Acc 222 Ch. 1-4

Head First plans to sell 5000 helmets at $75 each. Variable cost is 60% and contribution margin is 40%. Total Fixed cost is $49,500. What is the break even revenue that Head-First must make to break even?

$123,750 BE revenue= TFC/CM ratio = 49500/.4= 123750

Finding CM ratio and VC ratio

CM ratio + VC ratio = 1

The chief accounting officer for a firm is the a. chief executive officer. b. chief operating officer. c. vice president of sales. d. production head. e. controller.

Controller

Margin of safety in units

How many planned to sell - Break units previously calculated

Cost of goods manufactured represents I. Goods completed during the period II. Goods partially completed but still on the factory floor at the end of the period III. Goods transferred to finished goods inventory during the period I only. II and III only. I and III only. I, II, and III.

I and III only

Determine whether each request is relatively more managerial accounting oriented or financial accounting oriented. a. Ben Heald, head of production, wondered whether it would be more cost effective to buy parts partially assembled or to buy individual parts and assemble them at the Arben factory.

Managerial accounting

Determine whether each request is relatively more managerial accounting oriented or financial accounting oriented. c. Ellen Johnson, vice president of sales, has decided to expand the sales offices for next year. She sent Jenna the information on next year's rent and depreciation information for budgeting purposes.

Managerial accounting

A step cost with relatively narrow steps: a) is exemplified by a lease for production machinery. b) can be approximated as a fixed cost due to the narrow steps. c) is a continuous cost function. d) All of these choices are correct. e) None of these choices are correct.

None of these choices are correct.

Wages paid to the factory foreman are considered

Not direct labor or period cost. -they would be considered indirect labor costs (part of manufacturing overhead).

Unit Contribution Margin

Price- Unit Variable Cost

Margin of safety

Sales - Breakeven sales

The purpose of managerial accounting is to: a) serve the needs of management. b) serve the needs of creditors. c) serve the needs of stockholders and regulators. d) serve the needs of the IRS and government agencies. e) serve the needs of all these groups.

Serve the needs of management.

In the cost-volume-profit graph,

both the total revenue curve and the total cost curve appear

Food Service Corp offers a meal service for commuting college students. Data for the last three months appear below: January $5,400 1,900 February $4,500 1,450 March $4,000 1,200 Using the high-low method, the variable cost per meal served in the cafeteria was: $1.50 $2.00 $2.80 $2.40 $1.00

$2 (5400-4000)/(1900-1200) = $2

Costly Inc. produces headsets for CD players and has the following information for the upcoming year: Headsets to be produced, 5,000,000; direct materials/unit $1.25; direct labor/unit $2.50; transportation costs/unit $.50; plant depreciation $175,000. Total variable costs are projected to be: $6,250,000 $12,500,000 $15,000,000 $16,175,000 $21,250,000

$21,250,000 ((5,000,000 x ($1.25 +$2.50+$.50))

High Low Method

(HP cost - LP cost)/(HP-LP)

Financial accounting vs. managerial

-externally focused -must follow externally imposed rules -objective financial information -historical orientation -information about the firm as a whole. -more self-contained

The users of managerial accounting information include:

-for profit companies -not-for profit organizations -city governments -educational institutions

Managerial accounting vs. financial

-internally focused -no mandatory rules -financial and non-financial information; subjective information possible. -emphasis on the future -internal evaluation and decisions based on very detailed information. -broad, multidisciplinary

3 broad objectives of managerial accounting

-to provide information for planning the organization's actions. -to provide information for controlling the organization's actions. -to provide information for making effective decisions.

Committed Fixed Costs

-you cannot get out of it (insurance, rent)

Green Tip makes shoes. During the last year, the company incurred the following costs: Direct materials $46,000; direct labor $54,000; indirect materials $15,000; administrative costs $30,000; indirect labor $10,000 and miscellaneous overhead $20,000. Total product cost is: $100,000 $115,000 $135,000 $145,000 $125,000

145,000

Dartmouth Company produces a single product with a price of $12, variable cost per unit of $3, and total fixed cost of $7200. The variable cost ratio and the contribution margin ratio for Dartmouth are?

