ACCT 2210 Exam 2

When the units produced exceed the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method

is less than

How is the contribution margin useful in planning business operations?

judging the impact on profits of changes in selling price, cost, or volume, shows the amount available to cover fixed expenses and to provide profit for the period

When the number of units produced is greater than the number of units sold, variable costing net operating income will be _____

less than absorption costing net operating income

The measure of how sensitive net operating income is to a given percentage change in volume sales is called ____

operating leverage

Why aren't common fixed costs allocated to segments under the contribution approach?

reduces the value of the segment margin as a measure of long-run segment profitability and segment performance

Contribution margin equals ____

sales minus variable cost

How does the contribution margin differ from the segment margin?

segment margin is most useful in major decisions that affect capacity such as dropping a segment

If units produced equals the units sold, which method would you expect to show the higher net operating income, variable or absorption costing?

they would be the same

Break even point is the level of sales at which ______

total revenue equals total costs

Absorption costing income statements ignore ______

variable and fixed cost distinctions

What is the meaning of operating leverage?

A measure of how sensitive net operating income is to a given percentage change in unit sales

What is a segment of an organization?

A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data.

Are selling and administrative expenses treated as product costs or as period costs under variable costing?

Always period costs

Selling price = 200 per unit, variable expenses = 150 per unit, fixed expense = $1,000,000 per year, and unit sales = 25,000 per year. What is the margin of safety in dollars?

$1 million

How do you find contribution margin?

(sales price - variable cost) x units sold OR sales - variable cost of goods sold - variable selling and administrative expenses

What is the meaning of contribution margin ratio?

The amount remaining from sales revenue after variable expenses have been deducted, the ratio shows how the CM will be affected by a change in sales volume

What is the meaning of margin of safety?

The excess of budgeted or actual dollar sales over the break-even dollar sales

What is the meaning of break-even point?

The level of sales at which profit is zero

What is meant by the term sales mix?

The relative proportions in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed Expenses amount to a total of $5,000 per month. What is the company's variable cost ratio?

40%

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's contribution margin ratio?

60%

The current sales are $400,000, with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipates a 30% increase in sales, what is the percentage change in net operating income?

60%

What costs are assigned to a segment under the contribution approach?

Traceable fixed cost

Once the break even point has been reached, net operating income will increase by the amount of the _______ for each additional unit sold

Unit contribution margin

What is represented on the X axis of a cost-volume-profit (CVP) graph?

Unit volume

Which of the following costing approaches is best suited for cost-volume-profit analysis?

Variable

What is a common fixed cost?

fixed cost that supports the operations of more than one segment, but is not traceable in whole or in part to any one segment

The difference between absorption costing net operating income and variable costing net income can be explained by the way these two methods account for ______

fixed overhead costs

What is incremental analysis?

focuses on costs and revenues that changes as a result of a decision

Explain how fixed moh costs are shifted from one period to another under absorption costing

included in work-in-process inventory and then transferred to finished goods, once sold becomes apart of cost of goods sold

When the units produced are equal to the units sold, the net operating income computed using the variable costing method is ______ the net operating income using the absorption costing method

is equal to

When the units produced are less than the units sold, the net operating income computed using the variable costing method is ____ the net operating income using the absorption costing method

is greater than

Atlas Corporation sells 100 bikes during a month. The contribution margin per bike is $200. The monthly fixed expenses are $8,000. What is the profit from the sale of the 100 bikes?

$12,000

Atlas Corporation sells 100 bikes during a month at a price of $500 per unit. The variable expenses amount to $300 per bike. How much does profit increase if it sells one more bike?

$200

Max, incorporated, has two divisions, South and North. South's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000, respectively. What is the segment margin for the South?

$200,000

Future Corporation has a single product; the product selling price $100 and variable costs are $60. The company's fixed expenses are $10,000. What is the company's break even point in sales dollars?

$25,000

Bovine Corporation has two divisions: tv and phones. The phone division has a contribution margin of $600,000. The company's fixed costs and total traceable fixed costs are $100,000 and $500,000. Assuming the traceable fixed costs of the tv division are $300,000, what is the segment margin of the phone division?

$400,000

Frank Corporation has a single product. Its selling price is $80 and the variable costs are $30. The company's fixed expenses are $5,000. What is the company's break even point in unit sales?

100 units

Selling price = 200 per unit, variable expenses = 150 per unit, fixed expense = $1,000,000 per year, and unit sales = 25,000 per year. What is margin of safety in percentage?

20%

Winter Corporation's current sales are $500,000. The contribution margin is $300,000 and the net operating income is $100,000. What is the company's degree of operating leverage?

3.00

With regards to interpretation, what are the important areas that appear on a CVP graph?

Break even point, loss area, and profit area

Under absorption costing, how is it possible to increase net operating income without increasing sales?

By changing the units produced

How do you find the total manufacturing costs per unit added to work in process under the absorption method?

Direct materials + Direct labor + Variable manufacturing overhead + fixed manufacturing overhead costs

How do you find the total manufacturing costs added to work in process under the variable costing method?

Direct materials + Direct labor + Variable manufacturing overhead cost

What is usually plotted as a horizontal line on the CVP graph?

Fixed Expenses

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of $76,000, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if advertising increases by $20,000. What is the change in net operating income after the changes?

Increase of $14,200

The profit graph is based on the following linear equation

Profit = Unit CM x Q - Fixed Expense

What is a traceable fixed cost?

a fixed cost that is incurred because of the existence of the segment