ACC 2302: Chapter 5,6,8

The break-even point calculation is affected by ______.

costs per unit sales mix selling price per unit

Account analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation.

false Reason: This is the engineering approach.

A business segment should only be dropped if a company can save more in Blank______ costs than it loses in contribution margin.

fixed

One of the great dangers in allocating common costs is ______ that such allocations can make a product line look less profitable than it really is.

fixed

Total contribution margin equals ______

fixed expenses plus net operating income

Contribution margin is first used to cover _____ expenses. Once the break-even point has been reached, contribution margin becomes _____.

fixed expenses, profit

Absorption costing net operating income may not agree with the net operating income calculated for CVP analysis due to the way in which ______ is handled in absorption costing. Multiple choice question.

fixed manufacturing overhead

Trains is currently selling 55,000 toy trains for $50 per unit. Variable cost per train is $26 and total fixed costs are $110,000. If he sells an additional 5,000 trains, profit will

increase $120,000

A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) ________cost.

sunk

Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are Blank______ costs.

sunk

As it applies to sell or process further decisions, which term refers to a product that is in the process of being made?

Intermediate product

Which of the following statements are true? Plotting data on a scattergraph is an important diagnostic step. Scattergraphs are a way to diagnose cost behavior. When plotting a scattergraph, cost is the independent variable. Scattergraphs should be used after high-low or regression analysis is performed.

Plotting data on a scattergraph is an important diagnostic step. Scattergraphs are a way to diagnose cost behavior

JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40% and traceable fixed expenses of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution margin ratio of 55%. The company also has $30,000 of common fixed expenses. The break-even point in dollar sales for the Retail segment equals ______.

Reason: $70,000 ÷ 40% = $175,000

Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax of a store is the _________fixed cost of the store and the _______ fixed cost of each product line sold in the store.

Blank 1: traceable, traced, or direct Blank 2: common

When inventory increases, which costing method generally results in higher net income?

Absorption costing

Which of the following must be subtracted from sales to reach the contribution margin?

All variable expenses like variable direct labor, variable selling and admin costs, variable overhead, variable direct materials

Because nonmanufacturing costs are not included as costs of _________ a product, the use of costing can lead to the omission of segment costs.

Blank 1: absorption or full

Financial statement users need to be aware of changes in inventory levels when using inventory_________ costing.

Blank 1: absorption or full

The two general costing approaches used by manufacturing companies to prepare income statements are ____________ costing and _________________ costing.

Blank 1: absorption or full Blank 2: variable , marginal, or direct

Which of the following tools may be used to calculate the volume of sales needed to cover a company's fixed expenses?

break-even

Assigning common fixed costs to segments impacts ______. neither segment margin nor total corporate profit segment margin only total corporate profit only both segment margin and total corporate profit

segment margin only

When a company produces and sells multiple products______.

a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin each product most likely has different costs

Cost behavior is considered linear whenever ______.

a straight line approximates the relationship between cost and activity

When units produced exceed units sold, net income will generally be ______ costing.

higher under absorption costing than under variable

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative Blank______.

income statements

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead costs will _____ in total as the number of units produced increases.

increase

GAAP and IFRS rules for publicly traded companies Blank______. Multiple select question. require that the same method be used for both internal and external segment reporting create problems in reconciling internal and external reports create incentives for companies to use the contribution margin format in segment reporting require segmented financial data be included in annual reports

require that the same method be used for both internal and external segment reporting create problems in reconciling internal and external reports require segmented financial data be included in annual reports

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

ratio

Ceramic sells pots for $25. Variable cost per pot is $12, and 15,000 pots must be sold to break-even. Ceramic sells $25,000 pots. What is net operating income?

$130,000 (25,000-15,000)x($25-$12) = $130,000

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was ______.

$2,200 Reason:Profit = 300 × ($20 - $7) - $1,700 = $2,200.

Pearls sold 95 necklaces last month. VC per unit is $40, and fixed cost is $3,085. What is total variable cost?