25% and 75%, respectively. VC ratio: VC/Price CM ratio: CM/Price

The following costs were incurred for the ABC Company in January: DM- $100,000 DL- 80,000 Indirect Labor 20,000 Manu OH 70,000 Marketing 25,000 Delivery 5,000 Total manufacturing costs are:

270,000 $100,000 + 80,000 + 20,000 + 70,000 = 270,000 DM+DL+ Indirect Labor+ MOH

Dartmouth Company produces a single product with a price of $12, variable cost per unit of $3, and total fixed cost of $7,200. Dartmouth's break even point in units is?

800 Fixed Cost/CM (Price-Variable) 7200/(12-3)

Solemon Company has total fixed cost of $15,000, variable cost per unit of $6, and a price of $8. If Solemon wants to earn a targeted profit of $3,600, how many units must be sold?

9,300 (TFC+Targeted Profit)/CM

In order for the least square regression method to be as accurate as possible: a) as many observations as possible should be recorded. b) extreme observations should be eliminated from the analysis. c) calculation should be done using a computer software. d) all of these choices are correct.

All of these choices are correct.

Which of the following is a characteristic of managerial accounting? a. There is an internal focus. b. Subjective information may be used. c. There is an emphasis on the future. d. It is broad-based and multidisciplinary. e. All of these choices are correct.

All of these choices are correct.

Which of the following is typically found in a corporation's code of ethics? a. Compliance with the rule of law b. Integrity c. Honesty d. Competence e. All of these choices are correct.

All of these choices are correct.

Break-even Sales

BE Sales= TFC/CM ratio

Ending Inventory of Materials

Beginning Inventory of Materials + Purchases - DM used in production

Which of the following is a period expense? a) factory insurance b) CEO salary c) direct labor d) factory maintenance e) all of these choices are correct.

CEO salary

COGS

COGSM +Beg Finished Goods -End Finished Goods = COGS

Which of the following is not a common form of certification for managerial accountants? a. Certificate in Internal Auditing b. Certificate in External Auditing c. Certificate in Public Accounting d. Certificate in Management Accounting

Certificate of External Auditing

Total Product Cost

DM + DL + MOH

COGSM

DM used in Production DL MOH = Total Manufacturing Cost +Beg WIP - End WIP = COGSM

Percent Change in Operating Income

DOL x Percent Change in Sales

The managerial accounting system tracks a wide variety of activities that span the value chain. Which of the following best describes the steps (in order) in a firm's value chain? a) Develop, design, market, produce, and deliver. b) Develop, design, produce, market, and deliver. c) Design, market, develop, produce, and deliver. d) Design, develop, produce, market, and deliver. e) Any of these choices can be correct depending upon the industry in which the firm operates.

Design, develop, produce, market, and deliver.

Conversion Cost

Direct Labor + Manufacturing Overhead

Prime Cost

Direct Materials + Direct Labor

Total variable expense per unit

Direct materials + Direct labor + variable factory overhead + variable selling expense

Determine whether each request is relatively more managerial accounting oriented or financial accounting oriented. b. The president of Arben reminded Jenna that the stockholders' meeting was coming up, and he needed her to prepare a PowerPoint® presentation showing the income statement and balance sheet information for last year.

Financial accounting

Determine whether each request is relatively more managerial accounting oriented or financial accounting oriented. d. Jenna's assistant, Mike, received the information from Ellen on depreciation and added it to depreciation expenses and accumulated depreciation on office equipment.

Financial accounting

Which of the following is NOT an assumption of cost volume profit analysis? -Selling price is constant -Variable cost/unit is constant -Fixed cost/unit is constant -Total fixed cost is constant

Fixed cost/unit is constant

Within the relevant range, if activity increases, what would be the effect on each of the following?

Fixed costs/unit decreases and variable cost/unit does not change.

