Man. Accounting test 2

Segment margin is obtained by deducting each segment's ______.

traceable fixed costs from its contribution margin

The variable costing income statement separates ______.

variable and fixed expenses

Variable Expense Ratio formula

variable expenses/sales

what if we change of lower our price?

volume goes up or service will not change as volume changes

break-even point

when level of sales at which profit= 0 once we reach break even then it turns into profit and NOI GOES UP

Total COGS formula

# of units sold X product cost

Product costs under absorption costing include ______.

direct labor fixed manufacturing overhead direct materials variable manufacturing overhead

The CM ratio can also be calculated by

dividing the contribution margin per unit by sales

What is the margin of safety?

excess of sales over breakeven sales, it is the amount where sales can drop without a loss occurring Higher margin of safety, lower risk of not breaking even

When using variable costing, fixed manufacturing overhead is _______.

expensed in the period incurred

Fixed MOH

fixed MOH / units produced

CM is used first to cover _________ Any remaining CM contributes to ___________

fixed expenses. net operating income.

Absorption and variable costing net income are usually different due to the accounting for ______.

fixed manufacturing overhead

Under variable costing the cost of a unit of inventory does not contain ______.

fixed manufacturing overhead

Contribution income statement

for internal use/ shows behavior of costs S VE CM FE NOI

Absorption costing is categorized by

function

Absorption costing net income is calculated by subtracting selling and administrative expenses from ________ ___________

gross margin

Absorption cost net income

gross margin - S&A expenses

An absorption costing income statement calculates ______.

gross margin by deducting cost of goods sold from sales

When units produced exceed units sold, net income will generally be ______ costing.

higher under absorption costing than under variable

In a CVP graph, unit volume is usually represented on the __________ axis and dollars on the _______ axis

horizontal (X) axis and dollars on the vertical (Y) axis

Degree of Operating Leverage

how a percentage change in sales will affect profits. CM/NOI

the contribution margin ratio shows

how contribution margin is affected by a change in sales volume

When inventory decreases, cost of goods sold under absorption costing will generally be ______ cost of goods sold under variable costing.

more than

If a segment is entirely eliminated, common fixed costs will ______.

not change

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

operating leverage

Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ______ costs.

period

Absorption costing treats fixed manufacturing overhead as a _____ cost.

product

When preparing a multi-product break-even analysis, the assumption is ordinarily made that the______ will not change.

sales mix

The break-even point calculation is affected by ______.

sales mix costs per unit selling price per unit

Unit Contribution Margin Formula

sales price per unit - variable cost per unit

A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as

segments

5 things CPS analysis watch to see how profit is affected

selling prices sales volume unit variable costs total fixed costs mix of products sold

The segment margin represents the ______.

the margin available after a segment has covered all of its own costs

Absorption costing and variable costing net operating income will be equal when ______

the number of units produced equals the number of units sold there is no beginning and no ending inventory

Operating Leverage

the relative amount of fixed and variable costs that make up a firm's total costs

cost structure

the relative proportion of fixed, variable, and mixed costs in an organization

When calculating the profit impact of discontinuing a segment, consider ______.

the segment's traceable fixed costs the segment's contribution margin

Only costs that would disappear over time if a segment disappeared should be treated as ________ fixed costs

traceable

how to find contribution margin

Sales - Variable Costs

total variable cost formula

T-Cogs + (Units sold x VS&A)

T/F Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum.

TRUE

Contribution Margin

The amount remaining when sales and variable expenses have been deducted.

degree of operating leverage

The measure of how a percentage change in sales affects profits at any given level of sales

sales mix

The relative proportions in which a company's products are sold.

Variable costing income statements are based upon a ______ format.

contribution

The contribution margin as a percentage of sales is referred to as the _______

contribution margin ratio (CM ratio)

% change in net operating income

degree of operating leverage x % change in sales

An example of a traceable fixed cost for General Motors' Corvette Division is the ______.

depreciation on equipment used to manufacture Corvettes

Total S&A cost expenses formula

(# of units sold X VS&A expense) + FS&A expense

Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $

(9000 X 32) -120000

Net operating income equals:

(unit sales - unit sales to break even) x unit contribution margin

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.

A company with a high ratio of fixed costs:

-is more likely to experience a loss when sales are down than a company with mostly variable costs -is more likely to experience greater profits when sales are up than a company with mostly variable costs

Variable costing treats ______ manufacturing costs as product costs.

ALL variable

When inventory increases, which costing method generally results in higher net income?

Absorption costing

The contribution format income statement can be expressed in the following equation: profit formula

Profit = (Sales - Variable expenses) - Fixed expenses

What is CVP analysis?

CVP helps managers make decisions like what products or services to offer, what prices to charge, what marketing strategy to use, and cost structures watches cost behavior

Operating Leverage Formula

Contribution Margin / Net Income

Degree of Operating Leverage Formula

Contribution Margin / Net Operating Income

Contribution Margin Ratio

Contribution Margin / Sales

Unit product cost under variable costing

DM + DL + VMOH

Unit product cost under absorption costing

DM + DL + VMOH + FMOH

The unit product cost using variable costing is

DM + DL + Variable MO

Target $ formula

FC+ Target / CM ratio

target # formula

FC+ Target / unit CM

Total fixed on variable

FMOH + FS&A

fixed manufacturing overhead formula

FMOH/ Units produced!!!

T/F When a company sells multiple products, an increase in total sales always results in an increase in total profits.

False

T/F Without knowing the future, it is best to have a cost structure with high variable costs.

False

Break Even # Formula

Fixed costs / selling price - variable costs

Break Even $ Formula

Fixed costs/ contribution margin ratio

what would go away if you got rid of traceable fixed costs

If the segment were eliminated, the fixed cost would disappear.

whats the goal of CVP?

Improve service and minimize costs

Margin of Safety Percentage formula

Margin of safety in dollars / Total budgeted sales in dollars

What are traceable fixed costs?

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

Fixed manufacturing overhead costs are expensed as units sold as part of cost of goods sold under ______________ costing

absorption

Selling and administrative expenses _____.

are always treated as period costs

Selling and administrative expenses ______.

are always treated as period costs

The variable expenses as a percentage of sales is referred to

as the variable expense ratio

Variable costing is categorized by

behavior

Under absorption costing product costs consist of ______ costs.

both variable and fixed manufacturing

A segment should probably be dropped when the segment ______.

cannot cover its own costs has a contribution margin that cannot cover traceable fixed costs