Man. Accounting test 2
Segment margin is obtained by deducting each segment's ______.
traceable fixed costs from its contribution margin
The variable costing income statement separates ______.
variable and fixed expenses
Variable Expense Ratio formula
variable expenses/sales
what if we change of lower our price?
volume goes up or service will not change as volume changes
break-even point
when level of sales at which profit= 0 once we reach break even then it turns into profit and NOI GOES UP
Total COGS formula
# of units sold X product cost
Product costs under absorption costing include ______.
direct labor fixed manufacturing overhead direct materials variable manufacturing overhead
The CM ratio can also be calculated by
dividing the contribution margin per unit by sales
What is the margin of safety?
excess of sales over breakeven sales, it is the amount where sales can drop without a loss occurring Higher margin of safety, lower risk of not breaking even
When using variable costing, fixed manufacturing overhead is _______.
expensed in the period incurred
Fixed MOH
fixed MOH / units produced
CM is used first to cover _________ Any remaining CM contributes to ___________
fixed expenses. net operating income.
Absorption and variable costing net income are usually different due to the accounting for ______.
fixed manufacturing overhead
Under variable costing the cost of a unit of inventory does not contain ______.
fixed manufacturing overhead
Contribution income statement
for internal use/ shows behavior of costs S VE CM FE NOI
Absorption costing is categorized by
function
Absorption costing net income is calculated by subtracting selling and administrative expenses from ________ ___________
gross margin
Absorption cost net income
gross margin - S&A expenses
An absorption costing income statement calculates ______.
gross margin by deducting cost of goods sold from sales
When units produced exceed units sold, net income will generally be ______ costing.
higher under absorption costing than under variable
In a CVP graph, unit volume is usually represented on the __________ axis and dollars on the _______ axis
horizontal (X) axis and dollars on the vertical (Y) axis
Degree of Operating Leverage
how a percentage change in sales will affect profits. CM/NOI
the contribution margin ratio shows
how contribution margin is affected by a change in sales volume
When inventory decreases, cost of goods sold under absorption costing will generally be ______ cost of goods sold under variable costing.
more than
If a segment is entirely eliminated, common fixed costs will ______.
not change
A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as
operating leverage
Under both variable costing and absorption costing, variable and fixed selling and administrative costs are treated as ______ costs.
period
Absorption costing treats fixed manufacturing overhead as a _____ cost.
product
When preparing a multi-product break-even analysis, the assumption is ordinarily made that the______ will not change.
sales mix
The break-even point calculation is affected by ______.
sales mix costs per unit selling price per unit
Unit Contribution Margin Formula
sales price per unit - variable cost per unit
A company's operations can be divided by product lines, geographical area, manufacturing plants, service centers or sales territories, which are known as
segments
5 things CPS analysis watch to see how profit is affected
selling prices sales volume unit variable costs total fixed costs mix of products sold
The segment margin represents the ______.
the margin available after a segment has covered all of its own costs
Absorption costing and variable costing net operating income will be equal when ______
the number of units produced equals the number of units sold there is no beginning and no ending inventory
Operating Leverage
the relative amount of fixed and variable costs that make up a firm's total costs
cost structure
the relative proportion of fixed, variable, and mixed costs in an organization
When calculating the profit impact of discontinuing a segment, consider ______.
the segment's traceable fixed costs the segment's contribution margin
Only costs that would disappear over time if a segment disappeared should be treated as ________ fixed costs
traceable
how to find contribution margin
Sales - Variable Costs
total variable cost formula
T-Cogs + (Units sold x VS&A)
T/F 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
Contribution Margin
The amount remaining when sales and variable expenses have been deducted.
degree of operating leverage
The measure of how a percentage change in sales affects profits at any given level of sales
sales mix
The relative proportions in which a company's products are sold.
Variable costing income statements are based upon a ______ format.
contribution
The contribution margin as a percentage of sales is referred to as the _______
contribution margin ratio (CM ratio)
% change in net operating income
degree of operating leverage x % change in sales
An example of a traceable fixed cost for General Motors' Corvette Division is the ______.
depreciation on equipment used to manufacture Corvettes
Total S&A cost expenses formula
(# of units sold X VS&A expense) + FS&A expense
Lance, Inc. has sales of 9,000 units. The contribution margin per unit is $32 and fixed costs total $120,000. Lance's profit is $
(9000 X 32) -120000
Net operating income equals:
(unit sales - unit sales to break even) x unit contribution margin
Which of the following statements are correct regarding income statements prepared under variable and absorption costing?
-Reported net income on the statements often differ. -Both income statements include product and period costs.
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
Variable costing treats ______ manufacturing costs as product costs.
ALL variable
When inventory increases, which costing method generally results in higher net income?
Absorption costing
The contribution format income statement can be expressed in the following equation: profit formula
Profit = (Sales - Variable expenses) - Fixed expenses
What is CVP analysis?
CVP helps managers make decisions like what products or services to offer, what prices to charge, what marketing strategy to use, and cost structures watches cost behavior
Operating Leverage Formula
Contribution Margin / Net Income
Degree of Operating Leverage Formula
Contribution Margin / Net Operating Income
Contribution Margin Ratio
Contribution Margin / Sales
Unit product cost under variable costing
DM + DL + VMOH
Unit product cost under absorption costing
DM + DL + VMOH + FMOH
The unit product cost using variable costing is
DM + DL + Variable MO
Target $ formula
FC+ Target / CM ratio
target # formula
FC+ Target / unit CM
Total fixed on variable
FMOH + FS&A
fixed manufacturing overhead formula
FMOH/ Units produced!!!
T/F When a company sells multiple products, an increase in total sales always results in an increase in total profits.
False
T/F Without knowing the future, it is best to have a cost structure with high variable costs.
False
Break Even # Formula
Fixed costs / selling price - variable costs
Break Even $ Formula
Fixed costs/ contribution margin ratio
what would go away if you got rid of traceable fixed costs
If the segment were eliminated, the fixed cost would disappear.
whats the goal of CVP?
Improve service and minimize costs
Margin of Safety Percentage formula
Margin of safety in dollars / Total budgeted sales in dollars
What are traceable fixed costs?
a fixed cost that is incurred because of the existence of a segment.
Fixed manufacturing overhead costs are expensed as units sold as part of cost of goods sold under ______________ costing
absorption
Selling and administrative expenses _____.
are always treated as period costs
Selling and administrative expenses ______.
are always treated as period costs
The variable expenses as a percentage of sales is referred to
as the variable expense ratio
Variable costing is categorized by
behavior
Under absorption costing product costs consist of ______ costs.
both variable and fixed manufacturing
A segment should probably be dropped when the segment ______.
cannot cover its own costs has a contribution margin that cannot cover traceable fixed costs
