Accounting Final

How many units must be sold to earn the targeted operating income? (equation)

(Targeted op income + total fc ) / CM=

What is MOH?

Anything that doesn't go directly into the product

The ________ budget begins with the number of units to be sold. A) manufacturing overhead B) direct materials C) sales D) capital expenditures

C) sales

Prime Costs equation

DM + DL

Period costs calculation

Depreciation on sales office + sales commission + cost of delivery to customers + utilities in sales office=

What classifies as MOH?

Indirect labor and materials and factory things

Conversion Cost equation

MOH + DL

What are the inventory accounts ?

WIP, raw materials , finished goods, merchandise inventory

Target Total Cost equation

revenue at market price - desired profit

Know how to find contribution margin per unit

selling price per unit - variable cost

Production budget calculation

([unit sales + desired ending inventory] - beginning inventory)= units to produce

Corny and Sweet grows and sells sweet corn at its roadside produce stand. The selling price per dozen is $3.75, variable costs are $1.25 per dozen, and total fixed costs are $500.00. What are breakeven sales in dollars? A) $563 B) $300 C) $750 D) $1,125

Answer: C Sales $3.75 Variable costs 1.25 Contribution Margin $2.50 Fixed Expenses $500 divided by Contribution Margin $2.50 = 200 Breakeven Breakeven Sales units 200 × $3.75 = $750 Breakeven sales dollars

cost of good available for sale equation

Beginning Inventory (Beginning finished goods) + Purchases (COG manufactured) = Cost of goods available

COGS equation

Beginning Inventory (Beginning finished goods) + Purchases (COG manufactured) = Cost of goods available - Ending inventory (Ending finished goods) = COGS

1) When preparing a scatter plot, how should the data be graphed? A) Volume data on the y-axis B) Cost data on the x-axis C) Cost data on the y-axis D) Volume data on the z-axis

C) Cost data on the y-axis

All else being equal, a company with a high operating leverage will have: A. relatively low fixed costs. B. relatively high variable costs. C. a relatively low risk. D. a relatively high contribution margin ratio.

D. a relatively high contribution margin ratio.

Total Manufacturing Costs

DM + (DL hours worked x DL wage rate) + (machine hours used x predetermined MOH rate machine hour) = Total manufacturing Costs

Predetermined MOH Rate equation

Est. MOH / Est. DL cost= Predetermined MOH Rate

indirect costs

a cost that relates to the cost object but cannot be traced to it

Breakeven equation & example

(total fixed expenses 462,000 / CM [10-5.80=4.2])= 110,000

Rolling budget definition

A budget that is continuously updated so that the next 12 months of operations are always budgeted (i.e. continuous budget)

Target total cost is defined as: A. revenue at market price less desired profit. B. cost of goods sold less desired profit. C. revenue at market price less variable costs. D. revenue at market price less fixed costs.

A. revenue at market price less desired profit.

Who are the users of managerial reports?

Internal people

Managerial decisions can be categorized according to three interrelated business processes:

directing, controlling, planning

Contribution Income Statement Format

(sales- variable costs= contribution margin- fixed costs= operating income)

Find margin of safety percentage

(total predicted sales - break even sales)/ total predicted sales

total fc and total vc equations

(vc per unit x number of units; y=vx) (fc equation is y=f)

Polly Enterprises manufactures lamps that normally sell for $75 each. There are 300 defective lamps in inventory, which cost $55 each to manufacture. These defective units can be sold as is for $20 each, or they can be processed further for a cost of $45 each and then sold for the normal selling price. Polly Enterprises would be better off by a: A. $3,000 net increase in operating income if lamps are repaired. B. $3,000 net increase in operating income if lamps are sold as is. C. $16,500 net increase in operating income if lamps are repaired. D. $16,500 net increase in operating income if lamps are sold as is.

*A. $3,000 net increase in operating income if lamps are repaired.

Which of the following statements about budgeting is NOT true? A.The operating budget should be prepared by top management, rather than mid-management personnel, because they have the overall objectives of the company in mind. B. Budgeting is an aid to planning and control. C.Budgets help to coordinate the activities of the entire organization. D. Budgets promote communication and coordination between departments.

*A. The operating budget should be prepared by top management, rather than mid management personnel, because they have the overall objectives of the company in mind.

