Bad ch 5, 6,7
When unit sales are constant, but the number of units produced fluctuates and everything else remains the same, net operating income under variable costing will:
remain constant.
A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will:
have no effect on the break-even volume.
A reason why absorption costing income statements are sometimes difficult to interpret is that:
they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.
An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:
under activity-based costing some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining costs) will not be assigned to products.
The costing method that treats all fixed costs as period costs is:
variable costing.
Net operating income computed using absorption costing will always be less than net operating income computed using variable costing.
False
The break-even point can be determined by simply adding together all of the expenses from the income statement.
False
The salary paid to a store manager is not a traceable fixed expense of the store.
False
The smaller the contribution margin ratio, the smaller the amount of sales required to cover a given amount of fixed expenses.
False
Under absorption costing, a portion of fixed manufacturing overhead cost is released from inventory when production volume exceeds sales volume.
False
Wedd Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company's three activity cost pools as follows: Processing, $50,500; Supervising, $28,600; and Other, $24,700. Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below: Product O6 10,900 1,420 Product D7 890 510 Total 11,7901, 930 The activity rate for the Processing activity cost pool under activity-based costing is closest to:
Processing: $50,500 ÷ 11,790 MHs = $4.28 per MH***8
Testing a prototype of a new product is an example of a:
Product-level activity.
Gayne Corporation's contribution margin ratio is 16% and its fixed monthly expenses are $47,000. If the company's sales for a month are $305,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change.
Profit = (CM ratio × Sales) - Fixed expenses = (0.16 × $305,000) - $47,000 = $1,800****
Creswell Corporation's fixed monthly expenses are $29,000 and its contribution margin ratio is 56%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $95,000?
Profit = (CM ratio × Sales) - Fixed expenses = (0.56 × $95,000) - $29,000 = $24,200
Organization-sustaining activities are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.
True
In an ABC system, departmental managers are typically interviewed to determine how the departmental non-personnel costs should be distributed across the activity cost pools.
True
To estimate what the profit will be at various levels of activity, multiply the number of units to be sold above or below the break-even point by the unit contribution margin.
True
Under the absorption costing method, a company can increase profits simply by increasing the number of units produced.
True
Variable costing is more compatible with cost-volume-profit analysis than is absorption costing.
True
Abel Corporation uses activity-based costing. The company makes two products: Product A and Product B. The annual production and sales of Product A is 400 units and of Product B is 800 units. There are three activity cost pools, with total cost and activity as follows: Activity 1$ $30,240 1,050 300 1,350 Activity 2 $42,750 2,100 1,700 3,800 Activity 3 $10,751 160 260 420 The activity rate for Activity 2 is closest to:
$42,750 ÷ 3,800 = $11.25
Tat Corporation produces a single product and has the following cost structure: Number of units produced each year 7,000 Variable costs per unit: - Direct materials $77 - Direct Labor $89 - Variable manufacturing overhead $5 - Variable selling and administrative expense $3 Fixed costs: - Fixed manufacturing overhead $532,000 - Fixed selling and administrative expense $574,000 The unit product cost under absorption costing is:
- Direct materials$77 - Direct labor 89 - Variable manufacturing overhead 5 - Fixed manufacturing overhead cost($532,000 ÷ 7,000 units produced) 76 -------------------------------------- Absorption costing unit product cost $247
Which of the following would be classified as a product-level activity?
Advertising a product.
Tomasini Corporation has provided the following data from its activity-based costing accounting system: Supervisory wages $660,000 Factory supplies $280,000 Distribution of Resource Consumption across Activity Cost Pools: Batch Unit Processing Processing Other Total Supervisory wages 20% 70% 10% 100% Factory supplies 45% 35% 20% 100% The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much supervisory wages and factory supplies cost would be assigned to the Batch Processing activity cost pool?
Allocations to the Batch Processing activity cost pool: Supervisory wages (20% × $660,000)$132,000 Factory supplies (45% × $280,000) 126,000 -------------------------------------- Total $258,000
Tomasini Corporation has provided the following data from its activity-based costing accounting system: Supervisory wages $660,000 Factory supplies $280,000 Distribution of Resource Consumption across Activity Cost Pools: Batch Unit Processing Processing Other Total Supervisory wages 20% 70% 10% 100% Factory supplies 45% 35% 20% 100% The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much supervisory wages and factory supplies cost would NOT be assigned to products using the activity-based costing system?