Total Fixed expense

Fixed factory overhead + fixed selling and administrative expense

Determine whether each request is relatively more managerial accounting oriented or financial accounting oriented. e. Jenna compared the budgeted spending on materials used in production with the actual spending on materials used in production. Materials spending was significantly higher than expected. She set up a meeting to discuss this outcome with Ben Heald so that he could explain it.

Managerial accounting

Expected Operating Income

Operating Income x (Percent Change x operating income)

An area of normal activity or volume in which fixed and variable cost relationships are valid is called

Relevant Range

CM Income Statement

Sales $XXX Total VC (XXX) Total CM $XXX Total FC (XXX) Operating Income $XXX

Total Contribution Margin

Sales - Total Variable Cost

Gross Margin

Sales Revenue - COGS

Which of the following is NOT an underlying assumption for cost-volume-profit analysis? -Cost-volume-profit analysis is only applicable within the relevant range -Production equals sales -Cost and revenue functions are linear -Sales mix can vary -Prices and costs are known with certainty

Sales mix can vary

In a university setting, which of the following positions would be considered a line position? -the Director of the Registrar Office -the Dean of the College of Business -the Director of Human ---Resources for the university -the Director of the ----Bookstore -All of these choices would be considered line positions.

The Dean of the college of business

A manufacturing plant produces two products: tables and chairs. Which of the following would be considered an indirect cost? a) The cost of wood in manufacturing chairs b) The labor costs of assembly workers in manufacturing chair c) The salaries of the clerical staff in the sales department d) The salary of the plant supervisor e) None of these answers are correct.

The salary of the plant supervisor. -the salary of the plant supervisor cannot be directly traced to the two products. It will be considered indirect labor costs.

Total Cost

Total FC + (Variable rate x Units of Output)

Per-Unit Product Cost

Total Product Cost/# of units produced

Operating Income

Total Revenue- Total expense

Degree of operating leverage

Total contribution margin/Operating income

In the mixed cost formula: Total cost= fixed cost + (variable rate x output) The dependent variable is?

Total cost

A characteristic of total quality management (TQM) is that it has: a) replaced traditional quality measures. b) emphasized the need for managerial accounting information. c) empowered employees to manufacture "zero-defect" products. d) All of these answers are correct.

all of these answers are correct.

Cost objects include all of the following except: -products. -customers. -departments. -projects. -All of these answers are correct.

all of these answers are correct.

All of the following are areas emphasized on the Certified Management Accountant Exam (CMA) EXCEPT: -economics, finance, and management. -financial accounting and reporting. -management reporting, analysis and behavioral issues. -decision analysis and information systems. -All of these areas are emphasized on the CMA exam.

all of these areas are emphasized on the CMA exam.

Sensitivity analysis: -examines how changes in fixed costs can impact profit. -examines how changes in sales can impact profit. -examines how changes in the sales mix can impact the break-even point. -is a useful managerial planning tool. -All of these choices are correct.

all of these choices are correct

Managerial accountants can obtain which of the following certifications? a) Certificate in Management Accounting b) Certificate in Public Accounting c) Certificate in Internal Auditing d) All of these choices are correct.

all of these choices are correct.

Which of the following statements is correct? a) For a retailer, there is no cost of goods manufactured. b) Service firms do not calculate gross margin. c) All firms subtract selling and administrative expenses to arrive at net income. d) All of these choices are correct.

all of these choices are correct.

Financial and managerial accounting are similar in that both: a) are useful for making decisions. b) are required by regulatory bodies such as the SEC. c) emphasize the organization as a whole. d) involve following externally imposed rules. e) All of these answers are similarities.

are useful for making decisions.

Which of the following is an example of a manufacturing cost?

both direct materials and factory overhead -manufacturing (product) costs consist of direct materials, direct labor, and manufacturing overhead.

In cost-volume-profit analysis which of the following pairs of terms are used interchangeably? -total revenue/total expense -cost/expense -contribution margin/break-even point -variable cost ratio/contribution margin ratio -All of these choices are correct.

cost/expense

Accumulating costs means that

costs must be measured and tracked.