Which of the following is a potential advantage of participative budgeting? A. Managers may build slack into the budget. B. Managers are more likely to be motivated by budgets they helped to create. C. Managers should have more detailed knowledge for creating realistic budgets. D. Both B and C.

*D. Both B and C.

The central reservation office at American Airlines, which is responsible for both Web sales and counter sales, is most likely treated as a(n): A. cost center. B. investment center. C. profit center. D. revenue center.

*D. revenue center.

Period Cost. What is it and examples?

-(mainly) operating expenses that aren't in your inventory costs Period costs are not assigned to one particular product or the cost of inventory like product costs. Therefore, period costs are listed as an expense in the accounting period in which they occurred. Period costs are not directly tied to the production process. Overhead or sales, general, and administrative (SG&A) costs are considered period costs. -marketing -rent -office depreciation

What are the effects on breakeven?

-If fixed costs increase, break even increases -If contribution margin decreases, break even increases -If a company continues to sell the same total number of units of product, but a greater proportion of the units sold have a lower contribution margin, the company's break-even point will increase.

-Direct Materials Price Variance inquire with? -Direct Materials Quantity Variance inquire with? -Direct Labor Rate Variance inquire with? -Direct Labor Efficiency Variance inquire with?

-Purchasing Supervisor -Productive Supervisor -HR and Production Supervisor -Production Supervisor

what does a CFO do? CEO? COO? TREASURER? CONTROLLER?

-Responsible for all of the company's financial concerns. The Treasurer and the Controller report directly to CFO. -responsible for making managerial decisions. -managing the day-to-day operations of a company or other institution. -manage the financial assets and liabilities of a society -responsible for the accurate preparation and reporting of financial statements and budgets as well as overseeing expenditures and cash flow management.

Disadvantages of Decentralization

-duplication of costs -problems achieving goal congruence -unit/lower level managers may not understand the big picture

variable costs examples

-sales commissions -direct labor costs -cost of raw materials used in production -utility costs

Total Fixed Costs $24,000 Sell price per unit $22 VC per unit $15 If sales revenue per unit increases to $22 and 12,000 units are sold, what is the operating income? A) $264,000 B) $84,000 C) $108,000 D) $60,000

22-15=7 7 x 12,000= 84,000 84,000-24,000= D) $60,000

Smith Paints allocates overhead based on machine hours. Selected data for the most recent year follow. Est. MOH costs= $240,000 Actual MOH cost= $220,000 Est Machine hours= 15,000 Actual machine hours =20,000 The estimates were made as of the beginning of the year, while the actual results were for the entire year. The amount of manufacturing overhead allocated for the year based on machine hours is:

240,000/15,000 = 16 x 20,000 = $320,000

The ________ budget is the only budget stated only in units, not dollars. A) production B) sales C) direct materials D) manufacturing overhead

A) production

On the direct materials budget, the total quantity of direct materials needed is computed as A) quantity needed for production + desired end inventory of DM - beginning inventory of DM. B) units to be produced + desired end inventory of DM - beginning inventory of DM. C) units to be produced - desired end inventory of DM + beginning inventory of DM. D) quantity needed for production - desired end inventory of DM + beginning inventory DM.

A) quantity needed for production + desired end inventory of DM - beginning inventory of DM.

On the direct labor budget, the total quantity of direct labor hours needed is computed as A) units to be produced × direct labor hour per unit. B) quantity needed for production + indirect labor hours - direct labor hours. C) units to be produced - indirect labor hours × cost per labor hour. D) estimated direct labor hours needed × cost per hour.

A) units to be produced × direct labor hour per unit.

Total actual MOH cost equation

All factory and indirect labor/materials added: Factory depreciation 66,000 Factory utilities 30,200 Factory rent 47,700 Factory property taxes 28,100 Indirect labor 22,400 Indirect materials 33,000 = 227,400

Know an example of a fixed cost

Amortization Depreciation Insurance Interest expense Property taxes Rent Salaries Utilities

Jeans's Fitness Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The fitness club also sells nutrition products. Jeans's general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year. Membership revenue $140,000 Personal trainer wages expense ? Personal training revenue $75,000 Space rental expense $11,000 Product sales $65,000 Straight line depreciation expense $6,000 Cost of product sold $35,000 Rental insurance expense $3,000 Front desk staff wages expense $12,000 If a contribution margin income statement is prepared for the year, what is the contribution margin? A) $207,500 B) $352,500 C) $280,000 D) $72,500

