Managerial Accounting Chapter 20

Ziegler Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows: Units Produced: Total Costs: 99,000 $29,154,500 114,000 $31,937,000 127,000 $34,348,500 a. Determine the variable cost per unit and the total fixed cost. Round your answer for variable cost to the nearest cent. Round your answer for total fixed costs to the nearest dollar. b. Based on part (a), estimate the total cost for 81,000 units of production. Round your answer to the nearest dollar.

a. Variable cost: $185.50 per unit Total fixed cost: $10,790,000 b. Total cost for 81,000 units: $25,815,500

Given the following costs and activities for Falcon Company electrical costs, use the high-low method to calculate Falcon's variable electrical costs per machine hour. Costs Machine Hours April $3,100 15,000 May $2,700 10,000 June $3,500 18,000

a. $0.77 per unit b. $0.56 per unit c. $10.00 per unit d. $0.10 per unit d. $0.10 per unit

Fritz, Inc.'s unit selling price is $75, the unit variable costs are $45, fixed costs are $150,000, and current sales are 10,000 units. How much will operating income change if sales increase by 5,000 units?

a. $150,000 increase b. $150,000 decrease c. $225,000 decrease d. $225,000 increase a. $150,000 increase Feedback: The contribution margin is calculated as sales price per unit - variable cost per unit, or $75 - $45 = $30 per unit. Thus, the additional 5,000 units would provide a $150,000 (5,000 units × $30) increase to operating income.

Craig Co. sells two products: A and B. Last year, Craig sold 14,000 units of A and 21,000 units of B. Related data are as follows: Product I Unit Selling Price I Unit Variable Cost I Unit Cont. Marg. A $110 $70 $40 B $70 $50 $20 What was Craig Co.'s unit contribution margin?

a. $20 b. $40 c. $30 d. $28 d. $28 The sales mix is calculated based on adding the units of each product to get the total units. Then each product is divided by the total units. 14,000 A units + 21,000 B units = 35,000 total units. A's proportion is 14,000 ÷ 35,000 = 40%. B's proportion is 21,000 ÷ 35,000 = 60%. Unit selling price of A and B: (110 x 0.40) + ($70 x 0.60)=86 Unit variable cost: ($70 x 0.40) + ($50 x 0.60)=58 Unit contribution margin: ($40 x 0.40) + ($20 x 0.60)=28

Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $305,250, and the sales mix is 70% bats and 30% gloves. The unit selling price and the unit variable cost for each product are as follows: Products Unit Selling Price Unit Variable Cost Bats $60 $40 Gloves $125 $80 a. Compute the break-even sales (units) for the overall enterprise product, E. b. How many units of each product, baseball bats and baseball gloves, would be sold at the break-even point?

a. 11,100 units Unit Selling Price of E = ($60 × 70%) + ($125 × 30%) = $42 + $37.5 = $79.5 Unit Variable Cost of E = ($40 × 70%) + ($80 × 30%) = $28 + $24 = $52 Unit Contribution Margin of E = $79.5 - $52 = $27.5 Break-Even Sales (units) = Fixed Costs ÷ Unit Contribution Margin Break-Even Sales (units) = $305,250 ÷ $27.5 = 11,100 units b. 7,770 units of baseball bats (11,100 units × 70%) 3,330 units of baseball gloves (11,100 units × 30%) Baseball Bats: 7,700 Baseball Gloves: 3,330

If fixed costs are $256,000, the unit selling price is $38, and the unit variable costs are $22, what are the old and new break-even sales (units) if the unit selling price increases by $4?

a. 16,000 units and 12,800 units b. 16,000 units and 18,286 units c. 6,737 units and 6,400 units d. 16,000 units and 15,000 units a. 16,000 units and 12,800 units

If the margin of safety for Canace Company was 25%, fixed costs were $1,051,875, and variable costs were 75% of sales, what was the amount of actual sales (dollars)? (Hint: Determine the break-even in sales dollars first.)

$5,610,000 The break-even point (S) is determined as follows: Break-Even Sales (dollars) = Total Fixed Costs + Total Variable Costs (at Break-Even) Break-Even Sales (dollars) = Total Fixed Costs + 75% Break-Even Sales (dollars) Break-Even Sales (dollars) = $1,051,875 + 75% Break-Even Sales (dollars) Break-Even Sales (dollars) - 75% Break-Even Sales (dollars) = $1,051,87525% Break-Even Sales (dollars) = $1,051,875 Break-Even Sales (dollars) = $4,207,500 If the margin of safety is 25%, the actual sales are determined as follows:Sales = Break-Even Sales (dollars) + (Sales × Margin of Safety) Sales (dollars) = $4,207,500 + 25% Sales Sales - 25% Sales = $4,207,500 75% Sales = $4,207,500Sales = $5,610,000

If the contribution margin ratio for Martinez Company is 57%, sales were $564,000, and fixed costs were $253,970, what was the operating income?

