Exam 2_ Accounting 202

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by ______.

$0.35

Adam's Sports Store has a contribution margin ratio of 55% and has already passed the break-even point for the year. If Adam's generates additional sales of $250,000 by year-end, net operating income will increase by ______.

$137,500 $250,000 × 55% = $137,500 increase

Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is ______.

$55 Reason: Unit contribution margin= $90 -$35 = $55.

Anne's Antique Store has a contribution margin ratio of 29%. The break-even point has been reached. If the store generates an additional $600,000 of sales for the year, net operating income will increase by ______.

$600,000 × 29% = $174,000 (Change in NOI= DOL * % Change in sales)

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK-EVEN?

$98,000 ÷ ($50 - $15) = 2,800 CM- per Unit= (P-VC) FC/CM- per Unit= BE in units

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is

$99,000 Reason: Net operating income = $184,000 - $85,000 = $99,000

To obtain the dollar sales necessary to attain a given target profit, which of the following formulas should be used?

(Fixed expenses + Target net profit)/Contribution margin ratio

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by______.

0.35

Place the following items in the correct order in which they appear on the contribution margin format income statement.

1. Sales 2. Variable Expense 3. Contribution Margin 4. Fixed Expenses 5. Net Op. Income

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales_____.

1. net operating income will increase by $0.70 2. total contribution margin will increase by $0.70

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information ______.

1. the sale of 12,000 putters results in net operating income of $380,000 2. the contribution margin per putter is $65.

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is ______.

40,000 ($520,000 + $320,000) ÷ $21 = 40,000

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______. Multiple choice question.

7,625 Unit sales to break-even = Fixed expenses ÷ Contribution margin per unit = $305,000 ÷ $40 = 7,625

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is ______.

8,400 ($320,000 + $200,800) ÷ ($90 - $28) = 8,400 units.

In variable costing, a complete definition of unit product cost includes: A) Direct materials, direct labor, and variable manufacturing overhead. B) Direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative expenses. C) Direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. D) Direct materials and direct labor.

A) Direct materials, direct labor, and variable manufacturing overhead.

Which of the following statements is true? A) In absorption costing, variable manufacturing overhead costs flows through the inventory accounts on the balance sheet before being recorded as part of cost of goods sold on the income statement. B) In absorption costing, variable manufacturing overhead costs flows through the inventory accounts on the balance sheet before being recorded as part of selling and administrative expenses on the income statement. C) In absorption costing, variable manufacturing overhead costs flows through the inventory accounts on the balance sheet before being recorded as sales revenue on the income statement. D) In absorption costing, variable manufacturing overhead costs are recorded as period expenses on the income statement as incurred.

A) In absorption costing, variable manufacturing overhead costs flows through the inventory accounts on the balance sheet before being recorded as part of cost of goods sold on the income statement.

Which of the following statements is false? A) Variable costing treats direct materials as a product cost. B) Variable costing treats fixed manufacturing overhead as a product cost. C) Variable costing treats variable manufacturing overhead as a product cost. D) Variable costing treats direct labor as a product cost.

B) Variable costing treats fixed manufacturing overhead as a product cost.

Contribution margin is first used to cover______ expenses. Once the break-even point has been reached, contribution margin becomes______ .

Blank 1: fixed Blank 2: profit, income, or profits

The amount by which sales can drop before losses are incurred is the ____ of ____.

Blank 1: margin Blank 2: safety

The term "cost structure" refers to the relative proportion of_____ and ____ costs in an organization.

Blank 1: variable Blank 2: fixed

Which of the following statements is true? I. When materials are purchased in a process costing system, a work in process account is debited with the cost of the materials. II. The units in beginning work in process inventory plus the units started into production must equal the units transferred out of the department plus the units in ending work in process inventory.

Both Statements are true

Which of the following statements is false? A) Absorption costing treats fixed administrative expense as a period cost. B) Absorption costing treats sales commissions as a period cost. C) Absorption costing treats fixed manufacturing overhead as a period cost. D) Absorption costing treats variable manufacturing overhead as a product cost.

C) Absorption costing treats fixed manufacturing overhead as a period cost.

