A306 Exam 1 Healy

Given a sales price of $100, variable costs of $70 and a break-even point of 500 units, net operating profit for sale of 501 units will be $

(100-70)= $30

Which of the following are most likely fixed costs? -Factory insurance -Electricity to operate factory machines -Administrative salaries -Factory rent

-Factory insurance -Administrative salaries -Factory rent

Which of the following are most likely fixed costs? -Factory rent -Factory insurance -Electricity to operate factory machines -Administrative salaries

-Factory rent -Factory insurance -Administrative salaries

Indirect labor costs include ______. -assembly-line worker wages -assembly-line supervisor salary -factory security guard wages -administrative assistant salary

-assembly-line supervisor salary -factory security guard wages

Nonmanufacturing costs include -company president's salary -insurance on plant equipment -sales commissions -assembly-line worker wages

-company president's salary -sales commissions

Cost classifications for predicting cost behavior are used on -neither traditional nor contribution format income statements -contribution format income statements only -traditional format income statements only -both traditional and contribution format income statements

-contribution format income statements only

Cost objects include: -anything for which revenue data is desired. -customers. -anything for which cost data is desired. -organizational subunits.

-customers. -anything for which cost data is desired. -organizational subunits.

Period costs ______. -are included as part of the cost of goods -include all costs that are not product costs -flow through the inventory accounts -are expensed in the period incurred

-include all costs that are not product costs -are expensed in the period incurred

As the level of activity moves outside of the relevant range, fixed costs, ___ -do not increase or decrease -Fixed costs do not increase or decrease within the relevant range -increase or decrease in a linear fashion -increase or decrease in discrete steps

-increase or decrease in discrete steps

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

184,000-85,000=99,000

High low method formula for fixed cost

Highest activity cost- (variable cost per unit * highest activity units)

Given: Sales of $360,000, Gross Margin of $140,000, Contribution Margin of $110,000, and Total Selling & Administrative Exp. of $60,000, net income using the traditional income statement format equals ______. $160,000 $80,000 $190,000 $50,000

Net income= Gross Margin of 140,000- Total Selling & Admin Expenses of 60,000= 80,000

T/F The finished product of one company can become raw materials for another company.

True

How individual costs react to changes in activity level is referred to as cost ____

behavior

Sales revenue minus variable expenses equals ___ _____

contribution margin

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach. gross margin traditional balance sheet contribution margin

contribution margin

Any item for which cost data is desired is called a(n) ___ ____

cost object

Costs that can be easily and conveniently traced to a specific product are called ___ costs.

direct

A laptop computer manufacturer would consider the computer's processor chip to be a(n) ______ cost.

direct materials

To be traced to a cost object such as a particular product, the cost must be incurred to make the product.

false, the cost must be caused by the cost object

Costs that remain constant in total are ______ costs.

fixed

Product costs flow through the inventory accounts until the goods are sold, at which time they are matched against sales on the ____

income statement

Salaries of factory supervisors and factory maintenance personnel are examples of Blank______ labor costs.

indirect

Salaries of factory supervisors and factory maintenance personnel are examples of ______ labor costs.

indirect

Minor items such as nails and glue are usually considered to be ____

indirect materials

The best fitting line minimizes the sum of the squared errors when using

least square regression

Direct materials and direct labor are both ____ costs.

manufacturing

Factory costs such as cleaning supplies, taxes, insurance, and janitor wages are classified as

manufacturing overhead

Factory materials, such as cleaning supplies, that are not components of finished products are classified as ____

manufacturing overhead

The accrual concept that costs incurred to generate revenue are expensed in the same period the revenue is recognized is known as the _____ principle.

matching

A cost that contains both variable and fixed cost elements is a(n) ___ cost.

mixed

A potential benefit that is forfeited or lost when one decision is chosen over another is called a(n) ___ ____

opportunity cost

On a traditional income statement, cost of goods sold reports the _____ costs attached to the merchandise sold and selling and administrative expenses report all _____ costs that have been incurred. (Enter only one word per blank.)

product (manufacturing, period

The assumption that cost behavior is strictly linear is reasonably valid within the _______ ______ of activity

relevant range

The variable expense ratio equals variable expenses divided by -net income -sales -fixed expenses -contribution margin

sales

Which type of cost changes in total, in direct proportion to changes in activity level? -Variable -Fixed -Differential -Opportunity

variable

CM ratio is equal to 1 - ______ ______ ratio.

variable expense

Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $____

(9000*32)-120,000=168,000

High low method formula for variable cost per unit

(highest activity cost-lowest activity cost)/(highest activity units- lowest activity units)

The break-even point is reached when the contribution margin is equal to: -total sales. -total variable expenses. -total fixed expenses. -profit.