$3,800

Pete sells putters for $125 each. Variable cost is $60 per putter and fixed costs totals $400,000. Based on this info: What will the sale of 12,000 putters result in net operating income? What is the contribution margin per putter?

$380,000 NOI CM: $65

Violin's sales of $326,000. Contribution margin of $184,000 and fixed costs total $85,000. What is net operating income?

$99,000 $184,000-$85,000=$99,000

Profit equals:

(P × Q - V × Q) - fixed expenses.

Net operating income can be calculated as

(unit sales-unit sales to break even) x unit continuation margin

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

.35

When making a decision, only ______ costs and benefits should be included in the analysis.

relevant

Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should Blank______.

60000

Frames, Inc. manufactures large wooden picture frames. Each frame requires $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame produced. The unit product cost of each frame using variable costing is $

68

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

Select all that apply Which of the following statements are correct regarding income statements prepared under variable and absorption costing? Absorption costing categorizes costs based on cost behavior. Both income statements include product and period costs. Reported net income on the statements often differ. The difference between the statements is how total manufacturing overhead is accounted for.

Both income statements include product and period costs. Reported net income on the statements often differ.

Which tool can be used to calculate the change in profit resulting from a change in sales price, sales volume, variable costs or fixed costs?

CVP Analysis Cost Volume Profit Analysis

To calculate the degree of operating leverage, divide___________ ___________by net operating income

Contribution margin

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

False

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

False

Put'er There manufactures baseball gloves. Each glove requires $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per unit. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. The unit product cost using variable costing is ______ per unit.

Reason: Unit product cost = $22 + $18 + $7 = $47. Selling and administrative costs are never considered part of product cost.

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 ______.

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

The contributed Margin is equal to?

Sales - Variable expenses = contributed margin

The term used for the relative proportion in which a company's products are sold is ____

Sales mix

Which of the following should not be included in the analysis when making a decision?

Sunk costs Non-differential future costs

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.

If company has sale of $100,000, a contribution margin of $40,000 and a fixed expenses of $50,000.. the company has?

a $10,000 net operating loss

In order to comply with GAAP and IFRS, the ______ costing method must be used for external reporting in the United States.

absorption

Net income computed under ______ costing may not agree with the results of CVP analysis.

absorption

Fixed manufacturing overhead costs are included as part of Work in Process inventory under ______.

absorption costing only

Isolating relevant costs is desirable because Blank______.

all information needed for the total cost approach is rarely available irrelevant costs may be used incorrectly in the analysis critical information may be overlooked with the total cost approach

Potential advantages of dropping a product line or other segment include Blank______.

avoiding more fixed costs than the company loses in contribution margin an overall increase in net operating income

When a company sells one unit above the number required to break-even, the company's net operating income will

change from zero to a net operating profit

One mistake companies make when preparing segmented income statements is arbitrarily assigning ________ fixed costs to segments.

common

Select all that apply When a segment is eliminated, a ______. Multiple select question. traceable fixed cost will remain unchanged common fixed cost will remain unchanged common fixed cost will disappear traceable fixed cost will disappear

common fixed cost will remain unchanged traceable fixed cost will disappear

After reach the break-even point, a company's net operating income will increase by the _____ per unit for each additional unit sold

contribution margin

An income statement constructed under the ____ approach allows users to easily judge the impact of profits of changes in selling price, cost or volume

contribution margin

The first step in decision making is to Blank______.

define the alternatives

An example of a traceable fixed cost for General Motors' Corvette Division is the ________

depreciation on equipment used to manufacture Corvettes

A future cost that is not the same between any two alternatives is known as a(n) , _________ incremental, or avoidable cost.

differential

A company must make a volume trade-off decision when they Blank______.

do not have enough capacity to satisfy all product demand must trade off units of one product for units of another

When constructing a CVP graph, the vertical axis represents ______.

dollars

Segmented income statements ______. may be prepared for the various departments in the company, but not for specific product lines should only be used for profit centers are best used to determine which locations are profitable, rather than which product lines are profitable may be prepared for activities at many levels in a company

may be prepared for activities at many levels in a company

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

net operating income will increase by $0.70 total contribution margin will increase by $0.70

