Acct 200 FINAL (ch 10, 11, 13)
Mixed cost
composed of fixed cost and variable cost
Segment Elimination
consider unit level cost, batch costs, product cost and segment facility level costs.
Outsourcing
consider unit level, batch cost, product cost
Components of Product Cost
direct material, direct labor, overhead costs
Asset Replacement
ignore original cost, accumulated depreciation and book value.
Sunk Cost
irrelevant for decision making
Facility-level costs
irrelevant for special order, outsourcing and segment elimination decisions
Relevant Information
makes a difference between alternatives and should be future oriented.
Warehousing costs are not considered to be
manufacturing cost
Special Order Decision
only consider unit level and batch costs
Insurance of the manufacturing facilities is considered an
overhead manufacturing cost.
Opportunity Cost
relevant for decision making
Product-level costs
relevant for outsourcing, and segment elimination decisions
Batch-level costs
relevant for special order decisions, outsourcing decisions and segment elimination decision
Unit-level costs
relevant for special order decisions, outsourcing decisions and segment elimination decision.
Product delivery cost is a
selling expense, NOT a manufacturing overhead cost
Fixed Cost Behavior
total is fixed -per unit fixed cost is variable.
Variable Cost Behavior
total is variable -per unit v/c is fixed
Manufacturing overhead costs
variable, fixed and mixed
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Differences between Managerial and Financial Accounting
-Users and Types of Information -Financial is more regulated
Fortune Company had beginning raw materials inventory of $16,000. During the period, the company purchased $92,000 of raw materials on account. If the ending balance in raw materials was $10,000, the amount of raw materials transferred to work in process is: A) $86,000. B) $98,000. C) $102,000. D) $92,000.
Answer: B Explanation: Direct raw materials used = Beginning raw materials inventory + Purchases−Ending raw materials inventory Direct raw materials used = $16,000 + $92,000−$10,000 = $98,000
Breakeven point in $s
= Breakeven units * sales price per unit
Calculating Margin of Safety in units
= Budgeted sales in units- breakeven sales in units
Calculating a company's magnitude of operating leverage
= CM/NI
Measuring Operating Leverage using Contribution Margin
= CM/NI
Amount of sales needed to achieve desired profit
= fixed cost + desired profit/CM p/u
Determining the Break-Even Point in units
= fixed cost/CM per unit
Margin of safety in $s
=(budget sales in $s - Breakeven sales in $s.
The costs and revenues associated with two alternatives are listed below: Which alternative should be selected based on this information? A) Alternative 2 because it has a higher profit. B) Alternative 2 because it has the same product- & facility-level costs. C) Alternative 1 because it has fewer unit-level costs. D) Alternative 1 because it has a higher profit.
Answer: A
Wages paid to factory machine operators in producing the dog houses should be categorized as a: A) product cost and recorded in the inventory account B) period cost and recorded on the income statement C) product cost and recorded on the income statement D) period cost and recorded in the inventory account
Answer: A
Ringgold Company had beginning finished goods of $36,000. During the period, the company produced goods that cost $150,000. If the ending balance in the Finished Goods Inventory account was $24,000, the amount of cost of goods sold was: A) $162,000. B) $150,000. C) $138,000. D) none of these.
Answer: A Explanation: Cost of goods sold = Beginning finished goods + Cost of goods manufactured−Ending finished goods Cost of goods sold = $36,000 + $150,000 −$24,000 = $162,000
ServicePro provides two kinds of services. During the most recent accounting period, the two service lines produced the following operating results: If the company stops providing Service 2: A) The company's income will decrease by $1,500 per year. B) The company's income will increase by $1,500 per year. C) The company's income will decrease by $3,500 per year. D) The company's income will increase by $3,500 per year.
Answer: A Explanation: If it eliminates a product line, a company can avoid the unit-level, batch-level, product-level, and segment-level facility-sustaining costs. The company-wide facility-level costs are not relevant because the company will incur them whether it eliminates the segment.
Based on the income statements shown below, which division has the cost structure with the highest operating leverage? A) Bottled Water. B) Fruit Juices. C) Soft Drinks. D) The three divisions have identical operating leverage.