Allocations to the Other activity cost pool: Supervisory wages (10% × $660,000)$66,000 Factory supplies (20% × $280,000) 56,000 -------------------------------------- Total$122,000
Purchase order processing is an example of a:
Batch-level activity.
In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.) Variable costing Absorption costing A) No effect Increase B) Decrease Increase C) Decrease Decrease D) No effect Decrease
Choice D
Foggs Corporation has provided the following data for its two most recent years of operation: -------------------------------------------------------------- Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials$10 Direct labor$6 Variable manufacturing overhead$5 Fixed manufacturing overhead per year$520,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold$6 Fixed selling and administrative expense per year$63,000 -------------------------------------------------------------- Year 1 Year 2 Units in beginning inventory 0 1,000 Units produced during the year 10,000 13,000 Units sold during the year 9,000 11,000 Units in ending inventory 1,000 3,000 -------------------------------------------------------------- The unit product cost under absorption costing in Year 2 is closest to:
Direct materials $10 Direct labor 6 Variable manufacturing overhead 5 Fixed manufacturing overhead($520,000 ÷ 13,000 units produced) 40 ----------------------------------------------- Absorption costing unit product cost $6**
Data concerning three of the activity cost pools of Salcido LLC, a legal firm, have been provided below: Researching legal issues $22,880 800 research hours Meeting with clients $1,325,275 7,573 meeting hours Preparing documents $94,240 5,900 documents The activity rate for the "meeting with clients" activity cost pool is closest to:
Meeting with clients activity rate: $1,325,275 ÷ 7,573 meeting hours = $175 per meeting hour**
A company has two divisions, each selling several products. If segment reports are prepared for each product, the division managers' salaries should be considered as common fixed costs of the products.
True
Activity-based costing is a costing method that is designed to provide managers with product cost information for internal decision-making.
True
In activity-based costing, a product margin may exclude costs from some of the company's activity cost pools.
True
The following information pertains to Nova Co.'s cost-volume-profit relationships: Breakeven point in units sold 1,000 Variable expenses per unit $500 Total fixed expenses $150,000 How much will be contributed to net operating income by the 1,001st unit sold?
Unit CM = $150,000 ÷ 1,000 units = $150 per unit
Last year, Kirsten Corporation's variable costing net operating income was $63,400. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $10,700. What was the absorption costing net operating income last year?
Variable costing net operating income$63,400 Add fixed manufacturing overhead costs deferred in inventory under absorption costing Deduct fixed manufacturing overhead costs released from inventory under absorption costing (10,700) ------------------------------------- Absorption costing net operating income$52,700
Sipho Corporation manufactures a single product. Last year, the company's variable costing net operating income was $90,900. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $21,900. What was the absorption costing net operating income last year?
Variable costing net operating income$90,900 Add fixed manufacturing overhead costs deferred in inventory under absorption costing Deduct fixed manufacturing overhead costs released from inventory under absorption costing (21,900) -------------------------------------- Absorption costing net operating income$69,000
Bellue Inc. manufactures a single product. Variable costing net operating income was $96,300 last year and its inventory decreased by 2,600 units. Fixed manufacturing overhead cost was $1 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?
Variable costing net operating income$96,300 + Deduct fixed manufacturing overhead costs released from inventoryunder absorption costing (2,600) -------------------------------------- Absorption costing net operating income$93,700
Eccles Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system: Costs: Wages and salaries $331,000 Depreciation 275,000 Utilities 227,000 Total $833,000 Distribution of resource consumption: Wages and salaries 50% 25% 25% 100% Depreciation 40% 10% 50% 100% Utilities 25% 55% 20% 100% How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool?
