Managerial Accounting test #2

When overhead is allocated to every product using the same manufacturing overhead rate, this rate is called the departmental overhead rate

false

with increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products

true

using departmental overhead rates is generally less accurate than using single plantwide overhead rate

false

cost distortion occurs when some products are overcosted while other products are undercosted by the cost allocation system

true

companies often refine their cost allocation systems to minimize the amount of cost distortion caused by the simpler cost allocation rate

true

companies that use departmental overhead rates trace direct materials and direct labor to cost objects just as they would in a traditional costing system

true

merchandising and service companies, as well as governmental agencies, can use refind cost allocation systems to provide their managers with better cost information

true

one condition that favors using a departmental overhead rate, rather than plantwide overhead rates, is that different departments incur different amounts and types of manufacturing overhead

true

the allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool

true

direct labor hours would be the most appropriate cost allocation base for Machining Department that uses machine robotics extensively

false

ABC generally causes the least about of cost distortion among products because indirect costs are allocated to the products based on

A: the extent to which the activities are used B: types of activities used by the product C: BOTH A and B **** D: none of the above

four basic steps are used in an ABC system. List the proper order of these steps, which are currently scrambled below:

A: identify the primary activities and estimate a total cost pool for each

B: allocate the costs to the cost object using the activity cost allocation rates

C: select an allocation base for each activity

D: calculate an activity cost allocation rate for each activity

a, c, d, b

the use of which of the following costing systems is most likely to reduce cost distortion to a minimum

activity - based costing

machine set - up would most likely be classified as a ___ cost

batch - level

research and development would most likely be classified as a ___ cost

product - level

using factory utilities would most likely be classified as a ___ cost

facility - level

molding and sanding each unit of product would most likely be classified as a ___ cost

unit - level

in ABC, how is the activity allocation rate computed

the total estimated activity cost pool is divided by the total estimated activity allocation base

all of the following describe an ABC system EXCEPT

ABC systems may only be used by service companies

regarding activity-based costing systems, which of the following statements is TRUE

ABC costing systems have separate indirect cost allocation rates for each activity

cutting department overhead *

Department overhead rate X cutting department machine hours Department overhead rate: 11 Cutting department machine hours: 8

finishing department overhead *

department overhead rate X finishing department direct labor hours

total manufactuing overhead for job 405 = 160 *

cutting department overhead + finishing department overhead = 160

compute the total manufacturing cost of job 405 *

activity cost allocation rate *

total manufacturing overhead / estimated total cost driver

activity cost allocation rate *

allocated manufacturing overhead *

activity cost allocation rate X cost driver (actual use)

manufacturing overhead per unit *

manufacturing overhead allocated / number of units

activity cost allocation rate *

also has job cost record --

total manufacturing overhead / estimated total use of cost driver

a plant manager oversees the entire manufacturing operation

facility level

each container product line has a product line manager

product level

each type of container has its own unique molds

product level

each container is cut from the mold once the plastic has cooled and hardened

unit level

rent is paid for the building that houses the manufacturing processes

facility level

plastic resins are used as the main direct material for the containers

unit level

the extrusion machine is calibrated for each batch of containers made

batch level

patents are obtained for each new type of container mold

product level

routine maintenance is performed on the extrusion machines

facility level

the sales force incurs travel expenses to attend various trade shows throughout the country to market the containers

facility level

activity overhead rate *

total activity over head estimated / cost allocation base estimated

activity overhead rate *

activity overhead rate *

finding total job cost == going off numbers in requirement 1 that we found first

predetermined manufacturing overhead rate *

estimated total MOH costs / estimated total machine hours

activity cost allocation rate *
when matched with predetermined manufacturing rate

total estimated activity cost pool / total estimated activity allocation base

activity cost allocation rate * when matched with predetermined manufacturing rate

job cost record using activity based costing --> manufacturing overhead allocated = activity cost allocation rate column from above, X the numbers correlated in the icon for the certain job

ABC

activity based costing

why and how do companies refine their cost allocation systems?

why refine? --mismatching resources --cost distortion who can refine? --manufacturing operations --service companies and governmental agencies

predetermined MOH rate

total estimated manufacturing overhead costs / total estimated amount of the allocation base

departmental overhead rates

when to use: --departments incur different amounts and types of MOH --different jobs or products use the department resources to a different extent

activity based costing

-allocated indirect costs to production -focuses on activities and costs of activities -separate allocation rate for each activity

cost hierarchy

pyramid; bottom to top: -unit level activities -batch level activities -product level activities -facility level activities

activity based management (ABM)

-using ABC information to make decisions --pricing and product mix --cost cutting --planning and control

pricing and product mix decisions

-change the prices for products after identifying the different total cost -decide to market the higher profitability product -shift the product mix away from less profitable products

cutting costs

analyze costs in value chain -value-added activities -non-value-added activities -value-added vs. non-value-added

Using ABC Outside of Manufacturing

-Merchandising and service: Find the most profitable product or service Manufacturers: Allocate operating activities

cost benefit test

-Benefits are higher for companies in competitive markets: --Accurate product cost information is essential --ABM can pinpoint cost savings opportunities? -Benefits are higher when risk of cost distortion high: --Many different products, many different types/amounts of resources --High indirect costs --High- and low-volume products

cost of adopting ABC

-generally lower with --accounting and information system expertise to develop the system --information technology -are companies glad they adopted ABC? --89 percent of the companies say that it was worth the cost --not a cure-all, but helps managers understand costs better

distorting costs

-Cost system may need repair when --Managers don't understand costs and profits --Bids are lost when expected to win --Win bids expected to lose --Competitors price similar products much higher or much lower -the cost system may be outdated if there is a diversified product line

traditional production systems

-keep large inventories on hand -problems: --storage cost -hide quality -bottlenecks and obsolete products -solution: Lean productions system

lean thinking

-philosophy and a business strategy -primary goal: eliminate waste and cost -focus of JIT --purchase raw materials just in time for production --finish goods just in time for delivery

lean production

-Common characteristics of lean production --Value stream mapping --Production occurs in self-contained cells --> (important) --Broad employee roles --5S workplace organization --Point of use storage --Continuous flow --Pull system --Shorter manufacturing cycle times --Reduced setup times --Smaller batches --Emphasis on quality --Supply-chain management --Backflush costing