Answer: A Explanation: Magnitude of operating leverage = Contribution margin ÷Net income Soft drinks: Magnitude of operating leverage = $40,000 ÷ $10,000 = 4.0 Bottled water: Magnitude of operating leverage = $45,000 ÷ $5,000 = 9.0 Fruit juices: Magnitude of operating leverage = $20,000 ÷ $10,000 = 2.0
During the current year, Winchester Company sold 80,000 units at a selling price of $20 per unit. Variable cost per unit was $15, and Winchester's net income for the year was $40,000. What was the amount of Winchester's fixed costs? A) $360,000 B) $440,000 C) $1,160,000 D) $400,000
Answer: A Explanation: Sales - Variable costs - Fixed costs = Profit ($20 per unit × 80,000 units) - ($15 per unit × 80,000 units) - Fixed costs = $40,000 $1,600,000 - $1,200,000 - Fixed costs = $40,000 Fixed costs = $400,000 - $40,000 = $360,000
Zeus, Inc. produces a product that has a variable cost of $9.50 per unit. The company's fixed costs are $40,000. The product sells for $12.00 a unit and the company desires to earn a $20,000 profit. What is the volume of sales in units required to achieve the target profit? (Do not round intermediate calculations.) A) 24,000 units B) 16,000 units C) 17,000 units D) 4,000 units
Answer: A Explanation: Sales volume in units = (Fixed costs + Desired profit) ÷ Contribution margin p/u Sales volume in units = ($40,000 + $20,000) ÷ ($12 per unit - $9.50 per unit) = 24,000 units
Based on the above information, which of the following would not be treated as a product cost: A) office manager's salary B) rent expense incurred on manufacturing facility C) depreciation on manufacturing equipment D) salaries of factory machine operators
Answer: A Explanation: Selling, general, and administrative costs (SG&A) are normally expensed in the period in which they are incurred. Because of this recognition pattern, nonproduct expenses are sometimes called period costs. In this case, the period costs are comprised of the office manager's salary and the insurance and taxes on selling and administrative offices.
Mountain Gear has been using the same machines to make its name brand clothing for the last five years. A cost efficiency consultant has suggested that production costs may be reduced by purchasing more technologically advanced machinery. The old machines cost the company $100,000. The old machines presently have a book value of $60,000 and a market value of $6,000. They are expected to have a five-year remaining life and zero salvage value. The new machines would cost the company $50,000 and have operating expenses of $9,000 a year. The new machines are expected to have a five-year useful life and no salvage value. The operating expenses associated with the old machines are $15,000 a year. The new machines are expected to increase quality, justifying a price increase, and thereby increasing sales revenue by $5,000 a year. Select the true statement. A) The company will be $11,000 better off over the 5-year period if it replaces the old equipment. B) The company will be $20,000 better off over the 5-year period if it keeps the old equipment. C) The company will be $12,000 better off over the 5-year period if it replaces the old equipment. D) The company will be $6,000 better off over the 5-year period if it replaces the old equipment.
Answer: A Explanation: The relevant costs for the two machines: (1) This represents the current sacrifice the company must make if it keeps using the existing machine. In other words, if the company does not keep the machine, it can sell it for this amount. (2) New machine: $5,000 × 5 years = $25,000 (3) Old machine: $15,000 × 5 years = $75,000; New machine: $9,000 × 5 years = $45,000 Over the five-year period, the company would save $11,000 ($81,000 − $70,000) by purchasing the new machine.
Warren Company applies overhead based on direct labor cost. Warren Company estimated that it would incur $180,000 in manufacturing overhead costs and $120,000 of direct labor costs during the current year. Actual manufacturing overhead cost totaled $150,000 and actual direct labor costs totaled $110,000 during the current year. If total manufacturing costs were $320,000, what amount of direct materials was used during the year? A) $60,000 B) $30,000 C) $45,000 D) None of these.