Wages and salaries (50% × $331,000) $165,500 Depreciation (40% × $275,000) 110,000 Utilities (25% × $227,000) 56,750 -------------------------------------------------------------- Total$332,250
Shun Corporation manufactures and sells a hand held calculator. The following information relates to Shun's operations for last year: - Unit product cost under variable costing$5.20 per unit - Fixed manufacturing overhead cost for the year$260,000 - Fixed selling and administrative expense for the year$180,000 - Units (calculators) produced and sold 400,000 What is Shun's absorption costing unit product cost for last year?
- Unit product cost under variable costing$5.20per unit - Fixed manufacturing overhead cost per unit($260,000 ÷ 400,000 units) $0.65per unit - --------------------------------------------- Absorption costing unit product cost $5.85per unit
A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: - Selling price $150 - Units in beginning inventory 150 - Units produced 7,300 - Units sold 6,900 - Units in ending inventory 550 Variable costs per unit: - Direct materials $48 - Direct labor $43 - Variable manufacturing overhead $8 - Variable selling and administrative expense $4 Fixed costs: - Fixed manufacturing overhead $233,600 - Fixed selling and administrative expense $82,800 What is the total period cost for the month under variable costing?
- Variable selling and administrative expense($4 per unit × 6,900 units sold)$27,600 - Fixed manufacturing overhead $233,600 - Fixed selling and administrative expense $82,800 ----------------------------------- Variable costing total period cost $344,000****
Annika Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 4,000 units and of Product B is 1,000 units. There are three activity cost pools, with total cost and activity as follows: Total Cost Product A B Total Activity 1 $18,000 700 300 1,000 Activity 2 $24,000 500 100 600 Activity 3 $60,000 800 400 1,200 The activity-based costing cost per unit of Product A is closest to:
1) Activity 1 $18,000 / 1,000 = $18.00 Activity 2 $24,000 / 600 = $40.00 Activity 3 $60,000 / 1,200 = $50.00 --------------------------------------------------- 2)The overhead cost charged to Product A is: Activity 1 $18.00 x 700 = 12,600 Activity 2 $40.00 x 500 = 20,000 Activity 3 $50.00 x 800 = 40,000 -------------------------------------- Total cost 72,600 -------------------------------------- 3) Cost per unit = $72,600 ÷ 4,000 units = $18.15 per unit*****
Data concerning Follick Corporation's single product appear below: - Selling price per unit$180.00 - Variable expense per unit$68.40 - Fixed expense per month$130,200 The break-even in monthly dollar sales is closest to:
1) CM ratio = Unit contribution margin ÷ Unit selling price = ($180.00 per unit - $68.40 per unit) ÷ $180.00 per unit = .62 -------------------------------------- 2)Dollar sales to break even = Fixed expenses ÷ CM ratio = $130,200 ÷ 0.62 = $210,000****
Hedman Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (9,000 units) $270,000 Variable expenses 202,500 Contribution margin 67,500 Fixed expenses 63,750 Net operating income $3,75 The margin of safety percentage is closest to:
1) M ratio = Contribution margin ÷ Sales = $67,500 ÷ $270,000 = 25% ----------------------------------------------- 2) Dollar sales to break even = Fixed expenses ÷ CM ratio = $63,750 ÷ 25% = $255,000 ----------------------------------------------- 3) Margin of safety in dollars = Total budgeted (or actual) sales - Break-even sales = $270,000 − $255,000 = $15,000 ----------------------------------------------- 4) Margin of safety percentage = Margin of safety in dollars ÷ Total budgeted (or actual) sales = $15,000 ÷ $270,000 = 6%*****
