ACCT EXAM 2

Margin of safety

(expected sales-breakeven sales)

Target cost

(target sales price-desired net profit)

Which costing method charges all the manufacturing costs to the products?

Absorption costing

absorption costing

Assigns (DM + DL+ VARI/FIXED MOH) to units. Required by GAAP

Variable costing

Assigns only variable MOH to products: DM, DL, and variable MOH used for internal reporting.

Breakeven point (sales $)

BEP= Fixed costs/ contribution margin ratio

Breakeven point (units)

BEP= fixed costs/ (rev. per unit- variable costs per unit)

What decision is absorption costing most important for?

Decisions related to setting sales price in the long run.

(T/F) Absorption costing considers fixed selling and administrative costs as product costs.

False

What is NOT an assumption of cost volume profit analysis?

The price per unit changes as volume changes.

(T/F) The traditional income statement format calculates operating income as gross profit minus selling and administrative expenses.

True

(T/F) If the volume of activity doubles in the relevant range, total variable costs will also double.

True

Traditional income statements are in __________ costing format

absorption

Variable costs

change in dollars/ change in volume

Absorption costing is better for ____ ___ decisions

long run

Contribution Margin

net sales revenue - variable costs

Predetermined overhead allocation rate

predetermined overhead costs/estimated quantity of allocation base

Contribution margin ratio

ratio of contribution margin to net sales rev. (contribution margin/net sales rev.)

Direct materials is a ________ cost

variable