Answer: A Explanation: Total manufacturing costs = Direct materials used + Direct labor + Actual manufacturing overhead costs Direct materials used = Total manufacturing costs−(Direct labor + Actual manufacturing overhead costs) Direct materials used = $320,000−($110,000 + $150,000) = $60,000
Based on this information, what is the company's net income? A) $40,000 B) $70,000 C) $30,000 D) $42,000
Answer: A Explanation: Total product cost = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced Total product cost = [$34,000 + $66,000 + ($6,000 + $4,000)] ÷ 10,000 units = $11.00 per unit Cost of goods sold = Number of units sold × Total product cost Cost of goods sold = 10,000 units sold × $11 per unit = $110,000 Net income = Revenue−Cost of goods sold - Selling and administrative expenses Net income = $210,000−$110,000 - ($50,000 + $10,000) = $40,000
Rocky Mountain Bottling Company produces a soft drink that is sold for a dollar. At production and sales of 800,000 units, the company pays $600,000 in production costs, half of which are fixed costs. At that volume, general, selling, and administrative costs amount to $250,000 of which $70,000 are fixed costs. What is the amount of contribution margin per unit? A) $0.40 B) $0.5375 C) $0.25 D) None of these is correct.
Answer: A Explanation: Variable cost per unit = [(Production costs of $600,000 × ½) +(Selling and administrative costs of $250,000 - $70,000) ÷ 800,000 = $0.60 per unit Contribution margin per unit = Selling price per unit - Variable costs per unit = $1 per unit - $0.60 per unit = $0.40 per unit
Jason is trying to decide which one of two job offers he will accept. Several items are presented below: Which of the above items would be considered relevant costs? A) (1), (3), (5) B) (2), (4) C) (5) D) None of the above.
Answer: B Explanation: (1) Since the base salary does not differ among the alternatives, it is not relevant. (2) Since the overtime compensation differs among the alternatives, it is relevant. (3) Since the moving allowance does not differ among the alternatives, it is not relevant. (4) Since the signing bonus differs among the alternatives, it is relevant. (5) Since the job search costs do not differ among the alternatives, it is not relevant.
Lindsay purchased a raffle ticket for $5. Just before the grand prize drawing two people tried to buy her ticket. The first person offered $30, and another offered $65. What is Lindsay's opportunity cost of keeping the raffle ticket? A) $60 B) $65 C) $90 D) $95
Answer: B Explanation: An opportunity cost is the sacrifice that is incurred in order to obtain an alternative opportunity. Lindsay's opportunity cost of keeping the raffle ticket is the $65 offered by the other person.
QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below: What is the differential revenue for this decision? A) $25,000 B) $12,500 C) $62,500 D) $75,000
Answer: B Explanation: Differential revenue = Alternative A − Alternative B Differential revenue = $62,500 − $75,000 = $12,500
Randall Company manufactures chocolate bars. The following were among Randall's manufacturing costs during the current year: Randall's direct labor costs amounted to: A) $400,000 B) $300,000 C) $175,000 D) $375,000
Answer: B Explanation: Direct labor costs include labor costs that can be easily and conveniently traced to products, such as the $300,000 of wages paid to machine operators. The wages of $75,000 paid to selling and administrative personnel would be classified as period costs.
Randall Company manufactures chocolate bars. The following were among Randall's manufacturing costs during the current year: Randall's direct materials amounted to: A) $25,000 B) $225,000 C) $250,000 D) $475,000
Answer: B Explanation: Direct materials costs include the costs of materials that can be easily and conveniently traced to products, such as the $225,000 of cocoa, sugar, and other raw materials. The lubricant for oiling machinery in the amount of $25,000 and the packaging materials in the amount of $190,000 would be classified as indirect materials because they are not easily and conveniently traced to products.
The Mansfield Company manufactures and sells two lines of fishing rods. During the most recent accounting period, the Pro line and the Novice line sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below: Based on this information, the company should: A) Eliminate the Novice line because it is operating at a loss. B) Keep the Novice line because it contributes $40,000 to total profitability. C) Keep the Novice line because it contributes $55,000 to total profitability. D) It is impossible to determine with the given information.
Answer: B Explanation: If it eliminates a product line, a company can avoid the unit-level, batch-level, product-level, and segment-level facility-sustaining costs. The annual depreciation expense is a measure of a cost that was incurred in a prior period. Since sunk costs have been incurred in past transactions, they cannot be changed and are not relevant for making current decisions. The company-wide facility-level costs are not relevant because the company will incur them whether it eliminates the segment.