8 wastes

-defects -overproduction -waiting -not utilizing people -transportation -inventory -movement -excess processing

drawbacks to lean production systems

-Vulnerable when problems strike suppliers or distributors -Examples --Delays in delivery --Personnel problems—union strikes --Shortage of parts due to recalled products --Weather related issues

total quality management

Goal: Provide customers with superior products and services Continuous improvement More investment up front to generate savings in the back end of the value chain

four types of quality costing

1) Prevention costs—Avoid poor quality goods or services --Employee training --Improved materials --Preventive maintenance 2) Appraisal costs—Detect poor quality goods or services --Inspection throughout production --Inspection of final product --Product testing 3) Internal failure costs—Avoid poor quality goods or services before delivery to customers --Production loss caused by downtime --Rejected product units? 4) External failure costs—Incurred after defective product is delivered --Lost profits from lost customers --Warranty costs --Service costs at customer sites --Sales returns due to quality problems

non-manufacturing costs of quality

-Service firms and merchandising companies also incur costs of quality? -Prevention --Professional training to their staff --Develop standardized service checklists? -Appraisal costs --Review work continuously --Inspect before releasing

cost of quality report

-Identifies, categorizes, and quantifies all of the costs it incurs relating to quality. -Calculate the percentage of total costs of quality that are incurred in each cost category -Use as a framework for decisions

E4-27A

-Prevention costs --Training employees in TQM --Training suppliers in TQM --Identifying preferred suppliers who commit to ?on-time delivery of perfect quality materials -Appraisal costs --Strength testing one item from each batch ?of panels --Avoid inspection of raw materials -Internal failure costs --Avoid rework and spoilage -External failure costs --Avoid lost profits from lost sales due to disappointed customers --Avoid warranty costs

the company has very few indirect costs

less likely to benefit

the company operates in a very competitive industry

more likely to benefit

the company has reengineered it's production process but has not changed its accounting system

more likely to benefit

in bidding for jobs, managers lost bids they expected to win and won bids they expected to lose

more likely to benefit

the company produces few products, and the products consume resources in a similiar manner

less likely to benefit

the company produces high volumes of some of its products and low volumes of other products

more likely to benefit

wages of the workers assembling products

value-added

engineering design costs for a new product

value-added

cost of moving raw materials into production

non-value added

salary for supervisor on the factory floor

non-value added

product inspection

non-value added

costs of reworking of defective units

non-value added

costs of warehousing raw materials

non-value added

costs arising from backlog in production

non-value added

a workplace organization system called "5S" is frequently used to keep work spaces clean and organized

lean production

suppliers make frequent deliveries of small quantities of raw materials

lean production

the manufacturing cycle times are longer

traditional production

the final operation in the production sequence "pulls" parts from the preceding operation

lean production

management works with suppliers to ensure detect-free raw materials

lean production

the workflow is continuous to attempt to balance the rate of production with the rate of demand

lean production

products are produced in large batches

traditional production

there is an emphasis on building in quality

lean production

employees do a variety of jobs, including maintenance and setups as well as operation of machines

lean production

each employee is responsible for inspecting his or her own work

lean production

large stocks of finished goods protect against lost sales if customer demand is higher than expected

traditional production

setup times are long

traditional production

suppliers can access the company's intranet

lean production

loan approval files frequently contain errors

defects

the accounting report produces segment reports because the reports have been produced for years even though managers use other reports to manage their divisions

overproduction

office supplies are stockpiled in the supply closet; the office manager buys in large quantities when there are sales

inventory

sales orders are put into the computer by the sales people in the field and paper reports are generated; these sales orders are then entered into the order processing system by clerks who type the orders based on the paper reports

excess processing

the office computers are slow to do the processing; the computers need to be upgraded

waiting

orders in the system are frequently missing information

defects

employees do not have the authority and responsibility to make routine decisions

not utilizing people to their full potential

the files needed for loan approval are carried to and from the file storage office when the files are needed

transportation

to retrieve inventory records, clerks must click through several menus in the program to get the record needed

movement

approval of loans is done in batches once a week rather than as the loan paperwork is finished for each individual loan

waiting

each time a document needs to be notarized, someone must search for the notary seal (used to make the seal impression on the document)

movement

the computer system requires frequent restarting; restarting takes five minutes

waiting

paperwork (that might change) is printed before it is needed

overproduction

the office manager insists that a spreadsheet program must be used to store customer records, even though it would be more efficient to use a database program

excess processing

the office is run by the office manager; employees do as they are told

not utilizing people to their full potential

pending vacation requests must be taken to the third floor offices to get the signature of the human resource manager

transportation

Roles of plant employees

Lean companies focus on employee empowerment to combat the waste of not fully utilizing employees. Lean employees hold broader roles than their counterparts at traditional companies. As a result, employees tend to have higher morale.

Manufacturing cycle times

Lean companies put great emphasis on shortening their manufacturing cycle times. This will reduce the time needed to fill customer orders

Quality

Lean companies stress high quality in every aspect of production. Since lean companies have very little, if any, stock, they need to be able to produce the product right the first time. Lean producers tend to "build-in" quality, rather than "inspect-in" quality as traditional firms do.

Inventory levels

Lean companies strive to maintain low inventory levels. Lean companies try to purchase raw materials "just in time" to meet the production schedule, and have the finished inventory ready "just in time" to meet customer demand. Traditional companies maintain greater quantities of raw materials, work in process and finished goods inventory.

Batch sizes

Lean companies produce units in much smaller batches than traditional companies. Smaller batch sizes allow lean companies to reduce customer response times.

Setup Times

Lean companies stress short setup times. By keeping set-up times at this length, lean companies can be more flexible in scheduling production to meet customer orders

Workplace Organization

Lean companies use the "5S" organization system to keep the workplace clean and organized. By organizing the plant this way, lean companies work efficiently with fewer defects, in a safer workplace, and with fewer unscheduled repairs.

traditional cost systems with a single-allocation base tend to overcost high-volume products and undercost low-volume products as compared to activity-based costing systems

true

there will be little benefit to using an activity-based costing system when products are vastly different from each other and consume different amounts of resources

false

activity-based management refers to using activity-based cost information to make decisions that may increase profits while satisfying customers' needs

true

managers often reap benefits by using ABC data in ABM to pinpoint opportunities to cut costs

true

ABC can be used in routine planning and control decisions as well as pricing, product mix and cost cutting decisions

...

the benefits of adopting ABC/ABM are higher for companies in more competitive markets

true

the goal of value-engineering is to eliminate all waste in the system by making the company's processes as effective and efficient as possible

true

value-engineering is accomplished by eliminating, reducing, or simplifying all non-value added activities, and examining whether value-added activities could be improved

true

the goal of value-engineering is to

1) improve value-added activities 2) eliminate or reduce non-value activities ** both A and B

non-value added activities are

-activities that could be reduced or removed from the process with no ill effect on the end product or service -also called waste activities -activities that neither enhance the customer's image of the product or service nor provide a competitive advantage -ALL OF THE ABOVE**

the costs of adopting ABC may be lower for some companies than for others. This situation may occur