Moyas Corporation sells a single product for $25 per unit. Last year, the company's sales revenue was $315,000 and its net operating income was $63,250. If fixed expenses totaled $110,000 for the year, the break-even point in unit sales was:
1) Profit = (Sales - Variable expenses) - Fixed expenses Variable expenses = $315,000 - $110,000 - $63,250 = $141,750 -------------------------------------- 2) CM ratio = Contribution margin ÷ Sales = ($315,000 - $141,750) ÷ $315,000 = 0.55 -------------------------------------- 3)Dollar sales to break even = Fixed expenses ÷ CM ratio = $110,000 ÷ 0.55 = $200,000 -------------------------------------- 4) Unit sales to break even = $200,000 ÷ $25 per unit = 8,000 units
Combe Corporation has two divisions: Alpha and Beta. Data from the most recent month appear below: Alpha Beta Sales $190,000 $315,000 Variable expenses $58,900 $151,200 Traceable fixed expenses $99,000 $107,000 The company's common fixed expenses total $80,800. The break-even in sales dollars for Alpha Division is closest to:
1) Segment contribution margin = Segment sales - Segment variable expenses = $190,000 - $58,900 = $131,100 -------------------------------------- 2) Segment CM ratio = Segment contribution margin ÷ Segment sales = $131,100 ÷ $190,000 = 0.69 -------------------------------------- 3) Dollar sales for a segment to break even = Segment traceable fixed expenses ÷ Segment CM ratio = $99,000 ÷ 0.69 = $143,478
Nocum Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range - Sales (3,000 units) $120,000 - Variable expenses 90,000 - Contribution margin 30,000 - Fixed expenses 21,000 - Net operating income $9,000 If sales decline to 2,900 units, the net operating income would be closest to:
1) Selling price per unit ($120,000 ÷ 3,000 units)$40 - Variable cost per unit ($90,000 ÷ 3,000 units) 30 = Unit contribution margin$10 ----------------------------------------------- 2) Unit contribution margin $10per unit X Unit sales 2,900units = $29,000 ----------------------------------------------- 3) $29,000 - Fixed expenses 21,000 = $8,000****
Cassius Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (7,000 units) $210,000 Variable expenses 136,500 Contribution margin 73,500 Fixed expenses 67,200 Net operating income $6,300 The number of units that must be sold to achieve a target profit of $31,500 is closest to:
1) Selling price per unit ($210,000 ÷ 7,000 units)$30.00 - Variable cost per unit ($136,500 ÷ 7,000 units) 19.50 = Unit contribution margin$10.50 ----------------------------------------------- 2) Unit sales to attain a target profit = (Target profit + Fixed expenses) ÷ Unit CM = ($31,500 + $67,200) ÷ $10.50 per unit = 9,400 units*****
Duve Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (2,000 units) $40,000 Variable expenses 24,000 Contribution margin 16,000 Fixed expenses 11,200 Net operating income $4,800 If the selling price increases by $4 per unit and the sales volume decreases by 200 units, the net operating income would be closest to:
1) Selling price per unit ($40,000 ÷ 2,000 units)$20 - Variable cost per unit ($24,000 ÷ 2,000 units) 12 = unit contribution margin$8 ----------------------------------------------- 2) -Selling price ($20 per unit + $4 per unit) $24 per unit - - Variable cost per price 12 per unit =Unit contribution margin 12 per unit ----------------------------------------------- 3) 12 per unit x Unit sales (2,000 units − 200 units) 1,800units = $21,600 ----------------------------------------------- 4) $21,600 - fixed expenses 11,200 = $10,400****
Mishoe Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. - Sales (1,000 units) $50,000 - Variable expenses 32,500 - Contribution margin 17,500 - Fixed expenses 12,250 - Net operating income $5,250 The break-even point in unit sales is closest to: (Round your intermediate calculations to 2 decimal places.)