Pierce Company's break-even point is 12,000 units. Its product sells for $25 and has a $10 variable cost per unit. What is the company's total fixed cost amount? A) $250,000 B) $180,000 C) $120,000 D) Fixed costs cannot be computed with the information provided.
Answer: B Explanation: Sales - Variable costs - Fixed costs = Profit ($25 per unit × 12,000 units) - ($10 per unit × 12,000 units) - Fixed costs = $0 Fixed costs = $300,000 - $120,000 = $180,000
Falls Company has a contribution margin of $32 per unit and fixed costs of $500,000, and it desires to earn a profit of $100,000. What is the sales volume in units required to achieve this desired profit? A) 3,125 units B) 18,750 units C) 15,625 units D) 12,500 units
Answer: B Explanation: Sales volume in units = (Fixed costs + Desired profit) ÷ Contribution margin per unit Sales volume in units = ($500,000 + $100,000) ÷ $32 per unit = 18,750 units
Breezy Company is disposing of equipment that was originally purchased for $600,000 and has $240,000 of accumulated depreciation to date. The same equipment would cost $800,000 to replace. What is the total amount of sunk cost in this decision? A) $240,000 B) $360,000 C) $840,000 D) $800,000
Answer: B Explanation: Since sunk costs have been incurred in past transactions, they cannot be changed and are not relevant for making current decisions. The book value of the equipment of $360,000 (= $600,000 − $240,000) is not relevant.
Ting Company started the accounting period with the following beginning balances: Raw Materials Inventory, $21,000; Work in Process Inventory, $45,000; and Finished Goods Inventory, $10,000. During the accounting period, the company purchased $30,000 of raw materials and ended the period with $8,000 in raw material inventory. Direct labor costs for the period were $60,000 and $63,000 of manufacturing overhead costs was allocated to work in process. Ending work in process was $41,000 and ending finished goods was $17,500. Goods were sold during the period for $162,500. The amount of cost of goods manufactured (i.e.,amount transferred from work in process to finished goods) would be: A) $117,500. B) $170,000. C) $221,000. D) $166,000.
Answer: B Explanation: Total manufacturing costs = (Beginning raw materials inventory + Purchases−Ending raw material inventory) + Direct labor + Actual overhead costs Total manufacturing costs = ($21,000 + $30,000−$8,000) + $60,000 + $63,000 = $166,000 Cost of goods manufactured = Beginning work in process + Total manufacturing costs− Ending work in process Cost of goods manufactured = $45,000 + $166,000 −$41,000 = $170,000
The Juarez Corporation incurred the following transactions during its first year of operations. (Assume all transactions involve cash). 1) Acquired $1,000 of capital from the owners. 2) Purchased $400 of direct raw materials. 3) Used $300 of these direct raw materials in the production process. 4) Paid production workers $400 cash. 5) Paid $200 for manufacturing overhead. 6) Started and completed 200 units of inventory. 7) Sold 50 units at a price of $6 each. 8) Paid $40 for selling and administrative expenses. The amount of cost of goods manufactured would be: A) $1,000. B) $900. C) $800. D) $600.
Answer: B Explanation: Total manufacturing costs = Direct materials used + Direct labor + Actual overhead Total manufacturing costs = $300 + $400 + $200 = $900 Cost of goods manufactured = Beginning work in process + Total manufacturing costs− Ending work in process Cost of goods manufactured = $0 + $900−$0 = $900
The following income statement was produced when volume of sales was at 400 units If volume reaches 500 units, net income will be: A) $625 B) $1,800 C) $700 D) None of the above
Answer: C Explanation: % change = (Alternative measure − Base measure) ÷ Base measure% change = (500 − 400) ÷ 400 = 25% Magnitude of operating leverage = Contribution margin ÷ Net income Magnitude of operating leverage = $800 ÷ $500 = 1.6 Increase in net income = Net income + (Net income × Percentage increase in sales × Magnitude of degree of operating leverage) Increase in net income = $500 + ($500 × 0.25 × 1.6) = $700
Ethan paid $3 for a bottle of ThirstAid. Later while on a hiking trip, she was offered $8 for the ThirstAid. Select the correct statement from the following: A) The $8 offer is not relevant if Ethan refuses to sell the ThirstAid. B) If Ethan drinks the ThirstAid, no opportunity cost is associated with his decision. C) The $3 original purchase price is irrelevant to his decision to sell the ThirstAid. D) All of the above.
