intro to accounting

True or false: Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

True

The calculation of contribution margin (CM) ratio is:

contribution margin/sales

the variable expense ratio equals variable expenses divided by

sales

Company A sells its product for $10 per unit. If Company A has variable expenses of $5 per unit and fixed expenses of $200,000, the break-even point in units and dollars is

$200,000 ÷ 5 = 40,000 units × $10 each = $400,000 Answer = 40,000 units and 400,000 dollars

Pretty in Pearls sold 95 necklaces last month. If variable cost per unit is $40 and fixed costs total $3,085, the company's total variable cost was:

$3800. total variable cost = 95(40)

Net operating income equals :

(unit sales - unit sales to break even) x unit contribution margin

Under variable costing the cost of a unit of inventory does not contain:

fixed manufacturing overhead.

Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, net operating income will be ______.

130,000. (25,000-15,000) x (25-12)

A company incurred $12,000 of maintenance cost for 6,500 machine hours in June and $14,250 of maintenance costs for 8,000 hours in August. Assuming these are the high and low months of activity, the estimated fixed maintenance costs using the high-low method is $

2250

if a company has a variable expense ratio of 35%, its CM ratio must be

65

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is Blank______.

7625. fixed costs (305,000)/cmpu(40) = 7625.

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 25%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will Blank______.

Current income: ($80 × 200) - $5,000 = $11,000. With the change salary becomes a variable cost: ($80 - $20) x 200 × 125% = $15,000, an increase of $4,000 per month.

Product costs under absorption costing

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

the percentage of the variation in cost that is explained by activity is ____

R^2

Cakes by Jacki has $144,000 of fixed costs per year. The contribution margin ratio is 59%. The sales dollars to break-even rounded to the nearest dollar equals Blank______.

Sales = $144,000 ÷ 0.59 = $244,068

in a least-squares regression equation, a represents the intercept and b represents the slope

a represents the intercept, b represents the slope

selling and administrative expenses ___

are always treated as period costs

under absorption costing, product costs consist of ___ costs

both variable and fixed manufacturing.

once the break even point is reached, the sale of an additional unit increases contribution margin by an amount that is _____ the increase in net operating income

equal

In a least-squares regression line, the vertical intercept (a) of the line represents the total cost.

fixed

The statistic R²

is a measure of goodness of fit

the high-low method

is easy to apply uses only two data points is based on periods where the activity tends to be unusual.

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales

net operating income will increase by 70 cents. total contribution margin will increase by 70 cents as well.

absorption costing treats fixed manufacturing overhead as ____ cost

product

Direct costing or marginal costing are other terms for ___ costing.

variable

The slope of the regression line represents the Blank______ cost per unit of activity.

variable

Candle Central has $1,440 of total variable expense for a sales level of 600 units and $2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units:

variable cost per unit = 2.40. total variable cost is 1200. 1440/600 = 2.40 2.40 x 500 = 1200

CM ratio is equal to 1 - ______ ______ ratio.

variable expense