1) Selling price per unit ($50,000 ÷ 1,000 units)$50.00 - Variable cost per unit ($32,500 ÷ 1,000 units) 32.50 = Unit contribution margin $17.50 ----------------------------------------------- 2) Unit sales to break even = Fixed expenses ÷ Unit CM = $12,250 ÷ $17.50 per unit = 700 units
Sorin Inc., a company that produces and sells a single product, has provided its contribution format income statement for January. - Sales (4,200 units) $155,400 - Variable expenses 100,800 - Contribution margin 54,600 - Fixed expenses 42,400 - Net operating income $12,200 If the company sells 4,600 units, its total contribution margin should be closest to:
1) Selling price per unit = Sales ÷ Quantity sold = $155,400 ÷ 4,200 units = $37 per unit ----------------------------------------------- 2) Variable expenses per unit = Variable expenses ÷ Quantity sold Variable expenses per unit $100,800 ÷ 4,200 units = $24 per unit ----------------------------------------------- 3) Unit CM = Selling price per unit - Variable expenses per unit $37 per unit - $24 per unit = $13 per unit ----------------------------------------------- 4) Total CM = Unit CM × Quantity sold $13 per unit × 4,600 units = $59,800*****
Decaprio Inc. produces and sells a single product. The company has provided its contribution format income statement for June. - Sales (8,800 units) $528,000 - Variable expenses 290,400 - Contribution margin 237,600 - Fixed expenses 211,700 - Net operating income $25,900 If the company sells 9,200 units, its net operating income should be closest to:
1) Selling price per unit = Sales ÷ Quantity sold = $528,000 ÷ 8,800 units = $60 per unit ----------------------------------------------- 2) Variable expenses per unit = Variable expenses ÷ Quantity sold = $290,400 ÷ 8,800 units = $33 per unit ----------------------------------------------- 3) Unit CM = Selling price per unit - Variable expenses per unit = $60 per unit - $33 per unit = $27 per unit ----------------------------------------------- 4) Profit = (Unit CM × Q) - Fixed expenses = ($27 per unit × 9,200 units) - $211,700 = $36,700******
Houseal Corporation has provided the following data from its activity-based costing system: Total Cost Total Activity Assembly $613,250 55,000 Processing orders $46,1701 500orders Inspection $146,110 1,9000 ------------------------------------------------------------------ Data concerning one of the company's products, Product W58B, appear below: - Selling price per unit $113.70 - Direct materials cost per unit $48.14 - Direct labor cost per unit $11.62 - Annual unit production and sales 360 - Annual machine-hours 1,040 - Annual orders 60 -Annual inspection-hours 30 According to the activity-based costing system, the product margin for product W58B is:
1) The activity rates for each activity cost pool are computed as follows: Assembly $613,250 55,000 $11.15 Processing $46,170 1,500 $30.78 Inspection $146,110 1,900 $76.90 --------------------------------------------------- 2) Assembly $11.15 1040 $11,596.00 Processing $30.78 60 $1,846.80 Inspection $76.90 30 $2,307. ------------- $15,749.80 --------------------------------------------------- 3) Subtract Sales (360 units × $113.70 per unit) $40,932.00 Direct materials (360 units × $48.14 per unit) $17,330.40 Direct labor (360 units × $11.62 per unit) 4,183.20 Overhead 15,749.80 -------------------------------------------------- Product margin $3,668.60****
Younie Corporation has two divisions: the South Division and the West Division. The corporation's net operating income is $26,900. The South Division's divisional segment margin is $42,800 and the West Division's divisional segment margin is $29,900. What is the amount of the common fixed expense not traceable to the individual divisions?
1) Total segment margin = $42,800 + $29,900 = $72,700 -------------------------------------- 2) Total net operating income = Total segment margin - Common fixed expenses $26,900 = $72,700 - Common fixed expenses -------------------------------------- Common fixed expenses = $72,700 - $26,900 = $45,800****
Derst Inc. sells a particular textbook for $35. Variable expenses are $26 per book. At the current volume of 47,000 books sold per year the company is just breaking even. Given these data, the annual fixed expenses associated with the textbook total:
1) Unit CM = Selling price per unit - Variable expenses per unit = $35 per book - $26 per book = $9 per book -------------------------------------- 2) Unit sales to break even = Fixed expenses ÷ Unit CM Fixed expenses = 47,000 books × $9 per book = $423,000*****
Goodman Corporation has sales of 3,000 units at $80 per unit. Variable costs are 35% of the sales price. If total fixed costs are $66,000, the degree of operating leverage is:
1) Unit CM = Selling price per unit - Variable expenses per unit = $80 per unit - (0.35 × $80 per unit) = $80 per unit - $28 per unit = $52 per unit ----------------------------------------------- 2) Contribution margin = $52 per unit × 3,000 units = $156,000 ----------------------------------------------- 3) Profit = Unit CM × Unit sales - Fixed expenses = $156,000 - $66,000 = $90,000 ----------------------------------------------- 4) Degree of operating leverage = Contribution margin ÷ Net operating income = $156,000 ÷ $90,000 = 1.73*****
Sufra Corporation is planning to sell 100,000 units for $3.20 per unit and will break even at this level of sales. Fixed expenses will be $111,000. What are the company's variable expenses per unit?