Answer: C Explanation: An opportunity cost is the sacrifice that is incurred in order to obtain an alternative opportunity. As such, the $8 offer is relevant to Ethan's decision to sell the ThirstAid. Since sunk costs have been incurred in past transactions, they cannot be changed and are not relevant for making current decisions. As such, the $3 original purchase price is not relevant to his decision to sell the ThirstAid.
Max bought a ticket to the championship baseball game for $75. Someone approaches him outside the stadium and offers him $175 for his ticket. If Max decides to go to the game, instead of selling his ticket, how much does it cost Max to go to the game? A) $75 B) $100 C) $175 D) None of the above.
Answer: C Explanation: An opportunity cost is the sacrifice that is incurred in order to obtain an alternative opportunity. The $175 that is sacrificed if Max goes to the game is the opportunity cost inherent in this decision. Since this cost differs between the alternatives of going to the game or selling the ticket and since it affects the present or future, this $175 cost is relevant to the decision.
The Mighty Music Company produces and sells a desktop speaker for $100. The company has the capacity to produce 50,000 speakers each period. At capacity, the costs assigned to each unit are as follows: -unit level costs: $45 -product level costs: $15 -facility level costs: $ The company has received a special order for 500 speakers. If this order is accepted, the company will have to spend $15,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order? A) $95 B) $45 C) $75 D) $60
Answer: C Explanation: Budgeted cost for production of 500 speakers: The other costs are not relevant because the company will incur them whether it accepts or rejects the special order. At a minimum, the company would need to earn revenue of $37,500 to be indifferent between accepting and rejecting this special order. The price per unit would be calculated as follows: $37,500 ÷ 500 units = $75 per unit
Travis Company had no beginning work in process or finished goods. Its total manufacturing costs for the year were $427,000. If cost of goods manufactured was $332,000 and cost of goods sold was $250,000, the amount of ending work in process would have been: A) $82,000. B) $105,000. C) $95,000. D) $127,000.
Answer: C Explanation: Cost of goods manufactured = Beginning work in process + Total manufacturing costs−Ending work in process $322,000 = $0 + $427,000−Ending work in process Ending work in process = $427,000−$322,000 = $95,000
Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: Easton can currently purchase the scooters it makes from another company. If the company purchases the scooters, Easton would still continue to use its own logo, sales staff, and advertising programs. Which of the following costs would be classified as a unit-level cost? A) Company president's salary B) Depreciation on manufacturing equipment C) Materials cost D) Real estate taxes on factory
Answer: C Explanation: Costs incurred each time a company generates one unit of product are unit-level costs. Examples include the cost of direct materials, direct labor, inspections, packaging, shipping, and handling.
Scholastic Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below: What are the incremental (differential) costs of the Western Tour? A) $4,000 B) $6,000 C) $8,000 D) None of these.
