Chapter 3 Cost Accounting

Formula for Total Costs:

(Variable Costs per Unit * Units of Output) + Fixed Costs

Calculate Break-Even Volume in Sales Dollars given the following: Selling Price per Unit = $20 Variable Cost per Unit = $12 Fixed Costs = $1,000

= $1,000 / [($20 - $12) / $20] = $2,500

Calculate the After-Tax Operating Profits given the following: Tax Rate = 30% Before-Tax Income = $3,000

= $3,000 * (1 - 0.30) = $2,100

Calculate the Break-Even in Total number of Phones given the following: Phones Sell at a 7:3 Ratio (Standard to Deluxe) Standard Contribution per Unit = $20 Deluxe Contribution Margin per Unit = $60 Total Fixed Costs = $40,000

= $40,000 / [(0.70 * 20) + (0.30 * 60)] = 1,250 Phones

Calculate Break-Even (Sales Dollars) for the Deluxe Model given the following: History shows that 80% of Sales are Standard Cars and 20% are Deluxe Cars Weighted-Average Revenue = $20 Fixed Costs = $5,000 Weighted-Average Contribution Margin per Unit =$8

= $5,000 / ($8 / $20) * 0.20 = $2,500

Calculate Target Volume (in units) given the following: Sales Price per Unit = $25 Variable Cost per Unit = $15 Target Profit = $5,000 Fixed Costs = $1,000

= ($1,000 + $$5,000) / ($25 - $15) = 600 units

Calculate Target Profit given the following: Target Profit After Tax = $4,500 Fixed Costs = $2,000 Contribution Margin Ratio = 40% Tax Rate = 25%

= ($2,000 +4,500) / (1 - 0.25) = $20,000

Formula for Target Volume (sales dollars):

= (Fixed Costs + Target Profit) / Contribution Margin Ratio = (Fixed Costs + Target Profit) / (Unit Contribution Margin / Sales Price Per Unit) = (Fixed Costs + Target Profit) / [(Sales Price - Variable Cost per Unit) / Sales Price per Unit]

Formula for Target Volume (in units):

= (Fixed Costs + Target Profit) / Unit Contribution Margin = (Fixed Costs + Target Profit) / (Sales Price - Variable Cost per Unit)

Formula for Break-Even Volume (Sales Dollars):

= Fixed Costs / Contribution Margin Ratio = Fixed Costs / (Unit Contribution Margin / Sales Price Per Unit) = Fixed Costs / [(Sales Price - Variable Cost per Unit) / Sales Price per Unit]

Formula for Break-Even Volume (in units):

= Fixed Costs / Unit Contribution Margin = Fixed Costs / (Sales Price - Variable Cost per Unit)

Calculate Break-Even Volume in Sales Dollars given Selling Price per Unit, Variable Cost per Unit, and Fixed Costs

= Fixed Costs / [(Selling Price per Unit - Variable Cost per Unit) / Selling Price per Unit]

Formula for Contribution Margin is:

= Price - Variable Cost per Unit

Formula for Contribution Margin Ratio:

= Unit Contribution Margin / Sales Price Per Unit = (Sales Price - Variable Cost per Unit) / Sales Price per Unit

Formula for After-Tax Profit:

= [(Price - Variable Costs) * Units of Output - Fixed Costs] * (1 - Tax Rate) = [(P - V) * X - F] * (1 - t)

Formula for Profit:

= [(Price - Variable Costs) * Units of Output] - Fixed Costs = [(P - V) X] - F

Formula for Target Volume (in units), given Tax Rate:

= {Fixed Costs + [Target Profit / (1-t)]} / Unit Contribution Margin = {Fixed Costs + [Target Profit / (1-t)]} / (Sales Price - Variable Cost per Unit)

Calculate the Break-Even in Units given the following and Assuming the Company produced more than 1,000 monitors: Additional Supervisor and other Fixed Costs if more than 1,000 monitors are produced in a month = $30,000 Selling Price per Unit = $400 Variable Cost per Unit = $275 Fixed Cost for 1,000 units = $100,000

=($100,000 + $30,000) / ($400-275) = 1,040 Units

CVP Analysis Relies on ______ that Might Limit the Applicability of Results for Decision Making

Assumptions

The Volume Level at Which Profits Equal Zero is Called the:

Break-Even Point

When the Contribution Margin is Represented as a Percentage of Sales Revenue, it is Called:

Contribution Margin Ratio

Distinguishes between Fixed and Variable Costs:

Cost Behavior

The Proportion of Fixed and Variable Costs to Total Costs is:

Cost Structure

The Process where Managers Understand the Relationships between Revenues, Costs, Volume, and Profit is Called:

Cost-Volume-Profit (CVP) Analysis

True or False: An Organization's Cost Structure does NOT Effect the Sensitivity of its Profits to Changes in Volume

FALSE

True or False: Contribution Margin per Unit = Price Per Unit - Total Cost Per Unit

FALSE

True or False: Total Contribution Margin is the Sales Price Multiplied by the Number of Units

FALSE

A Company that is Capital Intensive would have a High Proportion of:

Fixed Costs

The Higher a Firm's ________, the Higher the Break-Even Point

Fixed Costs

Formula for Multiple-Product Break-Even Point:

Fixed Costs / Weighted Average Contribution Margin per Unit

When Operating Leverage is High in Firms with a High Proportion of Fixed Costs and a Low Proportion of Variable Costs, it results in a:

High Contribution Margin per Unit

The Higher a Firm's Fixed costs, the _______ the Break-Even Point

Higher

Calculate Margin of Safety given Sales, Fixed Costs, and Variable Costs

Margin of Safety = Sales - Break-Even Sales Break-Even Sales = 1 - (Variable Costs/ Sales)

Calculate Margin of Safety given the following: Sales = $100,000 Fixed Costs = $30,000 Variable Costs = $60,000

Margin of Safety = $100,000 - ($30,000/ ((1-($60,000/$100,000)) Margin of Safety = $25,000

The Excess of the Projected or Actual Sales Volume over the Break-Even Volume Expressed as a Percentage of Actual Sales Volume is called:

Margin of Safety Percentage

Formula for Total Revenue:

Price * Units of Output Produced and Sold

Formula for Margin of Safety is:

Sales Volume - Break-Even Sales Volume

True or False: Total Contribution Margin is the Amount that Units Sold Contribute Toward Covering Fixed Costs and Providing Operating Profits

TRUE

True or False: Total Contribution Margin is the Unit Contribution Margin Multiplied by the Number of Units

TRUE

Formula for Before-Tax Operating Income:

Target After-Tax Income / (1 - Tax Rate)

Formula for Operating Profit:

Total Revenues - Total Costs

The Difference between Sales Price and the Variable Cost per Unit is Called:

Unit Contribution Margin

The Slope of the Profit-Volume Line Represents:

Unit Contribution Margin

Cost Behavior Classifies Costs as to Whether they are _______ or _______

Variable or Fixed

A Company that is Capital Intensive would have a Low Proportion of:

Variable Costs

When a Company is Doing Multi-Product Break-Even Analysis and Assumes a Constant Product Mix, the Contribution Margin is the _________ of all of its Products

Weighted-Average Contribution Margin