs

is more likely to experience a loss when sales are down than a company with mostly variable costs

degree of operating leverage=

contribution margin/net operating income

when a segment is eliminated a

1) traceable fixed cost will disappear 2.) common fixed cost will remain unchanged

when calculating the profit impact of discontinuing a segment, consider

1. segments traceable fixed costs 2. segments contribution margin

process costing

A costing method used when essentially homogeneous products are produced on a continuous basis

contribution margin ratio

Contribution Margin / Sales

conversion costs

Direct Labor + Manufacturing Overhead

Product costs under absorption costing

Direct Materials, Direct Labor Variable Manufactur. Overhead Fixed Manufacturing Overhead

breakeven in unit sales

Fixed Expenses / Unit CM

equivalent units

The product of the number of partially completed units and their percentage of completion with respect to a particular cost. Equivalent units are the number of complete whole units that could be obtained from the materials and effort contained in partially completed units.

the journal entry to record direct materials costs in processing department 1 is

a debit to WIP Department 1 credit to raw materials

common fixed cost

a fixed cost that supports the operations of more than one segment, but is not traceable in while or part to any one segment is a

process costing is used when a

a single product is produced on a continuing basis or for a long period of time

financial statement users need to be aware of changes in inventory levels when using

absorption costing

according to the CVP analysis model, assuming all else remains the same, profits would be increased by a

decrease in the unit variable cost

Product costs under variable costing

direct materials direct labor variable manufacturing overhead

operating leverage is a measure of how sensitive

net operating income is to a percent change in sales dollars

if a segment is entirely eliminated, common fixed costs will

not change

contribution margin becomes

profit after fixed expenses are covered

the higher the margin of safety

the lower the risk of incurring a loss

degree of operating leverage

the measure of how a percentage change in sales affects profits at any given level of sales

the break even point is reached when the contribution margin is equal to

total fixed expenses

only costs that would disappear over time if a segment disappeared should be treated as

traceable fixed costs

the sales mix must be taken into consideration when calculating break even point for more than one product

true

the number of units produced does not affect net operating income when using

variable costing

variable expense ratio

variable expenses/sales