$67,510 Sales times contribution margin ratio equals contribution margin. Contribution margin minus fixed costs equals income from operations.

If Canace Company, with a break-even point at $328,000 of sales, has actual sales of $410,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number.

(1) $82,000 (2) 20% (Sales minus sales at break-even) divided by sales equals margin of safety.

Star Stream is a subscription-based video streaming service. Subscribers pay $120 per year for the service. Star Stream licenses and develops content for its subscribers. In addition, Star Stream leases servers to hold this content. These costs are not variable to the number of subscribers, but must be incurred regardless of the subscriber base. In addition, Star Stream compensates telecommunication companies for bandwidth so that Star Stream customers receive fast streaming services. These costs are variable to the number of subscribers. These and other costs are as follows: Enter your answers in whole dollars. Server lease costs per year: $ 100,000,000 Content costs per year: 2,000,000,000 Fixed operating costs per year: 900,000,000 Bandwidth costs per subscriber per year: 15 Variable operating costs per subscriber per year: 25 a. Determine the break-even number of subscribers. b. Assume Star Stream planned to increase available programming and thus increase the annual content costs to $2,600,000,000. What impact would this change have on the break-even number of subscribers? -Break-even number of subscribers will ____________ to __________ subscribers. c. Assume the same content cost scenario as in (b). How much would the annual subscription need to change in order to maintain the same break-even as in (a)? -The annual subscription need to _____________ from _____________ to ____________ in order to maintain the same break-even as in (a).

-increase -120 -136

Young Company budgets sales of $890,000, fixed costs of $36,000, and variable costs of $160,200. What is the contribution margin ratio for Young Company?

82% Sales minus variable costs equals contribution margin. Contribution margin divided by sales equals contribution margin ratio.

A. Shipping boxes used to ship orders B. Consulting fee of $200,000 paid to industry specialist for marketing advice C. Straight-line depreciation on sewing machines D. Salesperson's salary, $10,000 plus 2% of the total sales E. Fabric F. Dye G. Thread H. Salary of designers I. Brass buttons J. Legal fees paid to attorneys in defense of the company in a patent infringement suit, $50,000 plus $87 per hour K. Insurance premiums on property, plant, and equipment, $70,000 per year plus $5 per $30,000 of insured value over $8,000,000 L. Rental costs of warehouse, $5,000 per month plus $4 per square foot of storage used M. Supplies N. Leather for patches identifying the brand on individual pieces of apparel O. Rent on plant equipment, $50,000 per year P. Salary of production vice president Q. Janitorial services, $2,200 per month R. Wages of machine operators S. Electricity costs of $0.10 per kilowatt-hour T. Property taxes on property, plant, and equipment

A.Variable B. Fixed C.Fixed D.Mixed E.Variable F.Variable G.Variable H.Fixed I.Variable J.Mixed K.Mixed L.Mixed M.Variable N.Variable O.Fixed P.Fixed Q.Fixed R.Variable S.Variable T.Fixed

Currently, the unit selling price of a product is $330, the unit variable cost is $270, and the total fixed costs are $1,020,000. A proposal is being evaluated to increase the unit selling price to $370. a. Compute the current break-even sales (units). b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant.

a. 17,000 units Break-Even Sales (units) = Fixed Costs ÷ Unit Contribution Margin Break-Even Sales (units) = $1,020,000 ÷ ($330 - $270) = 17,000 units b. 10,200 units Break-Even Sales (units) = Fixed Costs ÷ Unit Contribution Margin Break-Even Sales (units) = $1,020,000 ÷ ($370 - $270) = 10,200 units

For the current year ended March 31, Cosgrove Company expects fixed costs of $616,200, a unit variable cost of $53, and a unit selling price of $79. a. Compute the anticipated break-even sales (units). b. Compute the sales (units) required to realize operating income of $143,000.

a. 23,700 Break-Even Sales (units)= Fixed costs divided by the unit contribution margin equals break-even point in units. b.Compute the sales (units) required to realize operating income of $143,000. Break-Even Sales (units) = Fixed Costs/ Unit Contribution Margin = ($616,200)/ ($79 - $53) = 23,700 units b.Compute the sales (units) required to realize operating income of $143,000 Sales (units) = (Fixed Costs + Target Profit)/ Unit Contribution Margin = ($616,200 + $143,000) + ($79 - $53) = 29,200 units

What effect does the increase in fixed costs have on the break-even units?

a. Decrease b. Increase c. No-effect d. None of these choices are correct. b. Increase

Which of the following is not one of the ways that cost-volume-profit analysis can be useful for managerial decision making?

a. For selecting the mix of products to sell b. For determining where to purchase raw materials c. For setting selling prices d. For choosing among market strategies b. For determining where to purchase raw materials

Which performer commands the highest booking fee for Degy Entertainment?

a. Katy Perry b. Bruno Mars c. Taylor Swift d. Keith Urban c. Taylor Swift

This is measured by the average proportion of seats filled across all flights.

a. Load factor b. CASM c. RASM d. Break-even point a. Load factor

Which of the following conditions would cause the break-even point to increase?

a. Unit variable cost increases. b. Unit selling price increases. c. Unit variable cost decreases. d. Total fixed costs decrease. a. Unit variable cost increases.