-when a company has the accounting and information system expertise to develop the system -when a company has the information technology to record and compile cost driver date - EITHER SITUATION A or B ***

the benefits of adopting ABC/ABM are higher for companies in competitive markets because

because ABM can pinpoint opportunities for cost savings

indications that a product cost system needs revision include

- managers lose bids they expected to win and win bids they expected to lose - employees do not believe the cost numbers are accurate - the company uses a single-allocation-base system developed long ago -ALL OF THE ABOVE **

which of the following is a sign that product cost system is not working properly

managers don't understand costs and profits

a system that focuses on activities as the fundamental cost object and uses the costs for these activities to compile indirect costs of goods and services is

activity-based costing

the eight wastes of traditional operations includes all of the following except

utilizing people to their full potential

which of the following is a lean strategy

produce in a smaller batches than a traditional system

which of the following is true about lean thinking

customer orders drive the production process

which of the following is not a factor in the success of a lean company

inflexible production operations

the management strategy designed to eliminate waste is called

lean thinking

which of the following items is NOT a characteristic of a lean company

machines are arranged by function

which term listed below describes a system where companies purchase raw materials when needed in production and complete finished goods when needed by customers

just-in-time

lean thinking is a management strategy that includes maintaining large inventories

false

lean thinking is a management philosophy that strives to create value by eliminating waste

true

lean companies typically arrange production activities into self-contained cells

true

product line manager salary

product level

machine setup costs that are incurred whenever a new production order is started

batch level

patent for new product

product level

factory utilities

facility level

direct materials

unit level

cost to inspect each product as it is finished

unit level

CEO salary

facility level

engineering costs for new product

product level

order processing

batch level or unit level

depreciation on factory

facility level

direct labor

unit level

shipment of an order to a customer

batch level or unit level

plantwide overhead rate *

total manufacturing overhead / total machine hours

department overhead rate *

total department overhead / department machine hours

prevention costs *

-personnel training -preventative maintenance

appraisal costs *

-inspecting products at half-way point -inspection of raw materials

internal failure costs *

- production loss due to machine breakdowns -costs of defective products -cost of disposing of rejected products

external failure costs *

- recall of batch #59374 - warranty claims

Do any additional subjective costs appear to be missing from the report?

Because the company has warranty returns and has had a product recall, the company may suffer a reputation for poor quality products. If so, they are probably losing profits from losing sales. Unsatisfied customers will be reluctant to buy from the company again. This report does not include an estimate of the lost profits arising from a reputation for poor-quality products.

What can be learned from the report?

The costs of quality report shows that very little is being spent on prevention and appraisal, which is probably why the internal and external failure costs are so high. It appears that the company is inspecting the product half-way through the production process and not again at the end of the process. Perhaps that is the reason their external failure costs are so high. The CEO should use this information to develop quality initiatives in the areas of prevention and appraisal. Such initiatives should reduce future internal failure and external failure costs.

strength-testing one item from each batch of panels

appraisal

training employees in TQM

prevention

training suppliers in TQM

prevention

identifying preferred suppliers who commit to on-time delivery of perfect quality materials

prevention

avoid lost profits from lost sales due to disappointed customers

external failure

avoid rework and spoilage

internal failure

avoid inspection of raw materials

appraisal

avoid warranty costs

external failure

quality-related costs generally fall into four different categories, which include all of the following except

transportation costs

on a cost of quality report, which of the following cost items should be classified as a prevention cost

technical support provided to suppliers

which of the following is an example of a cost item that should be classified as an internal failure cost

rework costs

which of the following is an example of a cost item that should be classified as an external failure cost

warranty claims

if a company were to decrease its prevention costs by eliminating employee training, the company's external failure costs would most likely

increase

on a cost of quality report, which of the following cost items would be classified as an external failure cost

customer returns of defective products

costs incurred in detecting poor quality goods or services are what type of costs

appraisal costs

what type of costs are incurred to avoid poor quality goods or services in the first place

prevention costs

the costs incurred when poor quality goods or services are detected and corrected before deliver to customers are called ___ costs

internal failure

the cost of evaluating potential raw material suppliers is an example of what type of cost

prevention cost

the lost profits from lost customers are an example of what type of cost

external failure costs

the costs of training production personnel on their job tasks is an example of which of the following types of costs

prevention costs

production loss caused by downtime is an example of a(n)

internal failure cost

which of the following cost of quality categories represent the cost incurred to "re-inspect a reworked blender?"

internal failure costs

which of the following cost of quality categories represent the cost incurred to seek and fine a new supplier that can provide quality raw materials compared to the low-quality raw materials received form a current supplier

prevention costs

total fixed costs do not change in response to changes in the volume of production

true

fixed costs per unit decrease as production levels increase

true

an expense such as advertising could be considered a discretionary fixed cost

true

the line on a graph representing total fixed costs will be a horizontal line

true

total variable costs change in direct proportion to changes in volume

true

the variable cost per unit of activity increases as activity increases

false

when graphing total fixed costs, the fixed cost per unit is the slope of the fixed cost line

false

when graphing total fixed costs, the cost line always begins at the origin

false

the graph of total variable cost will be a horizontal line over all activity levels within the relevant range

false

when graphing total variable costs, the cost line begins at the origin

true

total mixed costs increase as volume increases because of the variable cost component

true

total mixed cost graphs slope upward but do not begin at the origin

true

total mixed cost graphs intersect at the y-axis at the level of fixed costs

true

relevant range is the range of activity (volume) over which total fixed costs and variable costs per unit can be assumed to remain the same

true

in the equation y=vx+f, the x represents the fixed costs

false

in the equation y=vx+f, the f represents the volume of activity

false

cost behavior can be mathematically expressed using equations

true

the equation for a straight line is y=fx+v, where y is the total cost, f is the fixed cost per unit, x is the volume of activity, and v is the variable cost per unit

false

total fixed costs can be expressed as y=vx, where y=total variable cost, v=variable cost per unit of activity, and x=volume of activity

false

total fixed costs can be expressed as y=vx, where y=total variable cost, v=variable cost per unit of activity, and x=volume of activity

false

if production increases by 25 percent, how will total fixed costs likely react

remain the same

if production increases by 30 percent, how will total variable costs likely react

