Managerial Accounting Ch 5,6,7

The Cutting Edge sells ice skates. Total sales are $845,000, total variable expenses are $245,050 and total fixed expenses are $302,000. The variable expense ratio is ______. Reason: $245,050 ÷ $845,000

29%

Which of the following items are found above the contribution margin on a contribution margin format income statement?

Variable expenses Sales

A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity.

customer-level

Assuming sales price remains constant, an increase in the variable cost per unit will ______ the contribution margin per unit.

decrease

Contribution margin is first used to cover_____ expenses. Once the break-even point has been reached, contribution margin becomes ____________. (Enter only one word per blank.)

fixed profit or income

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ______ costs.

period

An activity-based costing system ______.

produces different numbers than a traditional system is costly to maintain requires substantial resources

Customer-level activities include ______.

sales calls mailing catalogs

The customer orders cost pool uses 25% of indirect factory wages. If total indirect factory wages are $500,000, the amount allocated to this cost pool in the first-stage allocation is ______. Reason: $500,000 × 0.25 =

$125,000

A company sells 500 sleds per month for $80. Variable costs are $41 per unit and fixed expenses are $3,500 per month. The company thinks that using a new material would increase sales by 70 units per month. If the new material increases variable costs by $4 per unit, the impact on contribution margin would be a ______. Reason: The current contribution margin is $39 per unit ($80 - $41) or $19,500 (500 units × $39) total. The new contribution margin would be $35 per unit ($39 - $4 new cost) or $19,950 (570 units × $35), an increase of $450.

$450 increase

Sweet Dreams sells pillows for $25 each. Variable costs are $15 per pillow. The company is considering improving the quality of materials which will increase variable costs to $19. The company expects the improved materials will increase sales from 1,200 to 1,500 pillows per month. The impact of this change on total contribution margin would be a(n)

(increase/decrease) of $ decrease 3,000

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is ______.

27%

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is ______. Reason: $2.43 ÷ $9.00 or 27%

27%

Seating Galore sells high-end desk chairs. The variable expense per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Seating Galore's chairs is

45

The total cost in the Product Design cost pool is $200,000 with a total activity of 1,600 designs. The total cost assigned to a customer who had 7 designs done is $

875

What are some of the limitations of activity-based costing systems?

ABC requires substantial resources. Managers and employees may resist the change to ABC. ABC procedures produce numbers that do not match traditional costing.

Costs are categorized by function when using_____ costing and by behavior when using_____ costing.

Blank 1: absorption Blank 2: variable or contribution

A company has two activity cost pools—Customer Orders and Product Design. The activity rates are $300 per order for Customer Orders and $500 per design for Product Design. How much overhead cost would be assigned to a customer placing 4 orders and requiring 10 designs? Reason: ($300 × $4) + ($500 × 10) =

Reason: ($300 × $4) + ($500 × 10) = $6,200

What is the total amount of indirect factory wages if the amount allocated to product design was $200,000 and product design consumes 40% of indirect factory wages? Reason: $200,000 ÷ 0.40 =

Reason: $200,000 ÷ 0.40 = $500,000

Fill in the blank question. For external reporting, income statements are generally prepared using ________costing, while_________ costing is used for internal decision making purposes. (Enter only one word per blank.) Listen to the complete question

absorption or full variable , marginal, or direct

A company is currently selling 10,000 units of product monthly for $40 per unit. The unit contribution margin is $27. The company believes that spending $50,000 per month on advertising will allow them to increase the selling price to $45 and that sales will increase by 750 units per month. The company should ______ the idea because profit will ______. Reason: An increase in selling price of $5 will increase the contribution from $27 to $32. The increased contribution margin of $74,000 ((10,750 × $32) - (10,000 × $27)) - the additional fixed costs of $50,000 = a profit increase of $24,000.

accept; increase by $24,000

When the number of units produced equals the number of units sold, ______.

all fixed overhead incurred flows to the income statement under both costing methods absorption costing net income is equal to variable costing net income

Selling and administrative expenses ______.

are always treated as period costs

Contribution margin ______.

becomes profit after fixed expenses are covered

Activity-based costing data ______.

can be easily misinterpreted

Tasty Tangerine is currently selling 50,000 boxes for $25 per box. Variable cost per box is $17 and fixed costs total $260,000. A plan is being considered to spend $60,000 on advertising and reduce the selling price by $2 per box. Management believes this plan will increase sales volume by 24,000 boxes. If management's predictions are correct, making these changes will cause net income for the year to ______.

decrease by $16,000

Tasty Tangerine is currently selling 50,000 boxes for $25 per box. Variable cost per box is $17 and fixed costs total $260,000. A plan is being considered to spend $60,000 on advertising and reduce the selling price by $2 per box. Management believes this plan will increase sales volume by 24,000 boxes. If management's predictions are correct, making these changes will cause net income for the year to ______. Reason: Total contribution margin would increase by $44,000 ((74,000 boxes × $6) - (50,000 boxes × $8)). Increased CM of $44,000 - $60,000 in new fixed costs = $16,000 decrease.

decrease by $16,000

A company is currently selling 10,000 units of product for $40 per unit. The unit contribution margin is $27. The company believes that spending $50,000 on advertising will increase sales by 750 units per month and enable them to increase the selling price to $45 per unit. If this change is implemented, profits will ______.

increase by $24,000

When making decisions using ABC data ______.

unavoidable fixed costs should be ignored

The contribution margin equals sales minus all ______ expenses.

variable

The number of units produced does not affect net operating income when using_____costing

variable

The contribution margin is equal to sales minus ______.

variable expenses