Acct206 Ch.5,6 and 13
Sleep Tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year. Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and administrative expenses totaled $59,000. The company manufactured 28,000 pillows and sold 15,408. Total fixed expenses on the variable costing contribution format income statement equal Blank______. $59,000 $671,096 $101,000 $708,768
$101,000 $42,000 + $59,000 = $101,000
Comfy Cozy Chairs makes rockers that require $45 of direct materials and $37 of direct labor. Variable manufacturing overhead is $8 per rocker, and fixed manufacturing overhead totals $58,000. Variable selling and administrative costs are $15 per rocker, 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 absorption costing is: $119 $90 $105 $125
$119 $45 + $37 + $8 + ($58,000 ÷ 2,000) = $119
The Quaint Quilt produces and sells handmade quilts. Variable manufacturing costs total $140 per quilt. Fixed manufacturing overhead totals $68,250 per quarter. Variable selling and administrative costs are $19 per quilt sold, and fixed selling and administrative costs are $50,000 per quarter. Last quarter, the company produced 910 quilts and sold 780 quilts. Total variable expenses reported on Quaint Quilt's variable costing income statement for the quarter is Blank______. $124,020 $167,700 $109,200 $144,690
$124,020 ($140 + $19) × 780 quilts sold = $124,020
Adam's Sports Store sells an item with a contribution margin ratio of 55% and total fixed costs of $8,000. If Adam's generates additional sales of $25,000 for this item, net operating income will increase by Blank______. $5,750 $3,250 $11,250 $13,750
$13,750 $25,000 × 55% = $13,750 increase
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 total -Units: 10,000 produced and 6,000 sold $155 $128 $152 $157
$155 $50 + $75 + $27 + ($30,000 ÷ 10,000) = $155 per unit
A company's current profit is $25,000 for a product that sells for $100 and has a unit contribution margin of $65. Fixed costs are $40,000. If the company increases sales by 50 units, total profit will increase by $
$3,250 Increase in profit=Unit Contribution Margin×Increase in Sales Volume=65×50=3,250
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 Blank______. $380,000 $630,000 $1,520,000. $(249,979)
$380,000 Net operating income = 30,000 × ($40 − $19) − $250,000 = $380,000. $1,520,000
Shonda's Shoes sell for $95 per pair. If Shonda must sell a total of 284 pairs of shoes to break-even, and a total of 450 pairs to achieve her target profit, sales dollars needed to earn the target profit equals Blank______. $26,980 $42,750 $69,730
$42,750 $95 × 450 = $42,750
Put'er There manufactures baseball gloves that require $22 of direct materials and $18 of direct labor. Variable manufacturing overhead cost is $7 per glove and fixed manufacturing overhead cost is $19,000 in total. Variable selling and administrative costs are $11 per unit sold and fixed selling and administrative costs are $13,200. Last period, 800 gloves were produced, and 585 gloves were sold. The unit product cost using variable costing is Blank______. $81.75 $70.75 $47.00 $58.00
$47.00 $22 + $18 + $7 = $47
Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is Blank______. $(379,200) $553,000 $49,800 $503,200
$49,800 $982,000 - $932,200 = $49,800.
Citrus Scents produces body sprays. Each bottle has a unit product cost of $5.38. This month 1,490 bottles were produced and 1,203 bottles were sold. Total cost of goods sold is: $6,472.14 $8,016.20 $1,544.06
$6,472.14 $5.38 × 1,203 = $6,472.14
Goodstone Tire Corporation sells tires for $100 each. Per unit costs associated with producing and selling the tires are: Direct materials=$35 Direct labor=$10 Manufacturing Overhead=$20* Selling & Administrative=$15 * The variable portion of the overhead is $8 per unit. A foreign company wants to purchase 10,000 tires for $70 each. The order would not require any selling or administrative costs. The purchaser will pay the shipping costs, but Goodstone will have to pay a $100,000 inspection fee in order to be able to make the foreign sale. Accepting the special order will not affect current sales or production. What is the financial advantage or disadvantage of accepting the offer? $100,000 disadvantage $70,000 advantage $170,000 advantage $200,000 disadvantage
$70,000 advantage The revenue per tire is $70. Each tire will incur $63 of direct materials, direct labor, variable overhead and inspection fee ($100,000/10,000 tires). Thus there is an advantage of $7 per tire or $70,000 in total.