In absorption costing, a complete definition of unit product cost includes: A) Direct materials, direct labor, and variable manufacturing overhead. B) Direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative expenses .C) Direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. D) Direct materials and direct labor.

C) Direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead.

A 15% increase in sales resulted in a 40% increase in net income for Company A and a 60% increase in net income for Company B. Based on this, which company has the greater operating leverage?

Company B

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 sales volume, 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: A) $7 B) $17 C) $22 D) $16

D) $16 P= 40 VC= 18 VS&A= 6 (40-18-6) = -16

The Werner Corporation uses the weighted-average method in its process costing system. The company recorded 24,400 equivalent units for conversion costs for November in a particular department. There were 4,000 units in the ending work in process inventory on November 30 which were 60% complete with respect to conversion costs. The November 1 work in process inventory consisted of 5,000 units which were 40% complete with respect to conversion costs. A total of 22,000 units were completed and transferred out of the department during the month. The number of units started during November in the department was: A) 22,000 units B) 17,000 units C) 26,000 units D) 21,000 units

D) 21,000 units (beg. WIP + Units startes= Units Completed + End WIP (. 5000 + ? = 22,000 + 4,000) ( 5000 =26,000) ( - 5000 = -5,000) = 21,000

Which of the following types of companies would typically use process costing rather than job-order costing? A) A small appliance repair shop. B) A manufacturer of commercial passenger aircraft. C) A specialty equipment manufacturer .D) A breakfast cereal manufacturer.

D) A breakfast cereal manufacturer.

Which of the following statements is true? A) Variable costing treats direct materials as a period cost. B) Variable costing treats direct labor as a period cost. C) Variable costing treats variable manufacturing overhead as a period cost. D) Variable costing treats fixed manufacturing overhead as a period cost.

D) Variable costing treats fixed manufacturing overhead as a period cost.

If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in: A) unit contribution margin. B) revenue. C) variable expense. D) net operating income.

D. Net operating income

True or false: The margin of safety is the excess of break-even sales dollars over budgeted (or actual) sales dollars.

False

Cost structure refers to the relative portion of product and period costs in an organization.

False Reason: Cost structure refers to the relative portion of fixed and variable costs in an organization.

A company's current sales are $300,000 and fixed expenses total $85,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will ______.

INCREASE by $6,000 ($70,000 × 30%) - $15,000 = $6,000 increase (NOI= (CM ratio * Sales)- FC) find the difference between the two sums.

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is Blank______.

Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000 (could even use NOI =( P* Q)-(VC*Q)-FC

Which of the following statements is true? I. The equivalent units in beginning work in process inventory plus the equivalent units in ending work in process inventory equals the units transferred out plus the equivalent units for the work done during the period. II. When all materials are added at the beginning of the production process, under a weighted-average process costing system the equivalent units for materials is equal to the units completed and transferred out. III. In process costing, the equivalent units computed for materials is generally the same as that computed for conversion costs.

None

Which of the following statements is correct? -The higher the margin of safety, the lower the risk of incurring a loss. -The higher the margin of safety, the higher the risk of incurring a loss. -The risk of loss is not impacted by the margin of safety.

The higher the margin of safety, the lower the risk of incurring a loss.

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______.

Unit sales to break-even = Fixed expenses ÷ Contribution margin per unit = $305,000 ÷ $40 = 7,625

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

Variable expenses Sales

Using the contribution margin ratio, the impact on net income for a change in sales dollars is ____

change in sales dollars × contribution margin ratio

A change in profits that occurs due to a change in sales and fixed expenses may be calculated as ______.

cm ratio × change in sales - change in fixed expenses

The calculation of contribution margin (CM) ratio is ______.

contribution margin ÷ sales

Total contribution margin equals ______.

fixed expenses plus net operating income

If operating leverage is high, a small percentage increase in sales produces a _____(higher/lower) percentage increase in net operating income than if operating leverage is low.

higher

CVP analysis focuses on how profits are affected by ______.

mix of products sold selling price sales volume total fixed costs unit variable cost

The contribution margin as a percentage of sales is referred to as the contribution margin or CM _____

ratio

CVP analysis allows companies to easily identify the change in profit due to changes in:

selling price volume costs

The contribution margin equals sales minus all Blank______ expenses.

variable