Answer: A Membership $140,000 Personal Training 75,000 Product Sales 65,000 =Total Revenue 280,000 LESS: Variable expense 35,000 Personal Trainer commissions $75,000 × 50% 37,500 =Contribution Margin $207,500

Jeans's Fitness Club provides monthly memberships as well as personal training sessions. The personal trainers earn 50% of the revenue for all personal training sessions. The fitness club also sells nutrition products. Jeans's general ledger accounts indicate the following for the year. The front desk staff wages expense remains the same throughout the year. Membership revenue $140,000 Personal trainer wages expense ? Personal training revenue $75,000 Space rental expense $11,000 Product sales $65,000 Straight line depreciation expense $6,000 Cost of product sold $35,000 Rental insurance expense $3,000 Front desk staff wages expense $12,000 If a traditional income statement is prepared for the year, what is the gross profit? A) $280,000 B) $315,000 C) $245,000 D) $207,500

Answer: C Membership $140,000 Personal Training 75,000 Product Sales 65,000 Total Revenue 280,000 -Cost of Goods Sold 35,000 =Gross Profit $245,000

It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a traditional income statement for the month of June, what would be his gross profit? A) $320,625 B) $270,000 C) $219,375 D) $50,625

Answer: C) $219,375 Sales $4 × 67,500 = $270,000 Less: Cost of Goods Sold $ 0.75 × 67,500 = $ 50,625 Gross Profit $219,375

Dover Industries management has budgeted the following amounts for its next fiscal year: Total Fixed Expenses: $462,000 Sales price per unit: $10.00 Variable price per unit: $5.80 If fixed expenses increase by 10%, to maintain the original breakeven sales in units, the selling price per unit would have to be:

Answer: an increase of 4.2 % Find original breakeven=find increase in fixed expense (fixed expense x 1.1)= take this number and divde by breakeven= new CM + variable price= (new selling price - old selling price)/ old selling price

On the production budget, the number of units to be produced is computed as A) unit sales + desired end inventory + beginning inventory. B) unit sales + desired end inventory - beginning inventory. C) unit sales - desired end inventory - beginning inventory. D) unit sales - desired end inventory + beginning inventory.

B) unit sales + desired end inventory - beginning inventory.

Which of the following persons or groups would be LEAST likely to receive detailed managerial accounting reports? A. Plant managers B. Current shareholders C. Sales territory managers D. CEO

B. Current shareholders (they are external and only get financial reports)

Before these materials are used to manufacture its cars, Honda classifies steel, glass, and plastic as: A. finished goods inventory. B. raw materials inventory. C. work in process inventory. D. merchandise inventory.

B. raw materials inventory.

An equation for total mixed costs is: A. y = vx - f. B. y = vx + f. C. f = vx -y. D. f = vx + y.

B. y = vx + f.

Fosnight Enterprises prepared the following sales budget: Month Budgeted Sales March $6,000 April $13,000 May $12,000 June $14,000 The expected gross profit rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired beginning inventory on June 1? A) $840 B) $1,680 C) $1,960 D) $9,800

C) $1,960 Sales = 100% - 30% Gross Profit = 70% Cost of Goods Sold (CGS) Now: June Sales $14,000 × 70% = 9,800 (CGS) × 20% = $1,960

Jackson Industries has collected the following data for one of its products: Direct materials standard (6 pounds per unit @ $0.55/lb.): $3.30 per finished good Direct materials flexible budget variance-unfavorable: $12,000 Actual Direct Materials Used (AQU): 35,000 pounds Actual finished goods produced: 26,000 units -What is the total actual cost of the direct materials used? A) $19,250 B) $73,800 C) $97,800 D) $85,800 -What is the actual cost of the Direct Materials Used (AQU) per pound? A) $2.79 B) $2.45 C) $2.11 D) $0.55 How much is the direct materials quantity variance? A) $78,550 favorable B) $27,940 unfavorable C) $66,550 favorable D) $78,550 unfavorable How much is the direct materials price variance? A) $1,750 favorable B) $1,750 unfavorable C) $1,900 favorable D) $1,900 unfavorable

C) $97,800 26,000 x $3.30 = 85,800 + 12,000 = $97,800 A) 26,000 units × $3.30 per unit = $85,800 Direct materials variance unfavorable: 12,000 85,800 + 12,000 =$97,800 / 35,000 lbs used = $2.79 per lb C) $66,550 favorable $66,550 fav = (35,000 - (6 × 26,000 )) × .$0.55 (6 x 26,000= 156,000 which is favorable- AP<SP) D) $1,900 unfavorable ($0.66-$0.55) x 38,000= 1900 unfavorable

Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow: Total Hiking Fashion Sales revenue $480,000 $340,000 $140,000 Variable expenses 355,000 235,000 120,000 Contribution margin 125,000 105,000 20,000 Fixed expenses 76,000 38,000 38,000 Op income (loss) $49,000 $67,000 $(18,000) If $25,000 of fixed costs will be eliminated by discontinuing the Fashion line, how will operating income be affected? A) Increase $54,000 B) Decrease $45,000 C) Increase $5,000 D) Increase $103,000

C) Increase $5,000 Contribution Margin $105,000 Less Fixed Expenses 51,000 New Net income 54,000 Less original OI 49,000 Increase in OI $5,000

11) The contribution margin income statement presents ________ below the contribution margin line. A) only variable expenses relating to selling and administrative activities B) only fixed expenses relating to selling and administrative activities C) all fixed expenses D) all variable expenses

C) all fixed expenses

4) A manager considers all of the following when he or she prepares the cash budget except A) payments for inventory. B) cash receipts from customers. C) depreciation expense. D) cash payments to suppliers.

C) depreciation expense.

The performance report that highlights the center's segment margin at a ________ may include direct fixed expenses and direct fixed costs. A) cost center B) sales center C) profit center D) revenue center

C) profit center

Comfy Furniture Company manufactures furniture at its Akron, Ohio, factory. Some of its costs from the past year include: Period costs for Comfy Furniture Company totaled A. $ 43,000. B. $ 46,500. C. $ 69,500. D. $ 121,000 *look at slide 5 for chart*

C. $ 69,500.

Total predicted sales (in units) minus total break-even sales in units divided by total predicted sales (in units) yields: A. contribution margin ratio. B. contribution margin per unit. C. margin of safety percentage (i.e., ratio) D. percent of sales mix.

C. margin of safety percentage (i.e., ratio)

The manager of a local Wal-Mart would be in charge of a(n): A. cost center. B. investment center. (big; entire division) (since its local its profit, if it were a northeastern district manager it would be investment) C. profit center. D. revenue center.

C. profit center.

Terrific Toys Company manufactures and sells children's skateboards. Each skateboard requires four bearings. For September, Terrific Toys Company has budgeted skateboard sales of 530 skateboards, while 570 skateboards are scheduled to be produced. Terrific Toys Company will begin September with 220 bearings in its beginning inventory. How many bearings should Terrific Toys Company purchase in September? A) 310 B) 2,280 C) 2,500 D) 2,060

D) 2,060 Production 570 × 4 = 2,280 - 220 (BI) = 2,060

The final step in the preparation of the financial budget is the preparation of which of the following? A) Master budget B) Cash budget C) Operating budgets D) Budgeted balance sheet

D) Budgeted balance sheet

1) If the purchasing manager purchased a greater quantity of raw materials than budgeted, but paid the Standard Price (SP), which variance may be affected? A) Materials price variance B) Materials quantity variance C) Both of the variances may be affected D) Neither of the variances may be affected

D) Neither of the variances may be affected

The standards in the IMA Statement of Ethical Professional Practice include: A. Competence, Confidentiality, Integrity, and Objectivity. B. Competence, Confidence, Integrity, and Credibility. C. Competence, Objectivity, Credibility, and Honesty. D. Competence, Confidentiality, Integrity, and Credibility.

D. Competence, Confidentiality, Integrity, and Credibility.

Allocated MOH costs equation (The amount of manufacturing overhead allocated for the year based on machine hours)

Est. MOH / Est. DL cost = % x Actual DL cost = Allocated MOH costs

13) It costs Homer's Manufacturing $0.75 to produce baseballs and Homer sells them for $4.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $75,000 a month to his staff in addition to the commissions. Homer sold 67,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his contribution margin? A) $270,000 B) $334,125 C) $64,125 D) $205,875

Explanation: D) Sales $4 × 67,500 = $270,000 Less: Variable costs $ 0.75 × 67,500 = $ 50,625 Less: Commission $270,000 × 5% = $ 13,500 Contribution Margin $ 205,875