increase by 30 percent

which of the following would be considered a discretionary fixed cost

advertising

which of the following would be considered a committed fixed cost

depreciation

management has little or no control over

committed fixed costs

fixed, variable, mixed costs *

fixed cost per basketball *

total variable costs + total fixed costs *

= Total production costs -- total variable cost=total variable cost /original packages produced --> X that number by how many packages are going to be produced -- total fixed cost = total manufacturing costs - total variable costs ---> then add those two numbers together

depreciation on equipment used to stitch the shoe together

fixed

shoelaces

variable

patents on the process used to create materials used in the shoe

fixed

rice husk filler (used to make the rubber-like outsole)

variable

recycled polyester fibers (used to make the synthetic suede in the show upper)

variable

glue

variable

quality inspectors salary

fixed

following schedule for 3 volumes *

total fixed costs = total variable cost/total garments (very top number) variable cost per garment = fixed cost per garment X total garments (top number) -- to find if it is underestimated or over estimated, you take the last average cost per garment X how many garments they ask for in part 3, and then subtract that from the first total operating costs box

cost behavior

how costs change as volume changes

3 common cost behaviors

Variable costs Fixed costs Mixed costs

Key Characteristics of Variable Costs

Total variable costs change in direct proportion to changes in volume Variable cost per unit remains constant Slope

cost graphs

Vertical (y-axis) always shows total costs Horizontal axis (x-axis) shows volume of activity Note that the variable cost per customer remains constant in each of the graphs.

cost equation

Is a mathematical equation for a straight line, to predict total cost Variable cost line can be mathematically expressed? total variable cost (y)= variable cost per unit of activity (v) X volume of activity (x)

key characteristics of variable costs

-total variable costs change in direct proportion to changes in volume -the variable cost per unit of activity (v) remains constant and is the slope of the variable cost line -total variable cost graphs always begin at the origin (if volume is zero, total variable costs are zero) -total variable costs can be expressed as follows: y=vx where, y=total variable cost v=variable cost per unit of activity x=volume of activity

key characteristics of fixed costs

- total fixed costs stay constant over a wide range of volume -total fixed costs per unit of activity vary inversely with changes in volume: --fixed cost per unit of activity increases when volume decreases --fixed cost per unit of activity decreases when volume increases -total fixed cost graphs are always flat lines with no slop that intersect the y-axis at a level equal to total fixed costs -total fixed costs can be expressed as y=f where, y=total fixed cost f=fixed cost over a given period of time

key characteristics of mixed costs

total mixed costs increase as volume increases because of the variable cost component - mixed cost per unit decrease as volume increases because of the fixed cost component -total mixed costs graphs slop upward but do not begin at the origin-- they intersect at the y-axis at the level of fixed costs -total mixed costs can be expressed as a combination of the variable and fixed cost equations: total mixed costs=variable cost component + fixed cost component y=vx +f where, y= total mixed costs v= variable cost per unit of activity (slope) x= volume of activity f= fixed cost over a given period of time (vertical intercept)

relevant range

Band of volume where total fixed costs remain constant at a certain level Variable costs per unit remain constant at a certain level

Sustainability and Cost Behavior

-Sustainable companies and changes in cost behavior --E-banking and e-billing drive down variable costs Greener lifestyles Environmental Impact

cost behavior analysis

Four methods to analyze cost behavior Account analysis Scatter plots High-low method Regression analysis

account analysis

Use of judgment to classify each general ledger account as variable, fixed, or mixed Subjective

scatter plot

Use historical data to determine a cost's behavior Scatter plot is the graph of historical cost data on the y-axis and volume data on the x-axis Helps managers visually determine how strong the relationship is between the cost and the volume of the chosen activity base

high-low method

Step 1: Find variable cost per unit (slope) of cost line Step 2: Find the fixed costs (vertical intercept) Step 3: Create the cost equation Advantage: Easy to use Disadvantage: Only uses 2 data points

R-Square Value

"Goodness of fit" How well does the line fit the data points? Ranges from 0 to 1

Data Concerns

Data Concerns --Only valid within relevant range --Seasonal variations --Inflation --Outliers—abnormal data points

Absorption Costing

Required by GAAP for external reporting Assign all manufacturing costs to products (DM, DL, Variable MOH, and Fixed MOH)

Variable Costing

Assigns only variable manufacturing costs to products (DM, DL, and Variable MOH) Fixed manufacturing overhead = period cost For internal management decisions Contribution margin income statement

Reconciling Operating Income Between the Two Costing Systems

difference in operating income= (change in inventory level, in units) X (fixed MOH per unit)

Absorption Costing and Manager Incentives

When inventories increase, absorption costing income is higher than variable costing income. When inventories decrease, absorption costing income is lower than variable costing income. Therefore . . . managers may increase production to build up inventory to maximize income and, therefore, their own bonus.

what is true about a scatter plot

if there is a strong relationship between cost and volume, the points will fall in a linear pattern

using account analysis, what type of cost is the rental of a space at $6000 per month

fixed

using account analysis, what type of cost is the local phone service which charges a plat fee for unlimited local calls

fixed

using account analysis, what type of cost is the price of gasoline when your car gets 30 miles per gallon and each gallon costs $3.65

variable

using account analysis, what type of cost is a community activity pass that costs $80 plus $15 per event

mixed

manufacturing overhead (consisting of costs like factory rent, factory utilities, factory maintenance, and other similar costs) is usually

mixed

which method are managers using when they use their judgement to classify costs as variable, fixed, or mixed

account analysis

when preparing a scatter plot, how should the data be graphed

cost data on the y-axis

what are scatter plots used for

-determining the overall strength of the relationship between historical cost and volume -identifying potential outliers *BOTH OF THE ABOVE

the high-low method is theoretically better than regression analysis because the high-low method uses more data points than regression analysis

false

if there is little or no relationship between the cost and the volume, the data points on a scatter plot will appear almost as a straight line

false

a scatter plot will help managers identify potential outliers

true

if a scatter plot reveals a fairly weak relationship between cost and volume, the cost equation based on that data would not be very useful for predicting future costs

true

outliers are data points that fall in the same general pattern as the other data points

false

if a manager sees a potential outlier in the data, he or she should first determine whether the data is correct

true

variable cost (slope) *

change in cost/change in volume

fixed cost *

total operating cost - total variable cost

traditional income statement **

Sales revenue LESS: COGS - Gross profit LESS: -operating expenses -sales commissions -payroll costs -lease Operating income =

contribution margin income statement **

Sales revenue LESS: -variable expenses -COGS -sales commissions Contribution margin LESS: -fixed expenses -payroll costs -lease Operating income

the data points with the ___ should be selected for use in calculating the variable cost per unit and the total fixed costs when using the high-low method

highest volume and the lowest volume

which step is performed first when using the high-low method

find the slope

when using the high-low method, what is the correct order of the following three steps --> 1) write the cost equation 2) find the vertical intercept 3) find the slope

