Chapter 3 Cost Accounting
Formula for Total Costs:
(Variable Costs per Unit * Units of Output) + Fixed Costs
Calculate Break-Even Volume in Sales Dollars given the following: Selling Price per Unit = $20 Variable Cost per Unit = $12 Fixed Costs = $1,000
= $1,000 / [($20 - $12) / $20] = $2,500
Calculate the After-Tax Operating Profits given the following: Tax Rate = 30% Before-Tax Income = $3,000
= $3,000 * (1 - 0.30) = $2,100
Calculate Target Volume (in units) given the following: Sales Price per Unit = $25 Variable Cost per Unit = $15 Target Profit = $5,000 Fixed Costs = $1,000
= ($1,000 + $$5,000) / ($25 - $15) = 600 units
Formula for Break-Even Volume (in units):
= Fixed Costs / Unit Contribution Margin = Fixed Costs / (Sales Price - Variable Cost per Unit)
Formula for Contribution Margin is:
= Price - Variable Cost per Unit
The Volume Level at Which Profits Equal Zero is Called the:
Break-Even Point
When the Contribution Margin is Represented as a Percentage of Sales Revenue, it is Called:
Contribution Margin Ratio
Distinguishes between Fixed and Variable Costs:
Cost Behavior
Calculate Margin of Safety given Sales, Fixed Costs, and Variable Costs
Margin of Safety = Sales - Break-Even Sales Break-Even Sales = 1 - (Variable Costs/ Sales)
Calculate Margin of Safety given the following: Sales = $100,000 Fixed Costs = $30,000 Variable Costs = $60,000
Margin of Safety = $100,000 - ($30,000/ ((1-($60,000/$100,000)) Margin of Safety = $25,000
The Excess of the Projected or Actual Sales Volume over the Break-Even Volume Expressed as a Percentage of Actual Sales Volume is called:
Margin of Safety Percentage
Formula for Total Revenue:
Price * Units of Output Produced and Sold
Formula for Margin of Safety is:
Sales Volume - Break-Even Sales Volume
Calculate the Break-Even in Total number of Phones given the following: Phones Sell at a 7:3 Ratio (Standard to Deluxe) Standard Contribution per Unit = $20 Deluxe Contribution Margin per Unit = $60 Total Fixed Costs = $40,000
= $40,000 / [(0.70 * 20) + (0.30 * 60)] = 1,250 Phones
Calculate Break-Even (Sales Dollars) for the Deluxe Model given the following: History shows that 80% of Sales are Standard Cars and 20% are Deluxe Cars Weighted-Average Revenue = $20 Fixed Costs = $5,000 Weighted-Average Contribution Margin per Unit =$8
= $5,000 / ($8 / $20) * 0.20 = $2,500
Calculate Target Profit given the following: Target Profit After Tax = $4,500 Fixed Costs = $2,000 Contribution Margin Ratio = 40% Tax Rate = 25%
= ($2,000 +4,500) / (1 - 0.25) = $20,000
Formula for Target Volume (sales dollars):
= (Fixed Costs + Target Profit) / Contribution Margin Ratio = (Fixed Costs + Target Profit) / (Unit Contribution Margin / Sales Price Per Unit) = (Fixed Costs + Target Profit) / [(Sales Price - Variable Cost per Unit) / Sales Price per Unit]
Formula for Target Volume (in units):
= (Fixed Costs + Target Profit) / Unit Contribution Margin = (Fixed Costs + Target Profit) / (Sales Price - Variable Cost per Unit)
Formula for Break-Even Volume (Sales Dollars):
= Fixed Costs / Contribution Margin Ratio = Fixed Costs / (Unit Contribution Margin / Sales Price Per Unit) = Fixed Costs / [(Sales Price - Variable Cost per Unit) / Sales Price per Unit]
Calculate Break-Even Volume in Sales Dollars given Selling Price per Unit, Variable Cost per Unit, and Fixed Costs
= Fixed Costs / [(Selling Price per Unit - Variable Cost per Unit) / Selling Price per Unit]
Formula for Contribution Margin Ratio:
= Unit Contribution Margin / Sales Price Per Unit = (Sales Price - Variable Cost per Unit) / Sales Price per Unit
Formula for After-Tax Profit:
= [(Price - Variable Costs) * Units of Output - Fixed Costs] * (1 - Tax Rate) = [(P - V) * X - F] * (1 - t)
Formula for Profit:
= [(Price - Variable Costs) * Units of Output] - Fixed Costs = [(P - V) X] - F
Formula for Target Volume (in units), given Tax Rate:
= {Fixed Costs + [Target Profit / (1-t)]} / Unit Contribution Margin = {Fixed Costs + [Target Profit / (1-t)]} / (Sales Price - Variable Cost per Unit)
Calculate the Break-Even in Units given the following and Assuming the Company produced more than 1,000 monitors: Additional Supervisor and other Fixed Costs if more than 1,000 monitors are produced in a month = $30,000 Selling Price per Unit = $400 Variable Cost per Unit = $275 Fixed Cost for 1,000 units = $100,000
=($100,000 + $30,000) / ($400-275) = 1,040 Units
CVP Analysis Relies on ______ that Might Limit the Applicability of Results for Decision Making
Assumptions
The Proportion of Fixed and Variable Costs to Total Costs is:
Cost Structure
The Process where Managers Understand the Relationships between Revenues, Costs, Volume, and Profit is Called:
Cost-Volume-Profit (CVP) Analysis
True or False: An Organization's Cost Structure does NOT Effect the Sensitivity of its Profits to Changes in Volume
FALSE
True or False: Contribution Margin per Unit = Price Per Unit - Total Cost Per Unit
FALSE
True or False: Total Contribution Margin is the Sales Price Multiplied by the Number of Units
FALSE
A Company that is Capital Intensive would have a High Proportion of:
Fixed Costs
The Higher a Firm's ________, the Higher the Break-Even Point
Fixed Costs
Formula for Multiple-Product Break-Even Point:
Fixed Costs / Weighted Average Contribution Margin per Unit
When Operating Leverage is High in Firms with a High Proportion of Fixed Costs and a Low Proportion of Variable Costs, it results in a:
High Contribution Margin per Unit
The Higher a Firm's Fixed costs, the _______ the Break-Even Point
Higher
True or False: Total Contribution Margin is the Amount that Units Sold Contribute Toward Covering Fixed Costs and Providing Operating Profits
TRUE
True or False: Total Contribution Margin is the Unit Contribution Margin Multiplied by the Number of Units
TRUE
Formula for Before-Tax Operating Income:
Target After-Tax Income / (1 - Tax Rate)
Formula for Operating Profit:
Total Revenues - Total Costs
The Difference between Sales Price and the Variable Cost per Unit is Called:
Unit Contribution Margin
The Slope of the Profit-Volume Line Represents:
Unit Contribution Margin
Cost Behavior Classifies Costs as to Whether they are _______ or _______
Variable or Fixed
A Company that is Capital Intensive would have a Low Proportion of:
Variable Costs
When a Company is Doing Multi-Product Break-Even Analysis and Assumes a Constant Product Mix, the Contribution Margin is the _________ of all of its Products
Weighted-Average Contribution Margin