Advanced Accounting Chapter 4
Kapalua, Inc. manufactures hand held planners. Total fixed costs are $3,950,000, with variable costs per unit of $148.28. The corporate tax rate is 35%. If Kapalua can sell 39,242 units, the per unit selling price necessary to earn an after-tax profit of $1,430,000 must be:
$305.00
Fixed Cost
Remains constant is total Changes as output changes
Direct Materials
Traceable to the product Worth the cost of tracing
If only the selling price increase the breakeven point
decreases
If only the selling price decreases the breakeven point will
increase
Dreary Days, Inc. sells raincoats at a selling price of $25.00 for each rain coat. The variable cost per coat is $16.25. Total fixed costs are $142,000. The contribution margin ratio is:
.35
True Fruit, Inc. sells frozen raspberry fruit bars for $2.50 each. The variable cost per bar is $1.35. Total fixed costs are $25,645. The breakeven point in units is:
22,300
Adagio Company had sales of 2,500 units more than breakeven point. Adagio 's fixed costs are $500,000 and its contribution margin was $20 per unit. How many units did Adagio sell?
27,500
Non-product cost
A cost that is related to selling the products and services or administering the company. Sometimes called a period cost.
Contribution margin ratio
The percentage of each sales dollar that is available to cover a company's fixed expenses and profit. CM Ratio = CM / SP
The point where the total revenue line intersects the total cost line is called the:
breakeven point
Non Troppo Corporation has the following cost formula: TC=$250,000 + (30 x AL). If Non Troppo sells 7,000 units, what will its total cost be?
$460,000
The Foggy Daze Company sells a "one size fits all" rain poncho for $11.50. Variable costs per unit are $3.86, while total fixed costs amount to $572,200. The corporate tax rate is 30% and the company wants to earn an after-tax profit of $209,000. How many units must be sold to achieve the after-tax profit goal?
113,975
As volume the of production decreases, total fixed costs
are constant but the cost per unit increases
The contribution margin ratio is calculated as:
contribution margin per unit/selling price per unit
If only the variable cost decreases the breakeven point
decreases
True Fruit, Inc. sells frozen raspberry fruit bars for $2.50 each. The variable cost per bar is $1.35. Total fixed costs are $25,645. The contribution margin ratio is:
.46
Which of the following is a short-term operating decision? A)Decision to make a new product B) Decision to buy a new plant C) Decision to discontinue a product line D) Decision to reduce the normal price to get large order from one customer
Decision to reduce the normal price to get large order from one customer
Cost-volume-profit analysis
How costs respond to changes in sales volume, and The effect of costs and revenues on profit.
If only the fixed costs increase the breakeven point
Increases
Product Costs
Incurred in connection with buying or making the product
The breakeven point is the point at which:
total contribution margin equals total fixed costs
Dreary Days, Inc. sells raincoats at a selling price of $25.00 for each raincoat. The variable cost per raincoat is $16.25. Total fixed costs are $142,000. The breakeven point in units is:
16,229
Direct Labor
Cost of employees "touching the product"
Variable Cost
Remains constant on a per unit basis Changes in total as output changes
Total Cost Formula
TC= FC + (VC*Activity level)
If a manufacturer's cost of direct material increases, how will this affect breakeven point?
increase
The Foggy Daze Company sells a "one size fits all" rain poncho for $11.50. Variable costs per unit are $3.86, while total fixed costs amount to $572,200. The corporate tax rate is 30% and the company wants to earn an after-tax profit of $209,000. The total sales needed to break even are:
$861,304
Bug-Ez Corporation manufactures one product, Itch-A-Way, which, when applied to a bug bite soothes the itch. The unit contribution margin for Itch-A-Way is $4.20, while total fixed costs amount to $537,000. Given a selling price of $8.25 per unit, the breakeven point in units is:
127,858
Meadow Glow Company desires an after-tax profit of $140,000. Its sales price and variable costs are $100 and $40 per unit, respectively. Fixed costs total $340,000. Assuming a 30% tax rate, how many units must Meadow Glow sell to achieve its desired profit?
9,000
Contribution Margin is defined as:
A product's contribution margin tells you how much that product contributes toward paying your company's fixed costs -- and, once those costs have been covered, how much it contributes toward profit. CM = Selling price - variable cost
Short-term decision making differs from long-term decision making because:
Can't plan for short-term decisions. Short-term decision making 1. assumes capacity is fixed. 2. are ad-hoc (they just happen) 3. Unique
If selling price per unit increases, how will this affect the contribution margin and breakeven point? Contribution Margin Breakeven Point A) Decrease Decrease B) Increase Increases C) Decrease Increase D) Increase Decrease
Contribution Margin Breakeven Point B) Increase Increases
If variable cost per unit increases, how will this affect the contribution margin and breakeven point? Contribution Margin Breakeven Point A) Decrease Decrease B) Increase Increases C) Decrease Increase D) Increase Decrease
Contribution Margin Breakeven Point A) Decrease Decrease
Mixed Cost
Has a fixed cost element and variable cost element.
Period Costs
Incurred in connection with selling the product and administering (running) the company, storing the product
Manufacturing overhead
Indirect costs of production (indirect materials, indirect labor, and other manufacturing costs)
Sensitivity Analysis
The process of changing key variables to determine how a prior outcome is impacted by the change in the variable.
Breakeven Point
You must sell enough units to cover fixed costs. The point where the total cost line intersects the total revenue line. Total Revenue = Total Costs Profit = 0
