5
Which type of cost changes in total, in direct proportion to changes in activity level?
variable
VL Inc. sells its only product for $10 per unit. Variable costs are $4 per unit and total fixed costs are $40,000. The company is currently selling 10,000 units per year. By how much will profits increase if sales increase 1,500 units?
($10 - $4) = $6 CM × 1,500 units = $9,000.
Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 Variable selling and administrative: $8/unit Fixed selling and administrative: $10,000 Units produced: 10,000 Units sold: 6,000
152
Webster, LLC sells its product for $20 per unit. Variable costs are $11 per unit and total fixed costs are $35,000. The company sells 8,000 units per year. Webster's contribution margin ratio is
20-11=9 9/20=45%
Given the following information, calculate the unit product cost under absorption costing. Direct materials: $50/unit Direct labor: $75/unit Variable manufacturing overhead: $27/unit Fixed manufacturing overhead: $30,000 Variable selling and administrative: $8/unit Fixed selling and administrative: $10,000 Units produced: 10,000 Units sold: 6,000
30k/10k=3 3+50+75+27=155
The format used to prepare a contribution income statement is Sales -
Variable expenses = Contribution margin - Fixed expenses = Net income
the high low method uses the highest and lowest level of ___ cost
activity
Full absorption costing can have a different bottom line (profit) than variable costing because of
changes in inventory
The formula to calculate the variable cost per unit using the high-low method is
difference in total cost/ difference in activity
Absorption costing and variable costing net operating income will be equal when___
equal when the number of units produced equals the number of units sold equal when there is no beginning and no ending inventory
costs that remain constant in total and vary per unit
fixed
variable component must be computed before fixed costs can be determined. Fixed costs are computed by subtracting the variable cost from the total cost.
high low fixed cost
Net operating income under absorption costing is generally ___ net operating income under variable costing in periods in which inventory increases.
higher than
Y = a + bX terms
y=total a= fixed cost/ intercept b= cost per unit/slope x= level of activity
Comfy Cozy Chairs makes and sells rockers. Each rocker requires $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per unit, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs equal $15 per unit, and fixed selling and administrative costs total $102,000. During the period, 2,000 rockers were produced and 1,640 were sold. The unit product cost using variable costing is
90
least-squares regression variables if Ax+B
A= variable cost per customer B= total fixed cost
Contribution margin ratio is
Contribution Margin / Sales
The financial statement that organizes costs by their behavior instead of by their function is the
contribution margin income statement
When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead
deferred in the inventory account on the balance sheet
A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called
least squares regression
___ costs have a fixed and variable component
mixed
The unit contribution margin
sales price per unit - variable cost per unit tells how much each additional unit contributes to profit
___ costs are fixed over a fairly wide range of activity
step fixed
Costs that have a fairly narrow range and rise in multiple steps across the relevant range are called
step variable
t/f The equation for a straight line can be used to express the relationship between mixed costs and the level of activity.
t
t/f The relevant range of activity is approximated by a straight line.
t
t/f for high low, the variable cost uses either the high or low point of the data
t
total contribution margin formula
units sold x unit contribution margin