Discretionary Fixed Costs

costs that you could possibly get out of.

Which of the following statements is correct? -Cost-volume-profit analysis cannot be performed when multiple products/services are sold. -Direct fixed expenses are those fixed costs that would be avoided if the segment did not exist. -Common fixed expenses are traceable to the segment. -Common fixed expenses are eliminated if one of the segments is eliminated.

direct fixed expenses are those fixed costs that would be avoided if the segment did not exist.

Step costs

discontinuous cost functions since they are semi-fixed within a range of activity. -step costs with narrow steps can be approximated as variable costs. -ex: a step cost with relatively narrow steps would be exemplified by the cost of paper at a copy shop.

A factor that causes or leads to a change in a cost or activity is a(n) a. slope. b. intercept. c. driver. d. variable term. e. cost object.

driver

Direct costs are: a) assigned to a cost object using a reasonable and convenient method. b) costs that do not increase in total as output increases. c) easily traced to their cost object. d) All of these choices are correct.

easily traced to their cost object.

Cost-volume-profit (CVP) analysis

estimates how changes in cost (both variable and fixed), sales volume, and price affect a company's profit. -powerful tool for planning and decision making.

What are 3 methods of separating a mixed cost into its fixed and variable components are commonly used?

high-low method, scattergraph method, and method of least squares

Superior products through differentiation

increase customer value by providing something to customers not provided by competitors.

Within the relevant range, costs classified as variable will:

increase in total as volume increases

Using a scattergraph: a) restricts management from using judgments regarding cost behavior. b) makes use of the formula: Total cost = fixed cost + (variable rate x output). c) involves plotting the data points and fitting a line to the data points. d) All of these choices are correct.

involves plotting the data points and fitting a line to the data points.

The following cost formula for total purchasing cost in a factory was developed using monthly data. Total Cost = $235,000 + ($75 x Number of Purchase Orders) Next month, 8,000 purchase orders are predicted. The total cost predicted for the purchasing department next month a. is $8,000. b. is $235,000. c. is $600,000. d. is $835,000. e. cannot be determined from the above formula.

is 835,000

The following cost formula was developed by using monthly data for a hospital. Total Cost = $128,000,000 + ($12,000 x Number of Patient Days) In the cost formula, the term "Total cost" a. is the variable rate. b. is the intercept. c. is the dependent variable. d. is the independent variable. e. cannot be determined from the above formula.

is the dependent variable

The following cost formula was developed by using monthly data for a hospital. Total Cost = $128,000,000 + ($12,000 x Number of Patient Days) In the cost formula, the term "Number of patient days" a. is the variable rate. b. is the intercept. c. is the dependent variable. d. is the independent variable. e. cannot be determined from the above formula.

is the independent variable

The following cost formula was developed by using monthly data for a hospital. Total Cost = $128,000,000 + ($12,000 x Number of Patient Days) In the cost formula, the term $128,000,000 a. is the total variable cost. b. is the dependent variable. c. is the variable rate. d. is the total fixed cost. e. cannot be determined from the above formula.

is the total fixed cost

The following cost formula was developed by using monthly data for a hospital. Total Cost = $128,000,000 + ($12,000 x Number of Patient Days) In the cost formula, the term $12,000 a. is the variable rate. b. is the dependent variable. c. is the independent variable. d. is the intercept. e. cannot be determined from the above formula.

is the variable rate

A potential disadvantage of the high low method is that:

it uses only two data points, which may not be representative of normal conditions

Many companies attempt to increase organizational value by eliminating wasteful activities that exist throughout the value chain. This change also requires a change in accounting known as:

lean accounting

The IMA's Statement of Ethical Professional Practice: a) has not been revised since the Sarbanes-Oxley Act of 2002 was enacted. b) lists overarching ethical principles for IMA members which include honesty, fairness, objectivity, and responsibility. c) applies to all accountants with accounting degrees. d) is the same as the code of conduct by the AICPA. e) is different depending on the State where the accountant is practicing.

lists overarching ethical principles for IMA members which include honesty, fairness, objectivity, and responsibility.