Answer: C Explanation: Differential costs of Western Tour = $10,000 − $2,000 = $8,000
Tisdale Company started the year with the following beginning account balances: Raw Materials Inventory, $42,000; Work in Process Inventory, $90,000; and Finished Goods Inventory, $20,000. During the year, the company purchased $60,000 of raw materials and ended the year with $16,000 of raw materials. Direct labor costs for the year were $120,000 and a total of $36,000 of manufacturing overhead costs were incurred. Ending work in process was $82,000 and ending finished goods was $35,000. Goods were sold to customers during the year for $360,000. How much gross margin would be reported for the year? A) $110,000 B) $145,000 C) $125,000 D) $171,000
Answer: C Explanation: Direct raw materials used = Beginning raw materials inventory + Purchases−Ending raw materials inventory Direct raw materials used = $42,000 + $60,000 - $16,000 = $86,000 Total manufacturing costs = Direct materials used + Direct labor + Actual overhead costs Total manufacturing costs = $86,000 + $120,000 + $36,000 = $242,000 Cost of goods manufactured = Beginning work in process + Total manufacturing costs −Ending work in process Cost of goods manufactured = $90,000 + $242,000 −$82,000 = $250,000 Cost of goods sold = Beginning finished goods + Cost of goods manufactured - Ending finished goods Cost of goods sold = $20,000 + $250,000 −$35,000 = $235,000 Gross margin = Sales− Cost of goods sold Gross margin = $360,000−$235,000 = $125,000
Based on this information, what is the company's cost of goods sold? A) $172,000 B) $240,000 C) $228,000 D) $340,000
Answer: C Explanation: Product Costing in Manufacturing Companies = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced Product Costing in Manufacturing Companies = [$40,000 + $120,000 + ($8,000 + $60,000)] ÷ 20,000 units = $11.40 per unit Cost of goods sold = Number of units sold × Product Costing in Manufacturing Companies Cost of goods sold = 20,000 units sold × $11.40 per unit = $228,000
Osprey Company is trying to decide between the following two alternatives: Which of the following conclusions can be drawn from this example? A) Variable costs are always relevant for decision making. B) Fixed costs are sunk and thus are never relevant for decision making. C) Relevant costs may include variable costs and fixed costs. D) None of the above.
Answer: C Explanation: The concept of relevance is independent from the concept of cost behavior. In a given circumstance, relevant costs could be either fixed or variable.
Martin Company currently produces and sells 40,000 units of product at a selling price of $12. The product has variable costs of $6 per unit and fixed costs of $150,000. The company currently earns a total contribution margin of: A) $280,000 B) $200,000 C) $240,000 D) $90,000
Answer: C Explanation: Total contribution margin = [(Selling price per unit − Variable costs per unit] × Units sold Total contribution margin = ($12 per unit − $6 per unit) × 40,000 units = $240,000
A product has a contribution margin of $2.50 per unit and a selling price of $25 per unit. Fixed costs are $20,000. Assuming new technology increases the unit contribution margin by 50 percent but increases total fixed costs by $13,750, what is the new breakeven point in units? A) 3,667 units B) 3,333 units C) 13,500 units D) 9,000 units
Answer: D Explanation: Break-even point in units with new technology = Fixed costs ÷ Contribution margin per unit Break-even point in units with new tech= ($20,000 + $13,750) ÷ ($2.50 per unit × 1.5) = 9,000 units
M and M, Inc. produces a product that has a variable cost of $3.00 per unit. The company's fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000. What is the amount of sales that will be necessary to earn the desired profit? A) $75,000 B) $50,000 C) $83,333 D) $125,000
Answer: D Explanation: Contribution margin per unit = (Selling price per unit - Variable costs per unit) Contribution margin per unit = $5 per unit - $3 per unit = $2 per unit Break-even point in units = (Fixed costs + Desired profit) ÷ Contribution margin per unit Break-even point in units = ($30,000 + $20,000) ÷ $2 per unit = 25,000 units Break-even point in dollars = Break-even point in units × Selling price per unit Break-even point in dollars = 25,000 units × $5 = $125,000
During the current year, Fairview Corporation sold 100,000 units of its product for $20 each. The variable cost per unit was $14, and Fairview's margin of safety was 40,000 units. What was the amount of Fairview's total fixed costs? A) $240,000 B) $560,000 C) $840,000 D) $360,000
Answer: D Explanation: First, determine break-even sales: Margin of safety in units = Budgeted sales - Break-even sales Margin of safety in units = 100,000 units - Break-even sales = 40,000 Break-even sales = 100,000 units - 40,000 units = 60,000 units Then, determine fixed costs: Break-even point in units = Fixed costs ÷ Contribution margin per unit 60,000 units = Fixed costs ÷ ($20 per unit - $14 per unit) Fixed costs = 60,000 units × $6 per unit = $360,000
