A306 CH!
A company purchased a 12 month insurance policy on October 1 at a cost of $1,200. On the December 31 annual financial statements:
$300 is reported as a expense and $900 is reported as an asset
Variable Cost % = 36% Fixed Cost = 1,280 What is Revenue need to Breakeven?
(1,280)/(64%)
Break Even point in unit sales w/ increased fixed salaries
(Fixed Expenses + Increase in salaries)/(Unit CM - Invoice Costs)
Net Operating Income
(actual units - break even units) x (Unit CM)
When a company only produces a single product, the total variable cost can be calculated with the equation:
(variable cost per unit) * (quantity of units sold)
Which of the following are differences between the traditional and contribution format to income statements?
- Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. - contribution format statements provide management with a tool to make decision making easier.
Cost objects include:
- anything for which cost data is desired - organizational subunits - customers
ABC costing
- backbone of how most companies allocate fixed costs - use multiple pools to allocate fixed costs
Indirect labor costs include:
- factory security guard wages - assembly-line supervisor salary
CM = 168,000 Units = 14,000 Sale Price = 25 How much will profit increase if 1 additional unit is sold?
168,000/14,000 = 12$
Direct Materials = 200 Direct Labor = 10 hours at 15$ an hour Estimated Overhead = 760,000 Estimated Direct Labor Hours = 20,000 What is the cost?
200 + 10(15) + ((760,000/20,000)*10)
Predetermined Overhead Rate
= (estimated total manufacturing overhead cost) / (estimated total amount of the allocation base)
Selling Price
= (total manufacturing cost) + (Total manufacturing cost * Markup)
Unit Cost
= (total manufacturing cost) / Units
Total Indirect Manufacturing Cost Formula
= Total manufacturing overhead
CM Ratio
CM/Sales
Product Costs =
COGS
Which income statement format would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?
Contribution IS
Degree of Operating Leverage
Contribution Margin / Net Operating Income
Return earned on investments, $3,000 per year
Cost Behavior: None manufacturers: None Financial Statement: none Decision Making: opportunity cost
Rental revenue forgone, $30,000 per year
Cost Behavior: None manufacturers: none Financial Statement: none Decision Making: opportunity cost
Rental cost of equipment, $4,000 per month
Cost Behavior: fixed manufacturers: manufacturing overhead Financial Statement: product Decision Making: none
Supervisor's salary, $3,500 per month
Cost Behavior: fixed manufacturers: manufacturing overhead Financial Statement: product Decision Making: none
Depreciation of the annex space, $8,000 per year
Cost Behavior: fixed manufacturers: manufacturing overhead Financial Statement: product Decision Making: sunk cost
Advertising cost, $50,000 per year
Cost Behavior: fixed manufacturers: none Financial Statement: Period Decision Making: none
Rental cost of warehouse, $500 per month
Cost Behavior: fixed manufacturers: none Financial Statement: period Decision Making: none
Direct materials cost, $80 per unit
Cost Behavior: variable manufacturers: Direct materials Financial Statement: product Decision Making: none
Direct labor cost, $60 per unit
Cost Behavior: variable manufacturers: direct labor Financial Statement: product Decision Making: none
Electricity for machines, $1.20 per unit
Cost Behavior: variable manufacturers: manufacturing overhead Financial Statement: product Decision Making: none
Shipping cost, $9 per unit
Cost Behavior: variable manufacturers: none Financial Statement: period Decision Making: none
Total Conversion Costs Formula
Direct Labor + Manufacturing Overhead
Prime Cost
Direct Materials + Direct Labor
Total Prime Cost Formula
Direct Materials + Direct Labor
total direct manufacturing cost formula
Direct Materials + Direct Labor
total variable cost
Direct materials + Direct labor + variable manufacturing overhead + (variable selling expense/sales commission) + variable administrative expense
Break-even point in unit sales
Fixed Expenses / Unit CM
Break Even point in unit sales w/ incentive commission "x"
Fixed Expenses/(unit CM - commission x)
Minor items such as nails and glue are usually considered to be:
Indirect materials
Income Statement
Sales (-) COGS Gross Margin (-) Selling (-) Administrative Net Income
Contribution Margin Income Statement
Sales Variable Expenses: (-) COGS (-) Administrative (-) Selling Contribution Margin Fixed Expenses: (-) Selling (-) Administrative Net Operating Income
selling price per unit
Sales / Quantity Sold
Total Overhead Cost
X part of y=a+bx
margin of safety formula
actual sales - break even sales
Manufacturing Overhead
all manufacturing costs except direct materials and direct labor
Cost behavior:
categorizes costs as fixed, mixed and variable
How individual costs react to changes in activity level is referred to as:
cost behavior
Period Costs
costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued
The difference in costs between two alternatives is called a
differential cost
Product Cost Formula
direct materials + direct labor + manufacturing overhead
Total Manufacturing Costs
direct materials + direct labor + manufacturing overhead
Total Variable Manufacturing Cost
direct materials + direct labor + variable manufacturing overhead
incremental cost
direct materials + direct labor + variable manufacturing overhead
Period costs:
do not flow through inventory accounts
break-even point in sales dollars
fixed expenses / contribution margin ratio
Average manufacturing overhead cost per unit usually varies from one period to the next because:
fixed manufacturing overhead remains constant in total even when production changes
Differential cost is also known as
incremental cost
The contribution margin statement is primarily used for:
internal decision making
Indirect materials and indirect labor are classified as
manufacturing overhead
The manufacturing overhead account contains:
many different kinds of indirect costs
An allocation base is a
measure of activity used to assign overhead costs to products and services
The level of activity within which variable and fixed cost assumptions are valid is known as the
relevant range
Period Cost Formula
selling expense + administrative expense
Total Non-Manufacturing Costs
total Selling expense + Total Administrative Expenses
Direct Labor is also called:
touch labor
Cost of goods sold for a merchandising company, direct materials and commissions are all examples of
variable costs
Formula to determine numerator
y=a+bx y = estimated total fixed manufacturing overhead cost a = estimated total fixed manufacturing overhead cost b = estimated variable manufacturing overhead cost per unit of the allocation base x = estimated total amount of the allocation base