Classify each of the following costs and expenses for this company as either variable or fixed to the number of units produced and sold: a. Packaging costs b. Sales commissions c. Property taxes on general offices d. Shipping expenses e. Straight-line depreciation of computer equipment f. President's salary g. Salaries of software developers h. Salaries of human resources personnel i. Wages of telephone order assistants j. Costs of providing online support k. Users' guides

a. Variable b. Variable c. Fixed d. Variable e.Fixed f. Fixed g. Fixed h. Fixed i. Variable j. Variable k. Variable

Cost-volume-profit analysis is used for ________.

a. analyzing the effects of changes in costs on profits b. analyzing the effects of changes in volume on profits c. determining selling price d. All of these choices are correct. d. All of these choices are correct.

Which is a fixed cost?

a. cost of number of items produced b. commission paid to a salesperson c. gasoline d. manager's salary d. manager's salary

Contribution margin is the ________.

a. difference between sales and fixed costs b. difference between sales and total costs c. difference between sales and variable costs d. None of these choices are correct. c. difference between sales and variable costs

Under variable costing, the cost of goods manufactured consists of all except

a. direct materials. b. direct labor. c. variable factory overhead. d. fixed factory overhead. d. fixed factory overhead.

Target profit

a. equals differential costs. b. is when sales and costs are exactly equal. c. can be calculated by modifying the break-even equation. d. cannot be calculated in cost-volume-profit analysis. c. can be calculated by modifying the break-even equation.

Airlines measure revenues and cost by

a. fuel used. b. number of passengers per flight. c. miles logged. d. available seat miles. d. available seat miles.

The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents the

a. maximum possible operating income. b. total fixed costs. c. maximum possible operating loss. d. point where total sales equal total costs. d. point where total sales equal total costs.

RASM is the average

a. miles logged. b. runway area in miles. c. revenue earned per available seat mile. d. cost per available seat mile. c. revenue earned per available seat mile.

Costs that are constant in total and vary per unit based on the level of activity changes are called __________ costs.

a. mixed b. opportunity c. fixed d. variable d. variable

The break-even point for a college would likely be measured in number of

a. part-time students. b. full-time students. c. student credit hours. d. courses offered. c. student credit hours.

Fixed costs are costs that

a. remain the same in total dollar amount as the activity base changes. b. vary with the costs of the activity. c. are characteristically on the high end. d. are not considered when planning a budget. a. remain the same in total dollar amount as the activity base changes.

Cost behavior is useful to managers for making decisions regarding all of the following except

a. replacing a machine. b. predicting profits as sales and production volume change. c. estimating costs. d. hiring a new manager. d. hiring a new manager

Contribution margin ratio is

a. sales divided by contribution margin. b. contribution margin divided by sales. c. sales divided by variable costs. d. contribution margin divided by fixed costs. b. contribution margin divided by sales.

Operating leverage is determined as

a. sales minus sales at break-even point divided by sales. b. total sales minus total costs. c. contribution margin divided by operating income. d. fixed costs divided by unit contribution margin. c. contribution margin divided by operating income.

Operating leverage can be used to measure

a. sales. b. the impact of changes in sales on operating income. c. contribution margin. d. fixed costs. b. the impact of changes in sales on operating income.

In a service company, the unit of analysis can influence whether costs are defined as

a. short-term or long-term. b. product or period. c. selling or administrative. d. fixed or variable d. fixed or variable

In a cost-volume-profit graph, the

a. total costs line normally begins at zero on the left corner of the graph. b. total revenue line typically begins at a required minimum level. c. sales line is plotted by beginning at zero on the left corner of the graph. d. intersection of the sales line and the total costs line is equal to fixed costs. c. sales line is plotted by beginning at zero on the left corner of the graph.

Costs that do not change with the change in the level of production for some time is classified as ________.

a. variable costs b. fixed costs c. mixed costs d. None of these choices are correct. b. fixed costs

If a company decides to increase the selling price of its product, what is its effect on break-even point?

a.Decrease b. Increase c. No-effect d. None of these choices are correct. a.Decrease

Which of the following formulas is used to calculate break-even units?

a.Fixed Costs ÷ Unit Contribution Margin b. Variable Costs ÷ Contribution Margin Percent c. Variable Costs ÷ Unit Contribution Margin d. Fixed Costs ÷ Contribution Margin Percent a.Fixed Costs ÷ Unit Contribution Margin

CASM is the average

a.revenue earned per available seat mile. b. cost per available seat mile. c. cash available for seat maintenance. d. customer availability for seasonal miles. b. cost per available seat mile.

Costs that have characteristics of both a variable cost and a fixed cost are classified as ________.

a.variable costs b. fixed costs c. mixed costs d. None of these choices are correct. c. mixed costs