3,2,1

when using the high-low method, the variable cost per unit can be found as

rise over run

the tennis club where you play charges $50 per month and $10 per hour of court time. If your current month's bill is $100, how many hours of court time did you use

5 hours

on a regression analysis output generated with excel, a regression equations fixed cost component is represented by the

intercept coefficient

on a regression analysis output generated with excel, a regression equations "goodness of fit" component is represented by the

R-square

on a regression analysis output generated with excel, the slope of a mixed cost line is represented by the

x variable 1 coefficient

when predicting costs at other volumes using a cost equation derived from either the high-low method or regression analysis, managers should consider

Seasonality Outliers General inflation D - ALL OF THE ABOVE

if a regression analysis shows an R factor of 0.15, it is safe to assume

a very weak relationship between cost and volume

variable cost per unit *

change in costs / change in volume

total fixed costs *

total mixed (operating) cost - total variable cost mixed operating costs = highest dollar value total variable cost = highest number in the opposite column X variable cost per unit

Contribution margin income statemet

Sales Revenue LESS: variable expenses cost of goods sold variable selling and marketing expenses variable website maintenance expenses other variable operating expenses Contribution margin LESS: fixed expenses fixed selling and marketing expenses fixed website maintenance expensfes other fixed operating expenses Operating income

contribution margin per passenger *

sales price per passenger - variable cost per passenger

contribution margin ratio *

contribution margin per passenger / sales price per passenger operating income --> __ passengers X contribution margin per passenger - fixed expenses operating income --> __ $ amount X contribution margin ratio - fixed expenses

operating income increase *

contribution margin per passenger X additional tickets sold

total contribution margin less total fixed expenses equals

operating income

the unit contribution margin is computed by

subtracting the variable cost per unit by the sales revenue

the contribution ratio explains the percentage of each sales dollar that

contributes towards fixed costs and generating a profit

CVP analysis assumes all of the following except

inventory levels will increase

by multiplying ___ and then subtracting fixed cots, managers can quickly forecast the operating income

projected sales revenue by the contribution margin ratio

managers can quickly forecast the total contribution margin by multiplying the

projected sales revenue by the contribution margin ratio

contribution margin ratio is computed by

dividing contribution margin by sales revenue

to find the sales revenue (sales in dollars) needed in order to breakeven or generate a target profit, the formula used is

(fixed expenses + operating income) / contribution margin ratio

to find the breakeven point using the shortcut formulas, you use

zero for the operating income

to find the number of units that need to be sold to breakeven, the formula used could be

fixed expenses / contribution margin per unit

to find the sales revenue needed to breakeven, the formula used could be

fixed expenses / contribution margin ratio

when using the income statement approach to finding breakeven, which of the following is true

sales revenue - variable expenses - fixed expenses = operating income

on a CVP graph, the total cost line intersects the total revenue line at which of the following points

the break even point

which of the following is NOT an approach used to calculate the breakeven point

the balance sheet approach

the breakeven point may be defined as the number of units a company must sell to do which of the following

generate a zero profit

sales above the breakeven point indicate a ___, where sales below the breakeven point indicate a ___

profit;loss

the line that begins at the origin on a CVP graph represents

total sales revenues

breakeven units *

fixed expenses + operating income / contribution margin per unit

breakeven sales *

fixed expenses + operating income / contribution margin ratio

target sales units *

fixed expenses + operating income / contribution margin per unit

Description of CVP graph *

A: fixed expense line B: total expense line C: sales revenue line D: dollars (vertical axis) E: units (horizontal axis) F: operating loss area G: operating income area H: breakeven point I: 150 J: 300

contribution margin per unit *

sales price per unit - variable cost per unit

break even sales in units *

operating income + fixed expenses / contribution margin per unit

break even sales in dollars *

fixed expenses + operating income / contribution margin ratio

find the number of packages Trendy Ten needs to sell to earn 23000 operating income

fixed expenses + operating income / contribution margin per unit

operating income projection *

sales revenue X contribution ration Contribution margin fixed costs

when absorption costing is used and management bonuses are related to operating income, managers are more likely to

increase inventory levels

on a traditional income statement, sales revenue less cost of goods sold equals

gross profit

for external reporting purposes, U.S. GAAP allows companies to

only the traditional format of the income statement

on a contribution margin income statement, sales revenue less variable expenses equals

contribution margin

on a traditional income statement, all manufacturing-related costs, whether fixed or variable, are listed

above the gross profit line

the contribution margin income statement presents ___ above the contribution margin line

all variable expenses

the contribution margin income statement presents ___ below the contribution margin line

all fixed expenses

which of the following statements ins true concerning income if production exceeds units sold

a higher operating income will result under an absorption costing income statement

how is operating income affected if the number of units sold exceeds the number of units produced

operating income would be higher under a variable costing income statement

which type of costing system is the only acceptable costing system for external financial reporting

absorption costing

a basic tenet of variable costing is that fixed manufacturing overhead costs be currently expensed. what is the rationale behind this

fixed manufacturing overhead costs occur regardless of level of production

net income reported under absorption costing will exceed net income reported under variable costing for a given period if

production exceeds sales for that period`

the income statement is organized by ___ under absorption costing

product and period costs

what will happen to the contribution margin if fixed costs related to a product increase while variable costs and sales price remain constant

will not change

what factor related to manufacturing costs causes the difference between operating income computed using absorption costing and operating income computed using variable costing

absorption costing "inventories" all fixed manufacturing costs

income statement using variable costing *

Sales revenue LESS: variable expenses variable costs of goods sold variable operating expenses Contribution margin LESS: fixed expenses fixed manufacturing overhead fixed operating expenses Operating income HOW to do calculations: 1) Sales revenue: number of units sold X the sales price per unit 2) Variable costs of goods sold: total variable costs per unit X number of units 3) Variable operating expenses: number of units sold X the variable operating expenses per unit sold 4) Fixed manufacturing overhead: is given 5) Fixed operating expenses: is given

Income Statement using absorption costing *

Sales revenue LESS: cost of goods sold gross profit LESS: operating expenses OPERATING INCOME Calculations: Sales revenue is same as variable costing from above 2) cost of goods sold: fixed manufacturing overhead in total for the year / units manufactured and sold for the year. + variable manufacturing costs per unit manufactured X units manufactured and sold for the year 3) operating expenses: # of units X variable operating expenses per unit sold + fixed operating expenses

