ACC Exam 2
Contribution ratio
Contribution margin / Sales Rev
Variable Costing Unit Product Cost
DM + DL + VMOH
Margin of Safety
Difference between your actual or expected profitability and the break even point
Variable costing treats _____ manufacturing costs as product costs.
only variable
Absorption costing treats fixed manufacturing overhead as a ______ cost.
product
Contribution margin
Sales Rev - Variable Cost
Frames, Inc. picture frames each require $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame and variable selling and administrative expense is $13 per frame sold. Total fixed manufacturing overhead cost per month is $15,000 and the company produces 5,000 frames each month. The unit product cost of each frame using variable costing is $
$68
participative budgeting
A budgetary approach that starts with input from lower-level managers and works upward so that managers at all levels participate.
What is the master budget
A set of interrelated budgets that constitutes a plan of action for a specific time period
Absorption vs. Variable Costing
Absorption includes all costs, including fixed costs, in figuring the cost of production, while variable costing only includes the variable costs related to production
Margin of Safety
Actual or expected
Combined Cash Budget
Beginning Cash Balance + Cash Collections - Cash Payments = *Cash Balance Before Financing* +/- Cash Borrowed/Repaid/Interest Paid = *Ending Cash Balance*
Break Even Formula
Fixed costs / contribution per unit
Which of the following statements is true with respect to a contribution format income statement?
It subtracts variable expenses from sales to derive a contribution margin
Target Income Formula
Multiply the expected number of units to be sold by their expected contribution margin to arrive at the total contribution margin for the period. Subtract the total amount of expected fixed cost for the period. The result is the target income level.
Self-imposed budget
Prepared with the full cooperation and participation of managers at all levels
Product vs. Period Costs
Product: Direct Materials, Direct Labor, Variable Manufacturing Overhead Period:Fixed Selling and Administrative Expenses, Variable Selling and Administrative Expenses,Fixed Manufacturing Overhead
Which of the following statements are correct regarding income statements prepared under variable and absorption costing?
Reported net income on the statements often differ. Both income statements include product and period costs.
Variable Cost Ratio
Variable cost / Sales
Product costs under absorption costing include
direct materials variable manufacturing overhead fixed manufacturing overhead direct labor
Break even in units
fixed costs / contribution margin per unit
Break even
fixed costs/contribution margin ratio
contribution margin per unit
sales price per unit - variable cost per unit
Absorption Costing
A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.
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 direct __________ costing.
Absorption Variable
R squared
Coefficient of determination
Segment Margin
Contribution Margin - Traceable fixed costs
Contribution Margin Ratio
Contribution Margin / Sales
Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using absorption costing is ______.
DM + DL + VMOH + FMOH 45+37+8+ 58000/2000 = 119
Assume a company's estimated sales for January, February, and March are 43,000 units, 44,000 units, and 42,000 units, respectively. The company always maintains ending finished goods inventory equal to 15% of next month's unit sales. What is the required production in units for January?
Production Budget: Unit Sales in Jan: 43k + Desired End Inventory (44K*15%) +6600 - Less Beginning Inventory (43k*15%) (6450) Est Production in January: 43150
Contribution Format Income Statement
Sales (Variable Expenses) =Contribution Margin (Fixed Expenses) =Net Profit
Assume a company has four divisions. Division A has sales, variable expenses, and traceable fixed expenses of $100,000, $70,000, and $20,000, respectively. What is Division A's segment margin?
Segment margin = Sales - Variable expenses - Traceable fixed expenses Division A segment margin = $100,000 - 70,000 - 20,000 Division A segment margin = $10,000 Hence option $10,000 is correct.
Overall Contribution Margin Ratio
Total contribution margin/total sales