Dover Industries management has budgeted the following amounts for its next fiscal year: Total Fixed expenses: $462,000 Sales price per unit: $10.00 Variable price per unit: $5.80 If fixed expenses increase by 10%, to maintain the original breakeven sales in units, the selling price per unit would have to be:

Find breakeven: (total fixed expenses 462,000 / CM [10-5.80=4.2])= 110,000 Find how much your fixed expenses increase: 1.1 x 462,000= 508,200 508,200/110,000= 4.62 (new CM) 4.62 (new CM) + $5.80 (variable price) = 10.42 (new selling price) [10.42 (new selling price) - 10.00 (old selling price) / 10.00 (old selling price) = 0.042 x 100= 4.2% Answer: 4.2% increase

Schimmel Company provides the following information about its single product: Targeted operating income: $40,000 Selling price per unit: $7 Variable cost per unit: $6 Total Fixed Cost: $100,000

How many units must be sold to earn the targeted operating income? (40,000 + 100,000= 140,000 / ($7-$6=$1) = 140,000 units

What are the characteristics of a company with high operating leverage?

If a company has a high operating leverage, their contribution margin ratio is high

If your variable costs increase or decrease, what happens to your breakeven sales?

If variable cost and expenses increases, the contribution margin will decrease and the break even will increase

Which variance is it based on these? AP = SP AP < SP AP > SP

No variance Favorable variance Unfavorable variance

Difference between price setters and price takers and some examples...

Price setters: company powerful enough to set the market price that they can charge customers with; the greater the market share that company has, the more market power in setting prices it has (Amazon, walmart, apple, whole foods, lululemon) TILTED SLOPING LINE Price takers: company must accept current market prices for its products (exs: found in the markets for agricultural products (e.g., wheat, corn) and financial assets (e.g., stocks, bonds). HORIZONTAL LINE

Budgeting definition

Quantitative expression of a plan that helps managers coordinate & implement the plan

Traditional Income Statement

Sales Revenue - Cost of Goods Sold = Gross Profit - Operating (Selling & General and Administrative) Expenses = Operating Income

Contribution Margin Income Statement

Sales Revenue - Variable Costs = Contribution Margin - Fixed Costs = Operating/Net Income

Contribution Margin

Sales revenue available to cover fixed costs plus desired operating profit, after covering variable costs. Sales Price- Variable Costs

Planning, directing and controlling definitions

all are managers primary responsibilities -controlling: evaluates results of operations against the plan & making adjustments to keep going towards goals -directing: running company day-to-day -planning: setting goals & objectives for company & deciding how to achieve

Manufacturing Overhead Costs

all indirect costs incurred during the production process ; costs associated to build a product that may not be directly used to make it: utilities in manufacturing plant, salary of production manager, rented equipment, rent for manufacturing

Product Costs. What are they and some examples?

any costs incurred/brought about in the process of acquiring or manufacturing a product -direct labor -raw materials -Manufacturing supplies -Overhead that's directly tied to the production facility such as electricity

Direct Costs

costs that can be easily and accurately traced to a cost object

Indirect labor

labor costs that are difficult to trace to specific products

work in process inventory

materials inventory that is currently in the process of being converted into finished goods

Indirect Materials

materials whose costs are difficult to trace to specific products

What happens to your fixed costs as your production levels change

nothing

Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow: Total Hiking Fashion Sales revenue $480,000 $340,000 $140,000 Variable expenses 355,000 235,000 120,000 Contribution margin 125,000 105,000 20,000 Fixed expenses 76,000 38,000 38,000 Op income (loss) $49,000 $67,000 $(18,000) Assuming fixed costs remain unchanged, how would discontinuing the Fashion line affect operating income? A) Increase in total operating income of $29,000 B) Increase in total operating income of $132,000 C) Decrease in total operating income of $20,000 D) Decrease in total operating income of $78,000

operating income after discontinuing fashion line = contribution margin of hiking - total fixed expenses =$105000-$76000=$29000 Difference after discontinuance of fashion line -= current operating income - after discontinuance operating income =$49000-29000 =$20000 Decrease in operating income by 20000 Answer: C) Decrease in total operating income of $20,000

Direct Materials

primary raw materials that become a physical part of a finished product and whose costs are traceable to the finished product

raw materials

the basic material from which a product is made.

Direct labor

the cost of compensating employees who physically convert raw materials into the company's products; labor costs that are directly traceable to the finished product

Finished goods

units of product that have been completed but not yet sold to customers