Contribution margin per unit table *

Sales price per ticket LESS: variable cost per ticket =contribution margin per ticket X sales mix =contribution margin

margin of safety in units *

expected sales in units - breakeven sales in units

margin of safety in dollars *

expected sales in dollars - breakeven sales in dollars

operating leverage factor *

contribution margin / operating income

which of the following statements is true if the sales price per unit decreases while the variable cost per unit and total fixed costs remain constant

the contribution margin decreases and the breakeven point increases

if the sales price per unit increases while the variable cost per unit and total fixed costs remain constant, which of the following statements is true

the contribution margin increases and the breakeven point decreases

if the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant, which of the following statements is true

the contribution margin increases and the breakeven point decreases

if the fixed costs increase while the sales price per unit and variable costs per unit remain constant, which of the following statements is true

the contribution margin stays the same and then breakeven point increases

if the variable cost per unit increases while the sale price per unit and total fixed costs remain constant, which of the following statements is true

breakeven point in units increases

if total fixed costs decrease while the selling price er unit and variable cost per unit remain constant, which of the following statements is true

breakeven point in units decreases

if a company sells 13 of Product A for every 3 of Product B that it sells, the sales mix can be stated as

both 13:3 and 13/16 A and 3/16 B are correct

fixed costs divided by weighted average contribution margin per unit equals

breakeven sales in units

contribution margin less fixed costs yields

operating income

gabe industries sells two products, basic models and deluxe models. basic models sell for 42 dollars per unit with variable costs of 30 dollars per unit. deluxe models sell for 50 dollars per unit with variable costs of 40 dollars per unit. total fixed costs for the company are 75,400 dollars. gabe industries typically sells four basic models for every deluxe model. what is the breakeven point in total units

6500

sally's fries sells three large fries for every two small ones. a small fry sells for 2 dollars with a variable cost of 1 dollar. a large fry sells for 3 dollars with a variable cost of 1.25 dollars. what is the weighted average contribution margin

1.45

company A has a higher margin of safety while company b has a lower margin of safety. company a would be considered ____ company b when considering only margin of safety

less risky than

a company's margin of safety is computed by

expected sales - sales at breakeven

all else being equal, a company with a high operating leverage will have

relatively high contribution margin ratio

all else being equal, a company with a low operating leverage will have

relatively high variable costs

to find a firm's operating leverage factor at a given level of sales, you

divide the contribution margin by operating income

by multiplying the operating leverage factor by the anticipated percentage change in volume, one can find

the anticipated change in operating income

the higher the operating leverage factor, the

greater the impact of volume on operating income

all of the following would be considered a company with high operating leverage, except

retailer

total predicted sales (in unites) minus the total breakeven sales in units divided by total predicted sales (in units) yields

margin of safety percentage

margin of safety in units *

Expected sales in units - breakeven sales in units * breakeven sales in units = fixed expenses + operating income / contribution margin per unit

margin of safety in dollars *

expected sales in dollars - breakeven sales in dollars * expected sales in dollars = expected amount to sell X sales price * breakeven sales in dollars = breakeven sales in units X sales price

margin of safety as a percentage of sales *

margin of safety in dollars / expected sales in dollars * expected sales in dollars = expected amount to sell X sales price

operating leverage factor *

1) contribution margin / operating income * contribution margin = expected posters sold X (sales price - variable cost) * operating income = total contribution margin - fixed expenses 2) increase in operating income = increase in volume (percent) X operating leverage factor 3) original volume (posters) + increase in volume (increase in volume = volume increase X original posters)

Cedric and marc work at the same company. cedric, the manager of a production department, buys lunch for marc, who works in accounting .....

integrity

tomas' company has signed him up for outside training on operating leverage and cost structures ....

competence

heather provides reports to key decision makers based on CVP assumptions despite knowing that the decision makers are looking at situations .....

competence

kara works in accounting at a chain of car dealerships. her best friend, nikki, is looking for a new car....

confidentiatlity

gayle is an accountant for BuySmart, a cooperative grocery chain. gayle prepares internal reports with the breakeven volumes for each division listed

credibility

sales in units *

fixed expenses + operating income / contribution margin per unit ** use the original package price - the variable cost it needs to be changed to, use the increased fixed costs (second one)

Operating income statement *

1) contribution margin per unit X average sales volume units = contribution margin LESS: fixed expenses = operating income * average sales volume units = use the "most locations WERE selling 2) new contribution margin per unit ('lower sales price per bowl' - 'variable costs would be') X new sales volume units ('each restaurants volume to increase 8,000 bowls') = contribution margin LESS: new fixed expenses (original fixed expenses + ('400 advertising costs)

target sales in dollars *

fixed expenses + operating income / contribution margin ratio * fixed expenses + monthly operating income / new contribution margin ratio requirement 2) (sales in dollars X shrunk contribution margin ratio) - operating income = fixed expenses --> old fixed expenses - new fixed expenses = amount of fixed costs to cut

computing weighted-average contribution margin per unit, first identify the formula labels *

sales price per unit LESS: variable cost per unit = contribution margin per unit sales mix =contribution margin == weighted average contribution margin per unit ** fixed expenses + operating income / weighed-average CM per unit = breakeven sales in units * sales mix --> 4:1 sales mix --> add 4 + 1 contribution margin --> add them together ** weighted average contribution margin per unit --> divide 65 by 5

breakeven sales in units *

fixed expenses + operating income / weighted-average CM per unit --> breakeven sales in units X product line's proportion

Managerial Accounting test #2 - Subjecto.com

Managerial Accounting test #2

Your page rank:

Total word count: 7808
Pages: 28

Calculate the Price

- -
275 words
Looking for Expert Opinion?
Let us have a look at your work and suggest how to improve it!
Get a Consultant

When overhead is allocated to every product using the same manufacturing overhead rate, this rate is called the departmental overhead rate

false

with increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products

true

using departmental overhead rates is generally less accurate than using single plantwide overhead rate

false

cost distortion occurs when some products are overcosted while other products are undercosted by the cost allocation system

true

companies often refine their cost allocation systems to minimize the amount of cost distortion caused by the simpler cost allocation rate

true

companies that use departmental overhead rates trace direct materials and direct labor to cost objects just as they would in a traditional costing system

true

merchandising and service companies, as well as governmental agencies, can use refind cost allocation systems to provide their managers with better cost information

true

one condition that favors using a departmental overhead rate, rather than plantwide overhead rates, is that different departments incur different amounts and types of manufacturing overhead

true

the allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool

true

direct labor hours would be the most appropriate cost allocation base for Machining Department that uses machine robotics extensively

false

ABC generally causes the least about of cost distortion among products because indirect costs are allocated to the products based on