1) Unit sales to break even = Fixed expenses ÷ Unit CM Unit CM = $111,000 ÷ 100,000 units = $1.11 per unit -------------------------------------- 2)Unit CM = Selling price per unit - Variable expenses per unit Variable expenses per unit = $3.20 per unit - $1.11 per unit = $2.09*** per unit
Ferkil Corporation manufacturers a single product that has a selling price of $25.00 per unit. Fixed expenses total $33,000 per year, and the company must sell 5,500 units to break even. If the company has a target profit of $12,000, sales in units must be:
1) Unit sales to break even = Fixed expenses ÷ Unit CM Unit CM = $33,000 ÷ 5,500 units = $6 per unit -------------------------------------- 2) Unit sales to attain a target profit = (Target profit + Fixed expenses) ÷ Unit CM ($12,000 + $33,000) ÷ $6 per unit = 7,500
Silver Corporation produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true?
1) Units in ending inventory = Units in beginning inventory + Units produced - Units sold = 0 units + 3,000 units - 2,400 units = 600 units -------------------------------------- 2) Absorption costing unit product cost = ($7,500 + $4,500) ÷ 3,000 units = $4.00 per unit Variable costing unit product cost = $7,500 ÷ 3,000 units = $2.50 per unit -------------------------------------- 3) Absorption costing ending inventory ($4.00 per unit × 600 units)$2,400 - Variable costing ending inventory ($2.50 per unit × 600 units) 1,500 = Difference$900** - The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.**
Carver Corporation produces a product which sells for $40. Variable manufacturing costs are $18 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 15% of the selling price is paid on each unit sold. The contribution margin per unit is:
1) Variable cost per unit = $18 per unit + (0.15 × $40 per unit) = $24 per unit ----------------------------------------------- 2) Unit CM = $40 per unit - $24 per unit = $16 per unit ****
Bellue Inc. manufactures a single product. Variable costing net operating income was $114,600 last year and its inventory decreased by 3,000 units. Fixed manufacturing overhead cost was $3 per unit for both units in beginning and in ending inventory. What was the absorption costing net operating income last year?
1) $3 per unit × (Units in ending inventory − Units in beginning inventory) = $3 per unit × (−3,000) = −$9,000 -------------------------------------- 2) - Variable costing net operating income$114,600 - Deduct fixed manufacturing overhead costs released from inventory under absorption costing (9,000) -------------------------------------- Absorption costing net operating income $105,600****
Schister Systems uses the following data in its Cost-Volume-Profit analyses: - Sales $400,000 - Variable expenses 220,000 - Contribution margin 180,000 - Fixed expenses 1 20,000 - Net operating income $60,000 What is total contribution margin if sales volume increases by 30%?