-total fixed expenses.

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

174,000

The materials that go into the final product are called ____ materials.

raw

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

($520000+320000) / 21= 40,000

A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is

(1430,000*.67)-657000= 301000

A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is $773,000 $958,100 ($185,100) $301,100

(1430000*.67)-657000)=301,100

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

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

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

(520000+320000) / 21 =40,000

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

(70,000*.30)-15,000= 6,000

A company currently has sales of $700,000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8,000, the company expects to increase sales to $735,000. If this is done and these results occur, net operating income will

(735,000-700,000)*.45-8,000 = 7,750

Chrissy's Cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, Chrissy's profit (loss) is

(832000*.72)-265000= 334040

Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $

(9,000*32)-120,000= 168,000

A company with a high ratio of fixed costs:

- is more likely to experience a loss when sales are down than a company with mostly variable costs. - is more likely to experience greater profits when sales are up than a company with mostly variable costs.

At the break-even point - the company is experiencing a loss - net operating income is zero - total revenue equals total cost - the company is earning a profit

- net operating income is zero - total revenue equals total cost

Which of the following are differences between the traditional and contribution format to income statements? -The traditional income statement is for internal use, while the contribution format income statement is for external use. -Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. -Contribution format statements make it easier to predict how decisions affect the future.

-Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. -Contribution format statements make it easier to predict how decisions affect the future.

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. -The traditional income statement is for internal use, while the contribution format income statement is for external use. -Contribution format statements make it easier to predict how decisions affect the future.

-Traditional income statements focus on cost classifications. Contribution format statements focus on cost behavior. -Contribution format statements make it easier to predict how decisions affect the future.

Which of the following is needed to calculate profit? -Unit contribution margin, unit sales, and total fixed costs -Unit contribution margin and total fixed costs -Contribution margin ratio and total fixed costs -Contribution margin ratio, unit sales, and total fixed costs

-Unit contribution margin, unit sales, and total fixed costs

Differential cost is ______. -also known as incremental cost -never relevant to a product decision -the same as opportunity cost -the difference in cost between two alternatives

-also known as incremental cost -the difference in cost between two alternatives

When making a decision, the decision maker should consider -relevant costs -relevant benefits -irrelevant benefits -irrelevant costs

-relevant costs -relevant benefits

Period costs are always expensed on the income statement in the period in which -the related goods are sold -the cash for the expense changes hands -they are incurred

-they are incurred

The break-even point is reached when the contribution margin is equal to: -total variable expenses. -profit. -total fixed expenses. -total sales.

-total fixed expenses.

Company A sold 200,000 units. Selling price is $7 per unit, contribution margin is $4 per unit, and the fixed expenses total $632,000. Company A's profit (loss) is

200,000* $4-632,000= 168,000

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______.

30,000 ($40-19)-250000=380000

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 Blank______. 7,625 12,725 5,100

305000/40= 7,625

Cost objects include: - customers. - anything for which revenue data is desired. - organizational subunits. - anything for which cost data is desired.

customers, organizational subunits, anything for which cost data is desired

Labor costs that can be easily and conveniently traced to specific products are ___ costs

direct labor

The variable expense ratio is the ratio of variable expense to ___

sales

The variable expense ratio is the ratio of variable expense to___ net operating income the contribution margin sales fixed expense

sales

Cost of goods sold for a merchandising company, direct materials and commissions are all examples of _____ costs.

variable

When using the high-low method, the slope of the line equals the _____ cost per unit of activity.

variable

The contribution margin income statement allows users to easily judge the impact of a change in __ ___ and __ on profit.

volume, cost, selling price