Accounting Exam #2

Costs in beginning work in process inventory was $4,500 and $37,800 in costs were added during the period. If there are 7,050 equivalent units, the cost per equivalent unit under the weighted-average method is $

$6, because 4,500 + 37800 / 7050

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK-EVEN?

$98,000 ÷ ($50 - $15) = 2,800 to break-even

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is

($320,000 + $200,800) ÷ ($90 - $28) = 8,400 units.

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is ______.

($520,000 + $320,000) ÷ $21 = 40,000

A company's current sales are $300,000 and fixed expenses total $85,000. The contribution margin ratio is 30%. The company has decided to expand production which is expected to increase sales by $70,000 and fixed expenses by $15,000. If these results occur, net operating income will ______.

($70,000 × 30%) - $15,000 = $6,000 increase

Profit equals:

(P × Q - V × Q) - fixed expenses. (Selling Price Per Unit x Quantity Sold - Variable Expense x

Marjorie's Mugs sold 300 mugs last year for $20 each. Variable costs were $7 per mug and total fixed costs were $1,700. Marjorie's Mugs' profit was ______.

2200

The Cutting Edge sells ice skates. Total sales are $845,000, total variable expenses are $245,050 and total fixed expenses are $302,000. The variable expense ratio is ______

29%

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ______.

30,000 × ($40 - $19) - $250,000 = $380,000 Units Sold x (Unit cost - Variable cost) - Fixed expenses = Net operating income.

Canners Company uses weighted-average costing. Beginning work in process inventory had $3,650 of material costs. During the period, $5,000 of materials and $9,250 in conversion costs were added. If there are 250 equivalent units of production for materials, the cost per equivalent unit for materials is ______.

34.60, equivalent unit for materials is ($3,650 + $5,000) ÷ 250 = $34.60, (Beginning WIP + During the period Materials) / equivalent units =

A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be $ _________.

5000

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______.

Break-even point = $305,000 ÷ $40 = 7,625.

The degree of operating leverage = ______

Contribution Margin / Net Operating Income

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______

Contribution margin = 20,000 × ($20 - $11) = $180,000. Units sold x (Unit Cost - Variable Cost) = Contribution Margin

Direct labor plus manufacturing overhead equals _______ cost

Conversion

The journal entry to record labor cost in the first department is ______ (debit/credit) Wages payable and _________ Work in process-Department #1

Credit, Debit

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n):

Decrease in Unit Variable Cost

True or false: Without knowing the future, it is best to have a cost structure with high variable costs. True false question.

False

The amount by which sales can drop before losses are incurred is the _______ of _________

Margin, Safety

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is Blank______.

Net operating income = $184,000 - $85,000 = $99,000 Net operating income = Contribution Margin - fixed costs

Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will ______.

New contribution margin = $6,000 (1,000 × ($10 - $4)) - $8,000 new cost = ($2,000) decrease in profits.

In situations where products have some common characteristics and some individual characteristics, ______ costing is used.

Operation

Which of the following is not a characteristic of operation costing? Multiple choice question. Costs are accumulated by department. Products are homogeneous. Costs are accumulated by operation. Products are processed in batches.

Products are homogeneous.

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

Ratio

Spice sells paprika for $9.00 per bottle. The variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is ______.

Reason: $2.43 ÷ $9.00 or 27%

The variable expense ratio equals variable expenses divided by ______.

Sales

Place the following items in the correct order in which they appear on the contribution margin format income statement.

Sales Variable Expense Contribution Margin Fixed Expense Net Operating Income

Which of the following items are found above the contribution margin on a contribution margin format income statement?

Sales Variable Expenses

The term used for the relative proportion in which a company's products are sold is

Sales Mix

Which of the following statements is correct? The higher the margin of safety, the lower the risk of incurring a loss. The risk of loss is not impacted by the margin of safety. The higher the margin of safety, the higher the risk of incurring a loss.

The higher the margin of safety, the lower the risk of incurring a loss.

The break-even point is reached when the contribution margin is equal to:

Total fixed expenses.

The equivalent units completed are valued the same as units ______ for purposes of determining the cost per unit. Multiple choice question.

Transferred Out

A processing department needs to calculate a separate unit cost for each type of cost incurred. T or F

True

Process costing is used when a company produces a continuous flow of units that are homogeneous. T or F

True

Which of the following is a key difference between process and job-order costing?

Under process costing, it makes no sense to try to identify materials, labor and overhead costs with a particular customer order.

When preparing a CVP graph, the horizontal axis represents: Multiple choice question.

Unit Volume

The contribution margin equals sales minus all Blank______ expenses.

Variable

Variable expenses ÷ Sales is the calculation for the _______ _______ ratio.

Variable, Cost

The term "cost structure" refers to the relative proportion of _______ and _______ costs in an organization.

Variable, Fixed

The journal entry to record direct labor costs in processing Department #1 is debit ______,

Work in process-Department #1 and credit Salaries and wages payable

Costs per equivalent unit are used to value ______.

both units in ending inventory and units transferred to the next department

Process costing accumulates costs by ________

department

Conversion costs are ______

direct labor plus manufacturing overhead

When constructing a CVP graph, the vertical axis represents:

dollars.

Total contribution margin equals ______.

fixed expenses plus net operating income

The contribution margin is first used to cover ______ expenses, Once the break-even point has been reached, the contribution margin becomes _______.

fixed, profit

In process costing, manufacturing overhead costs are ______. Multiple choice question.

generally applied using a predetermined overhead rate

Process costing produces ______ units.

homogeneous

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.

Differences between job-order and process costing include that process costing ______.

is used for indistinguishable products accumulates costs by department

The break-even point is the level of sales at which the profit equals

nothing

CVP analysis focuses on how profits are affected by ______. Multiple select question.

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