1) CM ratio = Contribution margin ÷ Sales = $180,000 ÷ $400,000 = 0.45 -------------------------------------- 2) Contribution margin = 0.45 × (1.3 × $400,000) = $234,000
A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price $131 Units in beginning inventory 0 Units produced 3,320 Units sold 2,890 Units in ending inventory 430 Variable costs per unit: Direct materials $45 Direct labor $15 Variable manufacturing overhead $7 Variable selling and administrative expense $19 Fixed costs: Fixed manufacturing overhead $92,960 Fixed selling and administrative expense $28,900 The total gross margin for the month under absorption costing is:
1) Direct materials$45 Direct labor $15 Variable manufacturing overhead $7 Fixed manufacturing overhead cost ($92,960 ÷ 3,320 units produced) $28 -------------------------------------- Absorption costing unit product cost $95 -------------------------------------- 2) Sales (2,890 units sold × $131 per unit) $378,590 Cost of goods sold (2,890 units sold × $95 per unit) 274,550 -------------------------------------- Gross margin$104,040*****
Rovinsky Corporation, a company that produces and sells a single product, has provided its contribution format income statement for November. - Sales (5,700 units) $319,200 - Variable expenses 188,100 - Contribution margin 131,100 - Fixed expenses 106,500 - Net operating income $24,600 If the company sells 5,300 units, its net operating income should be closest to:
1) Selling price per unit = Sales ÷ Quantity sold = $319,200 ÷ 5,700 units = $56 per unit ---------------------------------------------- 2) Variable expenses per unit = Variable expenses ÷ Quantity sold = $188,100 ÷ 5,700 units = $33 per unit ----------------------------------------------- 3) Unit CM = Selling price per unit - Variable expenses per unit = $56 per unit - $33 per unit = $23 per unit ----------------------------------------------- 4) Profit = (Unit CM × Q) - Fixed expenses ($23 per unit × 5,300 units) - $106,500 = $15,400****
A company produces a single product. Variable production costs are $12.20 per unit and variable selling and administrative expenses are $3.20 per unit. Fixed manufacturing overhead totals $38,000 and fixed selling and administration expenses total $42,000. Assuming a beginning inventory of zero, production of 4,200 units and sales of 3,700 units, the dollar value of the ending inventory under variable costing would be:
1) Units in ending inventory = Units in beginning inventory + Units produced − Units sold 0 units + 4,200 units − 3,700 units = 500 units -------------------------------------- 2) Value of ending inventory under variable costing = Units in ending inventory × Variable production cost 500 units × $12.20 per unit = $6,100***
Bitonti Corporation has provided the following data for its most recent year of operation: -------------------------------------------------------------- Manufacturing costs: Variable manufacturing cost per unit produced: - Direct materials $9 - Direct labor $7 - Variable manufacturing overhead $5 - Fixed manufacturing overhead per year$156,000 Selling and administrative expenses: - Variable selling and administrative expense per unit sold$5 - Fixed selling and administrative expense per year$81,000 -------------------------------------------------------------- Units in beginning inventory 0 Units produced during the year 12,000 Units sold during the year 11,000 Units in ending inventory 1,000 -------------------------------------------------------------- The unit product cost under absorption costing is closest to:
Direct materials $9 Direct labor 7 Variable manufacturing overhead 5 Fixed manufacturing overhead($156,000 ÷ 12,000 units produced) 13 ---------------------------------------------- Absorption costing unit product cost$34
Kray Inc., which produces a single product, has provided the following data for its most recent month of operations: - Number of units produced 5,300 Variable costs per unit: - Direct materials $32 - Direct labor $27 - Variable manufacturing overhead $13 - Variable selling and administrative expense $6 Fixed costs: - Fixed manufacturing overhead $466,400 - Fixed selling and administrative expense $429,300 There were no beginning or ending inventories. The variable costing unit product cost was:
Direct materials$32 Direct labor 27 Variable manufacturing overhead 13 -------------------------------------- Variable costing unit product cost $72******
Stoneberger Corporation produces a single product and has the following cost structure: Number of units produced each year 4,000 Variable costs per unit: - Direct materials $50 - Direct labor $72 - Variable manufacturing overhead $6 - Variable selling and administrative expense $3 Fixed costs per year: - Fixed manufacturing overhead $296,000 - Fixed selling and administrative expense $76,000 The variable costing unit product cost is:
Direct materials$50 Direct labor 72 Variable manufacturing overhead 6 -------------------------------------- Variable costing unit product cost$128
Allocating common fixed costs to segments on segmented income statements increases the usefulness of such statements.
False
Departmental overhead rates will correctly assign overhead costs in situations where a company has a range of products that differ in volume, lot size, or complexity of production.
False
Direct labor costs are usually included in the costs that are allocated to activity cost pools in an activity-based costing system.
False
First-stage allocations in an ABC system should not be based on the opinions of employees about how costs should be distributed among activity cost pools.
False
In activity-based costing, as in traditional costing systems, manufacturing costs are not assigned to products.
False
When switching from a traditional costing system to an activity-based costing system that contains some batch-level costs:
the unit product costs of high volume products typically decrease and the unit product costs of low volume products typically increase.