Using absorption costing for segmented income statements can lead to ______. omission of upstream and downstream costs inconsistencies between internal and external reports under-costing of segments the need to maintain two costing systems

omission of upstream and downstream costs under-costing of segments

Common mistakes made by companies when assigning costs to segments include

omitting costs that should be included inappropriately assigning traceable fixed costs arbitrarily allocating common fixed costs

Segment break-even calculations include ______ fixed expenses.

only traceable

The potential benefit given up when selecting one alternative over another is a(n) Blank______ cost.

opporunity

When planning a road trip, the ______ is a sunk cost and should be ignored.

original cost of the car

When calculating the profit impact of discontinuing a segment, consider ______. common costs allocated to the segment the segment's traceable fixed costs the segment's contribution margin

the segment's traceable fixed costs the segment's contribution margin

When making a decision, irrelevant items are included in the analysis of both alternatives when using Blank______.

the total cost approach only

When considering decision alternatives, both relevant and irrelevant costs are included when using the ________ cost approach.

total

To prepare a CVP graph, lines must be drawn representing total revenue, ______.

total expense, and total fixed expense

selling price per unit x quantity sold =

total sales

Only costs that would disappear over time if a segment disappeared should be treated as ______ fixed costs.

traceable

Arbot Co. manufactures appliances at three manufacturing facilities in the United States. Each location has a plant manager who oversees the manufacturing process for that location. Segmented income statements are prepared for each plant and for each product manufactured in the plant. The salary of each plant manager is a ______ for the individual product lines made in the plant.

traceable fixed cost to the plant and a common fixed cost

Which of the following is needed to calculate profit

unit contribution margin, unit sales and total fixed costs

Absorption costing is Blank______.

used by most companies for both internal and external reports required by GAAP and IFRS

Segment contribution margin equals segment revenue minus the ________ expenses for the segment.

variable

The contribution margin equals sales minus all Blank______ expenses.

variable

The number of units produced does not affect net operating income when using ________ costing

variable

The number of units produced does not affect net operating income when using ________ costing.

variable

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

variable

Select all that apply Product costs under absorption costing include Blank______. Multiple select question. variable manufacturing overhead direct labor variable selling and administrative fixed manufacturing overhead direct materials fixed selling and administrative

variable manufacturing overhead direct labor fixed manufacturing overhead direct materials

To calculate profit, multiple the ________ per unit by sales volume and subtract total fixed costs

contribution margin

Break-even point is reached when?

contribution margin is equal to total fixed costs/expenses

Fixed manufacturing overhead costs are expensed as units sold as part of cost of goods sold under ______ costing, and expensed in full with period costs under ________ costing

Blank 1: absorption or full Blank 2: variable, direct, or marginal

An otherwise profitable segment may appear to be unprofitable if _______ fixed costs are allocated to it.

Blank 1: common, nontraceable, or untraceable

Anything that prevents you from getting more of what you want is a(n)

Blank 1: constraint

Discontinuing a profitable segment results in ______. a reduction in the overall profits of the company the loss of the segment's revenues reduced common fixed costs for the company

a reduction in the overall profits of the company the loss of the segment's revenues

A cost that can be traced directly to a specific segment should be charged directly to that segment and not allocated to other segments.

true

In the context of decision making, every decision involves choosing from among at least two alternatives.

true

True or false: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.

true

Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum

true

Costs are separated between variable and fixed expenses when using ______ costing, whereas ______ costing separates costs between product and period.

variable, absorption

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative _______ _______ showing the effects of either keeping or dropping the product line.

Blank 1: income Blank 2: statements or statement

A decision to carry out one of the activities in the value chain internally, rather than to purchase externally from a supplier, is ___________ called a(n) ________ or decision.

Blank 1: make Blank 2: buy, outsource, or outsourcing

In the context of decision making, every decision involves choosing from among at least two alternatives.

False Reason: This is true. Every decision involves choosing from among at least two alternatives.

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?

Reason: $98,000 ÷ ($50 - $15) = 2,800

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 ______.

