acct 2302, quiz 3: cvp & var. costing

Which of the following would be included in the cost of a product manufactured according to absorption costing?

depreciation expense on factory building

The amount of income under absorption costing will equal the amount of income under variable costing when units manufactured:

equal units sold

Forde Co. has an operating leverage of 4. Sales are expected to increase by 12% next year. Operating income is

expected to increase by 48% 4*12%=48%

Under variable costing, which of the following costs would NOT be included in finished goods inventory?

salary of factory supervisor

Strait Co. manufactures office furniture. During the most productive month of the year, 3,000 desks were manufactured at a total cost of $59,000. In the month of lowest production the company made 1,125 desks at a cost of $38,000. Using the high-low method of cost estimation, total fixed costs are

$25,400 Change in cost = $59,000 - $38,000 = $21,000 Change in units = 3,000 - 1,125 = 1,875 Var Cost Per Unit = $21,000 / 1,875 = $11.2 Fixed Costs = $59,000 - $11.2 * 3000 = $25,400

If a business had sales of $4,000,000 and a margin of safety of 25%, the break-even point was

$3,000,000 Total Sales= Break Even Sales+ Margin of Safety Break Even Sales= 100-25=75% of sales .75*4,000,000= 3,000,000 (Sales - Break Even Sales) = Margin of Safety Margin of Safety / Sales = Margin of Safety Percentage

Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. How much will operating income change if sales increase by $40,000?

$8,000 increase 80% Variable Cost 80% of 40,000= 32,000 40,000-32,000= 8,000 Operating income will change by $40,000 * (1.00 - 0.80) = $8,000 increase

Spice Inc.'s unit selling price is $60, the unit variable costs are $35, fixed costs are $125,000, and current sales are 10,000 units. How much will operating income change if sales increase by 8,000 units?

$200,000 increase Unit-Variable Cost Per Unit: 60-35= 25 per unit Additional 8,000 units...8,000*25=200,000 Operating income will change by 8,000 * ($60 - $35) = $200,000

Which of the following statements is true regarding fixed and variable costs?

Fixed costs are constant in total, and variable costs are constant per unit.

The amount of income under absorption costing will be less than the amount of income under variable costing when units manufactured:

are less than units sold

The level of inventory of a manufactured product has increased by 8,000 units during a period. The following data are also available: Variable Fixed Unit manufacturing costs of the period $24.00 $10.00 Unit operating expenses of the period 8.00 3.00 What would be the effect on income from operations if variable costing is used rather than absorption costing?

$80,000 decrease When inventories increase Absorption Costing reports higher income from operations than Variable Costing. Hence, Variable Costing will report lower income. 8,000 units * Fixed manufacturing costs = 8,000 * $10 = $80,000 decrease.

Piper Technology's fixed costs are $1,500,000, the unit selling price is $250, and the unit variable costs are $130, what is the amount of sales required to realize an operating income of $200,000?

14,167 units Target Sales Units=(Fixed Costs+Desired Income)/contribution margin Contribution Margin=Selling Price-Unit Variable Cost Target Sales Units = ($1,500,000 + $200,000) / ($250 - $130) = 14,167 units

If sales are $400,000, variable costs are 80% of sales, and operating income is $40,000, what is the operating leverage?

2.0 Sales=400,000 Variable Cost= 80%, 400,000*.80=320,000 Operating Income= 40,000 Operating Leverage= (400,000-320,000)/40,000=2 Sales - Variable Costs = Contribution Margin Contribution Margin - Fixed Costs = Income before tax Operating Leverage = Contribution Margin / Income before tax

If sales are $820,000, variable costs are 55% of sales, and operating income is $260,000, what is the contribution margin ratio?

45% CMR= 1-VCR

A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs were 40% of sales, and sales were $1,000,000. Operating profit was

$180,000 Operating Profit = Contribution margin - Fixed costs = $1,000,000*0.6 - $420,000 = $180,000