At its $60 selling price, Atlantic Company has sales of $15,000, variable manufacturing costs of $4,000, fixed manufacturing costs of $1,000, variable selling and administrative costs of $2,000 and fixed selling and administrative costs of $1,000. What is the company's contribution margin per unit? A) $26 B) $28 C) $44 D) $36
Answer: D Explanation: First, determine the number of units sold: Number of units sold = Sales ÷ Selling price per unit Number of units sold = $15,000 ÷ $60 per unit = 250 units Then, determine the variable cost per unit: Variable cost per unit = (Variable manufacturing costs of $4,000 + Variable selling and administrative costs of $2,000) ÷ 250 units = $24 per unit Finally, determine the contribution margin per unit: Contribution margin per unit = Selling price per unit - Variable costs per unit Contribution margin per unit = $60 per unit - $24 per unit = $36 per unit
Tucker Company's work in process account decreased by $1,000, while its Finished Goods Inventory account increased by $500. Assuming total manufacturing costs were $5,000, what was the company's cost of goods sold amount? A) $3,500 B) $4,500 C) $4,000 D) $5,500
Answer: D Explanation: If the inventory balances increased, the ending balances are more than the beginning balances and vice versa. Cost of goods manufactured = Beginning work in process + Total manufacturing costs −Ending work in process Cost of goods manufactured = Beginning work in process + $5,000 −(Ending work in process -$1,000) Cost of goods manufactured = $5,000 + $1,000 = $6,000 Cost of goods sold = Beginning finished goods + Cost of goods manufactured - Ending finished goods Cost of goods sold = Beginning finished goods + $6,000−(Beginning finished goods + $500) Cost of goods sold = $6,000−$500 = $5,500
Based on the above information, the amount of period costs shown on Steuben's income statement is: A) $430,000 B) $150,000 C) $30,000 D) $180,000
Answer: D Explanation: Selling, general, and administrative costs (SG&A) are normally expensed in the period in which they are incurred. Because of this recognition pattern, non-product expenses are sometimes called period costs. In this case, the period costs of $180,000 are comprised of the office manager's salary of $150,000 and the insurance and taxes on selling and administrative offices of $30,000.
Newton Corporation entered into the following transactions during its first year of operations. (Assume all transactions involve cash.) 1) Acquired $2,000 of capital from the owners. 2) Purchased $600 of direct raw materials. 3) Used $400 of these direct raw materials in the production process. 4) Paid production workers $800 cash. 5) Paid $400 for manufacturing overhead. 6) Started and completed 200 units of inventory. 7) Sold 50 units at a price of $12 each. 8) Paid $80 for selling and administrative expenses. The amount of net income for the year was: A) $100. B) $75. C) $50. D) $120.
Answer: D Explanation: Total manufacturing costs = Direct materials used + Direct labor + Actual overhead costs Total manufacturing costs = $400 + $800 + $400 = $1,600 Total manufacturing costs per unit = $1,600 ÷ 200 units = $8 per unit Cost of goods sold = Number of units sold = Manufacturing cost per unit Cost of goods sold = 50 units × $8 per unit = $400 Net income = Sales−Cost of goods sold - Selling and administrative expenses Net income = (50 units × $12 per unit)−$400− $80 = $120
Only consider current value less the salvage value of old machine and operating cost of old machine.
Consider the cost less the salvage value and operating cost. Also consider if there is increase in revenue from using the new machine.
Stephenson Company is trying to decide which one of two contracts it will accept. The costs and revenues associated with each are listed below: The equipment was purchased last year and has no resale value. Which of these amounts is relevant for the selection of one contract over another? A) Contract revenue and labor costs B) Materials, consulting advice and allocated overhead C) Cost of consulting advice and allocated overhead D) Contract revenue, labor costs and depreciation on equipment
Explanation: Since the contract revenue differs among the alternatives, it is a differential revenue. Since the labor cost differs among the alternatives, it is a differential cost. The following are not relevant to this decision for the reasons stated. The materials and cost incurred for consulting advice do not differ among the alternatives. The book value of the asset and associated depreciation is based on a sunk cost that cannot be avoided because it has already been incurred and therefore is not relevant to current decisions. There is no indication that the allocated portion of the overhead can be avoided.
Should product delivery cost be treated as product cost?
NO
Should warehousing cost be treated as manufacturing overhead cost?
NO
An Income Statement under the Contribution Margin Approach:
Revenue - V/Cs (both manufacturing and selling costs- Fixed cost (both manufacturing and non-manufacturing)
Avoidable cost
a cost that can be eliminated, in whole or in part, by choosing one alternative over another