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

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:

Reason: (($735,000 - $700,000) × 45%) - $8,000 = $7,750 increase

SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by ______.

Reason: Increased online sales contribution margin [$100,000 × 10% × ($60,000 ÷ $100,000)] is $6,000 + $5,000 saved from stopping catalog sales = $11,000.

Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will ______.

Reason: New contribution margin = $6,000 (1,000 × ($10 - $4)) - $8,000 new cost = ($2,000) decrease in profits.

True or false: Without knowing the future, it is not obvious which cost structure is better: a structure with higher fixed costs and lower variable costs or a structure with lower fixed costs and higher variable costs.

Reason: This is true. Without knowing the future, it is not obvious which cost structure is better: a structure with higher fixed costs and lower variable costs or a structure with lower fixed costs and higher variable costs. Both have advantages and disadvantages.

Estimating the fixed and variable components of a mixed cost using the______ approach involves a detailed analysis of what cost behavior should be.

engineering

Once the break-even point has been reached, the sale of an additonal unit will lead to an increase in contribution margin that is ____ the increase in net operating income

equal to

When using variable costing, fixed manufacturing overhead is ______.

expensed in the period incurred

Opportunity costs are not found in accounting records because they are not relevant to decisions.

false

True or false: The accounting depreciation of an existing asset is relevant to decisions.

false

Synonyms for differential costs include Blank______ cost.

incremental avoidable

Future costs and benefits that do not differ between alternatives are Blank______ costs to the decision-making process.

irrelevant

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.

Two or more products produced from a common input are called Blank______.

joint products

A decision to carry out one of the activities in the value chain internally rather than to purchase externally from a supplier is a ______ decision.

make or buy

The rise-over-run formula for the slope of a straight line is the basis of ______.

the high-low method

The degree of operating leverage = ______.

contribution margin ÷ net operating income

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

contribution margin ÷ sales

Decision-making problems that could occur when using absorption costing include inappropriate ______ decisions, and decisions made to ______ products that are, in fact, profitable.

pricing; drop

Elle's Elephant Shop sells giant stuffed elephants for $55 each. Each elephant has variable costs of $10 and total fixed costs are $700. If Ellie sells 35 elephants this month, ______.

profits = $875 Reason: Profits = 35 × ($55 - $10) - $700 = $875. total sales = $1,925 Reason: Total sales = 35 × $55 = $1,925. total variable costs = $350 Reason: Total variable costs = (35 × $10) = $350.

Company A has sales of $500,000, variable costs of $350,000 and fixed costs of $150,000. Company A has?

reached the break-even point, contribution margin equal to fixed costs

Costs and benefits that always differ between alternatives are Blank______ costs and benefits.

relevant

U.S. GAAP and IFRS Blank______ publicly traded companies include segmented financial data prepared for external users that use the same methods used in internal segment reports.

require

The relative proportions in which a company's products are sold is referred to as ____________ ____________

sales mix

If company has only a single product, total sales can be calculated using only:

sales price per unit x the number of units sold

CVP analysis focuses on how profits are affected by

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

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

sales, variable expenses

A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include ______.

salvage value alternative uses for the equipment

Costs that can be traced directly to a segment ______.

should not be allocated to other segments

A one-time order that is not considered part of the company's normal ongoing business is called a Blank______ order.

special

A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) _______ ______decision.

special order

Profit = (selling price per unit x quantity sold) - (________ expense per unit x quantity sold) - _________expenses.

variable, fixed

The term "cost structure" refers to the relative proportion of _______and_______ costs in an organization.

variable, fixed

Being less dependent on suppliers and realizing profits from the parts and materials that it is "making" rather than "buying," as well as profits from its regular operations, are advantages of

vertical integration

When demand for products exceeds the production capacity, a(n) - decision must be made _______ ________ ________decision must be made.

volume trade off

CVP analysis allows companies to easily identify changes in profit due to changes in?

volume, costs, product mix

When a resource, such as space in the factory, has no alternative use, its opportunity cost is Blank______.

zero