Wilson company normally produces 20,000 tennis rackets per year, but has enough capacity to produce 25,000. A customer has requested a special order of 2,000 Wilson tennis rackets for $40 per unit. The normal selling price is $50. Costs related to the special order are $30 per racket plus $11,000 for requested modifications to the special order rackets. Wilson incurred $50,000 of costs to design the racket and has $100,000 of allocated general overhead costs per year. What is the financial advantage or disadvantage of accepting the order? $9,000 disadvantage $29,000 advantage $9,000 advantage $29,000 disadvantage
$9,000 advantage Incremental revenue $80,000 - incremental costs $71,000 ($60,000 normal production + $11,000 requested modifications) = $9,000 advantage.
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______. $241,000 $57,000 $99,000
$99,000 Net operating income = $184,000 − $85,000 = $99,000.
Jump-It Corporation has a margin of safety of $272,000. The company sold 100,000 units this year. If the company sells each unit for $17, the margin of safety percentage is Blank______. 14.3% 6.25% 2.72% 16%
16% $272,000 ÷ (100,000 × $17) = 16%
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? 6,400 1,960 2,800 3,600
2,800 $98,000 ÷ ($50 - $15) = 2,800
Shonda's Shoes sell for $95 per pair. If Shonda must sell 284 pairs of shoes to break-even, sales dollars needed to break-even equals $
26,980 Sales Dollars to Break-even=284×95=26,980
Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time and 10 minutes of labor time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time and 5 minutes of labor time. If the company's constraint is labor time, the contribution margin per unit of constraint for Product XYZ is $_____ per minute.
3 Contribution Margin per minute of labor time=15/5=3
Given sales of $1,452,000, variable expenses of $958,320, and fixed expenses of $354,000, the contribution margin ratio is Blank______. 24% 90% 34% 66%
34% ($1,452,000 − $958,320) ÷ $1,452,000 = 34%.
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 Blank______. 15,238 9,524 40,000 24,762
40,000 $520,000 + $320,000) ÷ $21 = 40,000
Gifts Galore had a sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was Blank______. 68% 53% 47% 38%
53% CM/S 100,170/189,000=0.53
Frames, Inc. picture frames each require $19 of direct materials and $40 of direct labor. Variable manufacturing overhead cost is $9 per frame and variable selling and administrative expense is $13 per frame sold. Total fixed manufacturing overhead cost per month is $15,000 and the company produces 5,000 frames each month. The unit product cost of each frame using variable costing is $
68 Unit product cost = $19 + $40 + $9 = $68
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 Blank______. 18,600 8,400 5,162 5,787
8,400 ($320,000 + $200,800) ÷ ($90-$28) = 8,400 units.
Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit product cost of $112 and a unit selling price of $190. If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be $
94,304 $112 × 842 = $94,304
Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time. If the company's constraint is machine hours, to maximize profit, they should first fill the demand for Product Blank______. ABC XYZ
ABC The company should fill the demand for the product with the highest CM per unit of the constrained resource. ABC's is $2 per minute of machine time (CM of $10 ÷ 5 minutes) while XYZ's is only $1.50 per minute of machine time (CM of $15 ÷ 10 minutes).
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.
Using the contribution margin ratio, the impact on net income for a change in sales dollars is Blank______. change in sales dollars per unit - contribution margin ratio change in sales dollars × contribution margin ratio variable expense per unit - contribution margin ratio change in total contribution margin × contribution margin ratio
change in sales dollars × contribution margin ratio
Anything that prevents you from getting more of what you want is a(n) _______
constraint
Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost. Per Unit. Total Variable manufacturing cost=$12=$240,000 Supervisor salary=$3=$60,000 Depreciation=$1=$20,000 Allocated fixed overhead=$7=$140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should Blank______. buy the part — $100,000 advantage continue to make the part — $40,000 advantage buy the part — $80,000 advantage continue to make the part — $60,000 advantage
continue to make the part — $60,000 advantage The avoidable costs of making the product are the variable costs plus the supervisor salary or $15 per unit. The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make × 20,000 units).