A: the extent to which the activities are used B: types of activities used by the product C: BOTH A and B **** D: none of the above

four basic steps are used in an ABC system. List the proper order of these steps, which are currently scrambled below:

A: identify the primary activities and estimate a total cost pool for each

B: allocate the costs to the cost object using the activity cost allocation rates

C: select an allocation base for each activity

D: calculate an activity cost allocation rate for each activity

a, c, d, b

the use of which of the following costing systems is most likely to reduce cost distortion to a minimum

activity – based costing

machine set – up would most likely be classified as a ___ cost

batch – level

research and development would most likely be classified as a ___ cost

product – level

using factory utilities would most likely be classified as a ___ cost

facility – level

molding and sanding each unit of product would most likely be classified as a ___ cost

unit – level

in ABC, how is the activity allocation rate computed

the total estimated activity cost pool is divided by the total estimated activity allocation base

all of the following describe an ABC system EXCEPT

ABC systems may only be used by service companies

regarding activity-based costing systems, which of the following statements is TRUE

ABC costing systems have separate indirect cost allocation rates for each activity

cutting department overhead *

Department overhead rate X cutting department machine hours Department overhead rate: 11 Cutting department machine hours: 8

finishing department overhead *

department overhead rate X finishing department direct labor hours

total manufactuing overhead for job 405 = 160 *

cutting department overhead + finishing department overhead = 160

compute the total manufacturing cost of job 405 *

activity cost allocation rate *

total manufacturing overhead / estimated total cost driver

activity cost allocation rate *

allocated manufacturing overhead *

activity cost allocation rate X cost driver (actual use)

manufacturing overhead per unit *

manufacturing overhead allocated / number of units

activity cost allocation rate *

also has job cost record —

total manufacturing overhead / estimated total use of cost driver

a plant manager oversees the entire manufacturing operation

facility level

each container product line has a product line manager

product level

each type of container has its own unique molds

product level

each container is cut from the mold once the plastic has cooled and hardened

unit level

rent is paid for the building that houses the manufacturing processes

facility level

plastic resins are used as the main direct material for the containers

unit level

the extrusion machine is calibrated for each batch of containers made

batch level

patents are obtained for each new type of container mold

product level

routine maintenance is performed on the extrusion machines

facility level

the sales force incurs travel expenses to attend various trade shows throughout the country to market the containers

facility level

activity overhead rate *

total activity over head estimated / cost allocation base estimated

activity overhead rate *

activity overhead rate *

finding total job cost == going off numbers in requirement 1 that we found first

predetermined manufacturing overhead rate *

estimated total MOH costs / estimated total machine hours

activity cost allocation rate *
when matched with predetermined manufacturing rate

total estimated activity cost pool / total estimated activity allocation base

activity cost allocation rate * when matched with predetermined manufacturing rate

job cost record using activity based costing –> manufacturing overhead allocated = activity cost allocation rate column from above, X the numbers correlated in the icon for the certain job

ABC

activity based costing

why and how do companies refine their cost allocation systems?

why refine? –mismatching resources –cost distortion who can refine? –manufacturing operations –service companies and governmental agencies

predetermined MOH rate

total estimated manufacturing overhead costs / total estimated amount of the allocation base

departmental overhead rates

when to use: –departments incur different amounts and types of MOH –different jobs or products use the department resources to a different extent

activity based costing

-allocated indirect costs to production -focuses on activities and costs of activities -separate allocation rate for each activity

cost hierarchy

pyramid; bottom to top: -unit level activities -batch level activities -product level activities -facility level activities

activity based management (ABM)

-using ABC information to make decisions –pricing and product mix –cost cutting –planning and control

pricing and product mix decisions

-change the prices for products after identifying the different total cost -decide to market the higher profitability product -shift the product mix away from less profitable products

cutting costs

analyze costs in value chain -value-added activities -non-value-added activities -value-added vs. non-value-added

Using ABC Outside of Manufacturing

-Merchandising and service: Find the most profitable product or service Manufacturers: Allocate operating activities

cost benefit test

-Benefits are higher for companies in competitive markets: –Accurate product cost information is essential –ABM can pinpoint cost savings opportunities? -Benefits are higher when risk of cost distortion high: –Many different products, many different types/amounts of resources –High indirect costs –High- and low-volume products

cost of adopting ABC

-generally lower with –accounting and information system expertise to develop the system –information technology -are companies glad they adopted ABC? –89 percent of the companies say that it was worth the cost –not a cure-all, but helps managers understand costs better

distorting costs

-Cost system may need repair when –Managers don’t understand costs and profits –Bids are lost when expected to win –Win bids expected to lose –Competitors price similar products much higher or much lower -the cost system may be outdated if there is a diversified product line

traditional production systems

-keep large inventories on hand -problems: –storage cost -hide quality -bottlenecks and obsolete products -solution: Lean productions system

lean thinking

-philosophy and a business strategy -primary goal: eliminate waste and cost -focus of JIT –purchase raw materials just in time for production –finish goods just in time for delivery

lean production

-Common characteristics of lean production –Value stream mapping –Production occurs in self-contained cells –> (important) –Broad employee roles –5S workplace organization –Point of use storage –Continuous flow –Pull system –Shorter manufacturing cycle times –Reduced setup times –Smaller batches –Emphasis on quality –Supply-chain management –Backflush costing

8 wastes

-defects -overproduction -waiting -not utilizing people -transportation -inventory -movement -excess processing

drawbacks to lean production systems

-Vulnerable when problems strike suppliers or distributors -Examples –Delays in delivery –Personnel problems—union strikes –Shortage of parts due to recalled products –Weather related issues

total quality management

Goal: Provide customers with superior products and services Continuous improvement More investment up front to generate savings in the back end of the value chain

four types of quality costing

1) Prevention costs—Avoid poor quality goods or services –Employee training –Improved materials –Preventive maintenance 2) Appraisal costs—Detect poor quality goods or services –Inspection throughout production –Inspection of final product –Product testing 3) Internal failure costs—Avoid poor quality goods or services before delivery to customers –Production loss caused by downtime –Rejected product units? 4) External failure costs—Incurred after defective product is delivered –Lost profits from lost customers –Warranty costs –Service costs at customer sites –Sales returns due to quality problems

non-manufacturing costs of quality

-Service firms and merchandising companies also incur costs of quality? -Prevention –Professional training to their staff –Develop standardized service checklists? -Appraisal costs –Review work continuously –Inspect before releasing

cost of quality report

-Identifies, categorizes, and quantifies all of the costs it incurs relating to quality. -Calculate the percentage of total costs of quality that are incurred in each cost category -Use as a framework for decisions