Total quality management

manufacturers strive to create an environment that will enable workers to manufacture perfect products, has replaced the "acceptable" attitudes of the past.

For planning and control purposes:

mixed costs should be separated into variable and fixed components

In recording mixed costs such as utilities in the accounting records:

no attempt is made to separate variable and fixed costs.

The most appropriate cost driver for direct materials would be:

number of products manufactured.

The cost of delivering the completed product to a customer is an example of:

period cost

Selling and administrative costs are generally treated as:

period costs

Staff positions

positions that are supportive in nature and have only indirect responsibility for an organization's basic objectives.

Line positions

positions that have direct responsibility for the basic objectives of an organization.

Product (or manufacturing) costs consist of

prime costs and manufacturing overhead.

Within the relevant range, costs classified as fixed will:

remain the same in total as volume increases

Cost of goods sold: a) represents the costs of goods transferred from finished goods inventory on the balance sheet to cost of goods sold on the income statement. b) is computed as cost of goods manufactured minus beginning finished goods inventory plus ending finished goods inventory. c) includes the selling and administrative costs associated with the sales for the period. d) All of these choices are correct for cost of goods sold.

represents the costs of goods transferred from finished goods inventory on the balance sheet to cost of goods sold on the income statement.

Planning

requires setting objectives and identifying methods to achieve those objectives.

The organizational chart: a) shows line and staff positions. b) shows whether an organization is centralized or decentralized. c) shows informal channels of communication. d) All of these answers are correct.

shows line and staff positions

Goodness of fit: a) tells us how well the independent variable predicts the dependent variable. b) tells us how well the dependent variable predicts the independent variable. c) refers to the width of steps in a step cost. d) describes the way managers use their experience and knowledge of cost and activity-level relationships to identify outliers.

tells us how well the independent variable predicts the dependent variable.

The sales mix is: -the mix that generates the greatest profit. -the mix that has the highest customer demand. -the mix where contribution margin is the highest. -the combination of products being sold by the firm. -All of these answers are correct.

the combination of products being sold by the firm.

If the margin of safety is 0, then

the company is precisely breaking even.

Continuous improvement

the continual search for ways to increase the overall efficiency and productivity of activities by reducing waste, increasing quality, and managing costs.

The contribution margin is

the difference between sales and total variable cost

Customer value

the difference between what a customer receives and what the customer gives up when buying a product or a service. -is a key focus because firms can establish a competitive advantage by creating better customer value for the same or lower cost than competitors or creating equivalent value for lower cost than that of competitors.

Controlling

the managerial activity of monitoring a plan's implementation and taking corrective action as needed. -usually achieved by comparing actual performance with expected performance.

Contribution margin ratio is: -the proportion of each sales dollar available to cover variable costs and generate profit. -the percentage of sales dollars remaining after variable costs are covered. -a useful indication of the company's ability to reach the breakeven point. -All of these choices are correct.

the percentage of sales dollars remaining after variable costs are covered.

Break-even point

the point where total revenue equals total cost.

Cost allocation

the process of assigning indirect costs to objects

Decision making

the process of choosing among competing alternatives.

Managerial accounting

the provision of accounting information for a company's internal users. -not bound by any formal criteria such as GAAP.

Operating leverage is: -the use of fixed costs to extract higher percentage changes in profits as sales activity changes. -the ratio of contribution margin as a percentage of sales. -the proportion of variable costs in a company's cost structure. -All of these choices are correct.

the use of fixed costs to extract higher percentage changes in profits as sales activity changes

Cost leadership

to provide the same or better value to customers at a lower cost than competitors.

The amount of revenue required to earn a targeted profit is equal to:

total fixed cost plus targeted profit divided by contribution margin ratio.

Activities devised to design, produce, and deliver products to customers are part of which managerial accounting philosophy?

value chain