Variable costing income statements are based upon a Blank______ format. product vs. period costs traditional contribution
contribution
The calculation of contribution margin (CM) ratio is Blank______. contribution margin ÷ total expenses variable expenses ÷ contribution margin net operating income ÷ total contribution margin contribution margin ÷ sales
contribution margin ÷ sales
Abba, Inc. is considering dropping a product line. During the prior year, the line had sales of $207,000 and a contribution margin of $124,000. Fixed expenses consist of: Salaries=$60,000 Rent=$50,000 Advertising=$20,000 Administrative=$35,000 Total fixed expenses=$165,000 The product line manager's $60,000 salary is avoidable as is the $20,000 of advertising. Of the administrative expenses, $10,000 is avoidable. The rest are general allocated expenses that will not change if the product is dropped. The rent expense is allocated to product lines based on sales and represents a share of the total cost for the building. If this product line is dropped, overall net operating income will Blank______. decrease by $34,000 decrease by $124,000 increase by $41,000 increase by $16,000
decrease by $34,000 The company will lose the $124,000 contribution margin. Only $90,000 of the fixed costs are avoidable, so net income will decrease by $34,000.
Net operating income is less under absorption costing than under variable costing when inventory for the period Blank______. remains the same increases decreases
decreases
When inventory increases, absorption costing net operating income is higher than variable costing net income due to the fixed manufacturing overhead Blank______. deferred in the inventory account on the balance sheet released to the cost of goods sold account on the income statement
deferred in the inventory account on the balance sheet
When making a volume-trade off decision, managers should ignore Blank______. contribution margin variable costs fixed costs
fixed costs
Under variable costing the cost of a unit of inventory does not contain: direct materials fixed manufacturing overhead variable manufacturing overhead direct labor
fixed manufacturing overhead
The difference between reported net income on variable costing and absorption costing income statements is based on how Blank______. the statements are formated expenses are organized cost classifications are defined fixed overhead is accounted for
fixed overhead is accounted for
To calculate the break-even point (in unit sales and dollar sales), managers can use the equation method or the ________ method.
formula
Net operating income under absorption costing is generally Blank______ net operating income under variable costing in periods in which inventory increases. less than equal to higher than
higher than
When units sold exceed units produced, net income under variable costing will generally be Blank______ net income under absorption costing. higher than lower than equal to
higher than
Stephens, Inc. is considering dropping a product line. During the prior year, the line had sales of $170,000, variable costs of $86,000, and total fixed expenses of $110,000. Of the fixed expenses, $95,000 are avoidable. If Stephens drops the product line, net operating income will Blank______. increase by $11,000 decrease by $60,000 increase by $26,000 increase by $9,000
increase by $11,000 The company will lose $84,000 in contribution margin ($170,000 − $86,000). If $95,000 of the fixed costs are avoidable, net income will increase by $11,000.
Costs and benefits that should be ignored when making decisions are called Blank______ costs and benefits. incremental opportunity differential irrelevant relevant
irrelevant
Costs and benefits that should be ignored when making decisions are called Blank______ costs and benefits. irrelevant relevant opportunity differential incremental
irrelevant
The margin of safety percentage is Blank______. margin of safety in dollars ÷ break-even sales in dollars total budgeted (or actual) sales in dollars ÷ break-even sales in dollars margin of safety in dollars ÷ total budgeted (or actual) sales in dollars total budgeted (or actual) sales in dollars ÷ margin of safety in dollars
margin of safety in dollars ÷ total budgeted (or actual) sales in dollars
When making a decision Blank______ costs and benefits should to be included in the analysis. all only irrelevant only opportunity only relevant
only relevant
Variable costing treats Blank______ manufacturing costs as product costs. all no only variable only fixed
only variable
The potential benefit given up when selecting one alternative over another is a(n) Blank______ cost. sunk avoidable opportunity irrelevant
opportunity
Absorption costing treats fixed manufacturing overhead as a Blank______ cost. period product
product
When a constraint exists, companies need to focus on identifying the Blank______. products with the highest contribution margin per unit product mix that maximizes total operating profit product mix that maximizes total contribution margin products with the highest operating profit per unit
product mix that maximizes total contribution margin
Once all fixed expenses have been covered, the CM ratio defines the portion of each sales dollar contributing to Blank______. variable expenses profits
profits
CVP analysis allows companies to easily identify the change in profit due to changes in Blank______. location selling price product mix volume management
selling price product mix volume
A one-time order that is not considered part of the company's normal ongoing business is called a Blank______ order. supplier relevant standard special
special
A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) ____ _____ decision.
