ACCT EXAM 2
Margin of safety
(expected sales-breakeven sales)
Target cost
(target sales price-desired net profit)
Which costing method charges all the manufacturing costs to the products?
Absorption costing
absorption costing
Assigns (DM + DL+ VARI/FIXED MOH) to units. Required by GAAP
Variable costing
Assigns only variable MOH to products: DM, DL, and variable MOH used for internal reporting.
Breakeven point (sales $)
BEP= Fixed costs/ contribution margin ratio
Breakeven point (units)
BEP= fixed costs/ (rev. per unit- variable costs per unit)
What decision is absorption costing most important for?
Decisions related to setting sales price in the long run.
(T/F) Absorption costing considers fixed selling and administrative costs as product costs.
False
What is NOT an assumption of cost volume profit analysis?
The price per unit changes as volume changes.
(T/F) The traditional income statement format calculates operating income as gross profit minus selling and administrative expenses.
True
(T/F) If the volume of activity doubles in the relevant range, total variable costs will also double.
True
Traditional income statements are in __________ costing format
absorption
Variable costs
change in dollars/ change in volume
Absorption costing is better for ____ ___ decisions
long run
Contribution Margin
net sales revenue - variable costs
Predetermined overhead allocation rate
predetermined overhead costs/estimated quantity of allocation base
Contribution margin ratio
ratio of contribution margin to net sales rev. (contribution margin/net sales rev.)
Direct materials is a ________ cost
variable