special order
A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) ____ cost.
sunk
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are Blank______ costs. differential sunk relevant avoidable
sunk
Costs that have no impact on future cash flows and are irrelevant to decisions are Blank______ costs. sunk avoidable unavoidable marginal
sunk
The difference in net operating income between absorption costing and variable costing is due to the Blank______. Multiple choice question. amount of selling and administrative cost expensed format of the income statements amount of sales revenue reported time when fixed overhead is expensed
time when fixed overhead is expensed
Direct costing or marginal costing are other terms for _______ costing.
variable
The contribution margin equals sales minus all Blank______ expenses. period fixed product variable
variable
The two general costing approaches used by manufacturing companies to prepare income statements are _______ costing and ________ costing.
variable absorption
The variable costing income statement separates: selling and administrative expenses direct and indirect expenses product and period costs variable and fixed expenses
variable and fixed expenses
A company is considering buying a component part that they currently make using some existing equipment. Relevant costs to this sourcing decision include Blank______. allocated general overhead variable overhead outside purchase price equipment depreciation charges
variable overhead outside purchase price
Softie, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Softies' sales must be Blank______. $5,088,695 $1,520,000 $1,242,408 $1,170,400
$1,520,000 ($240,400 + $930,000) ÷ 0.77= $1,520,000.
A cost that can be eliminated by choosing one alternative over another is a(n) _____ cost.
avoidable
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) Blank______ cost. avoidable irrelevant incremental sunk
avoidable
The sales volume level at which profits equal zero is the Blank______. target volume break-even point margin of safety contribution margin ratio
break-even point
Multiplying unit selling price times the number of units required to break-even is one way to calculate Blank______. operating leverage break-even sales dollars contribution margin net operating income
break-even sales dollars
Margin of safety in dollars is Blank______. net income minus fixed costs break-even sales minus budgeted (or actual) sales net income minus break-even sales budgeted (or actual) sales minus break-even sales
budgeted (or actual) sales minus break-even sales
Which of the following statements are correct regarding income statements prepared under variable and absorption costing? Absorption costing categorizes costs based on cost behavior. Reported net income on the statements often differ. Both income statements include product and period costs. The difference between the statements is how total manufacturing overhead is accounted for.
Reported net income on the statements often differ. Both income statements include product and period costs.
Opportunity costs are not found in accounting records because they are not relevant to decisions. True false question. True False
False
Which of the following statement is correct? Both internal and external income statements are generally prepared using absorption costing. Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption costing. Internal income statements are generally prepared using absorption costing and external income statements are generally prepared using variable costing. Both internal and external income statements are generally prepared using variable costing.
Internal income statements are generally prepared using variable costing and external income statements are generally prepared using absorption costing.
Which of the following questions need to be considered in a special order decision? Is the special order price equal or greater than the regular selling price? Is there idle capacity? Are there opportunity costs? Will the special order reduce normal sales?
Is there idle capacity? Are there opportunity costs? Will the special order reduce normal sales?
Selling and administrative expenses Blank______. are always treated as period costs may be treated as either product or period costs are treated as period costs under variable costing only are treated as period costs under absorption costing only
are always treated as period costs
Under absorption costing, fixed overhead is treated like a variable cost because a portion of the total cost is allocated to each unit produced, rather than being expensed as one large sum. True False
True
When should a special order be accepted? Almost always, because it means more business and income, and will keep the employees productive When the incremental costs from the special order exceeds the incremental revenue of the order When the incremental revenue from the special order exceeds the incremental costs of the order
When the incremental revenue from the special order exceeds the incremental costs of the order