E4-27A

-Prevention costs –Training employees in TQM –Training suppliers in TQM –Identifying preferred suppliers who commit to ?on-time delivery of perfect quality materials -Appraisal costs –Strength testing one item from each batch ?of panels –Avoid inspection of raw materials -Internal failure costs –Avoid rework and spoilage -External failure costs –Avoid lost profits from lost sales due to disappointed customers –Avoid warranty costs

the company has very few indirect costs

less likely to benefit

the company operates in a very competitive industry

more likely to benefit

the company has reengineered it’s production process but has not changed its accounting system

more likely to benefit

in bidding for jobs, managers lost bids they expected to win and won bids they expected to lose

more likely to benefit

the company produces few products, and the products consume resources in a similiar manner

less likely to benefit

the company produces high volumes of some of its products and low volumes of other products

more likely to benefit

wages of the workers assembling products

value-added

engineering design costs for a new product

value-added

cost of moving raw materials into production

non-value added

salary for supervisor on the factory floor

non-value added

product inspection

non-value added

costs of reworking of defective units

non-value added

costs of warehousing raw materials

non-value added

costs arising from backlog in production

non-value added

a workplace organization system called "5S" is frequently used to keep work spaces clean and organized

lean production

suppliers make frequent deliveries of small quantities of raw materials

lean production

the manufacturing cycle times are longer

traditional production

the final operation in the production sequence "pulls" parts from the preceding operation

lean production

management works with suppliers to ensure detect-free raw materials

lean production

the workflow is continuous to attempt to balance the rate of production with the rate of demand

lean production

products are produced in large batches

traditional production

there is an emphasis on building in quality

lean production

employees do a variety of jobs, including maintenance and setups as well as operation of machines

lean production

each employee is responsible for inspecting his or her own work

lean production

large stocks of finished goods protect against lost sales if customer demand is higher than expected

traditional production

setup times are long

traditional production

suppliers can access the company’s intranet

lean production

loan approval files frequently contain errors

defects

the accounting report produces segment reports because the reports have been produced for years even though managers use other reports to manage their divisions

overproduction

office supplies are stockpiled in the supply closet; the office manager buys in large quantities when there are sales

inventory

sales orders are put into the computer by the sales people in the field and paper reports are generated; these sales orders are then entered into the order processing system by clerks who type the orders based on the paper reports

excess processing

the office computers are slow to do the processing; the computers need to be upgraded

waiting

orders in the system are frequently missing information

defects

employees do not have the authority and responsibility to make routine decisions

not utilizing people to their full potential

the files needed for loan approval are carried to and from the file storage office when the files are needed

transportation

to retrieve inventory records, clerks must click through several menus in the program to get the record needed

movement

approval of loans is done in batches once a week rather than as the loan paperwork is finished for each individual loan

waiting

each time a document needs to be notarized, someone must search for the notary seal (used to make the seal impression on the document)

movement

the computer system requires frequent restarting; restarting takes five minutes

waiting

paperwork (that might change) is printed before it is needed

overproduction

the office manager insists that a spreadsheet program must be used to store customer records, even though it would be more efficient to use a database program

excess processing

the office is run by the office manager; employees do as they are told

not utilizing people to their full potential

pending vacation requests must be taken to the third floor offices to get the signature of the human resource manager

transportation

Roles of plant employees

Lean companies focus on employee empowerment to combat the waste of not fully utilizing employees. Lean employees hold broader roles than their counterparts at traditional companies. As a result, employees tend to have higher morale.

Manufacturing cycle times

Lean companies put great emphasis on shortening their manufacturing cycle times. This will reduce the time needed to fill customer orders

Quality

Lean companies stress high quality in every aspect of production. Since lean companies have very little, if any, stock, they need to be able to produce the product right the first time. Lean producers tend to "build-in" quality, rather than "inspect-in" quality as traditional firms do.

Inventory levels

Lean companies strive to maintain low inventory levels. Lean companies try to purchase raw materials "just in time" to meet the production schedule, and have the finished inventory ready "just in time" to meet customer demand. Traditional companies maintain greater quantities of raw materials, work in process and finished goods inventory.

Batch sizes

Lean companies produce units in much smaller batches than traditional companies. Smaller batch sizes allow lean companies to reduce customer response times.

Setup Times

Lean companies stress short setup times. By keeping set-up times at this length, lean companies can be more flexible in scheduling production to meet customer orders

Workplace Organization

Lean companies use the "5S" organization system to keep the workplace clean and organized. By organizing the plant this way, lean companies work efficiently with fewer defects, in a safer workplace, and with fewer unscheduled repairs.

traditional cost systems with a single-allocation base tend to overcost high-volume products and undercost low-volume products as compared to activity-based costing systems

true

there will be little benefit to using an activity-based costing system when products are vastly different from each other and consume different amounts of resources

false

activity-based management refers to using activity-based cost information to make decisions that may increase profits while satisfying customers’ needs

true

managers often reap benefits by using ABC data in ABM to pinpoint opportunities to cut costs

true

ABC can be used in routine planning and control decisions as well as pricing, product mix and cost cutting decisions

the benefits of adopting ABC/ABM are higher for companies in more competitive markets

true

the goal of value-engineering is to eliminate all waste in the system by making the company’s processes as effective and efficient as possible

true

value-engineering is accomplished by eliminating, reducing, or simplifying all non-value added activities, and examining whether value-added activities could be improved

true

the goal of value-engineering is to

1) improve value-added activities 2) eliminate or reduce non-value activities ** both A and B

non-value added activities are

-activities that could be reduced or removed from the process with no ill effect on the end product or service -also called waste activities -activities that neither enhance the customer’s image of the product or service nor provide a competitive advantage -ALL OF THE ABOVE**

the costs of adopting ABC may be lower for some companies than for others. This situation may occur

-when a company has the accounting and information system expertise to develop the system -when a company has the information technology to record and compile cost driver date – EITHER SITUATION A or B ***

the benefits of adopting ABC/ABM are higher for companies in competitive markets because

because ABM can pinpoint opportunities for cost savings

indications that a product cost system needs revision include

– managers lose bids they expected to win and win bids they expected to lose – employees do not believe the cost numbers are accurate – the company uses a single-allocation-base system developed long ago -ALL OF THE ABOVE **

which of the following is a sign that product cost system is not working properly

managers don’t understand costs and profits

a system that focuses on activities as the fundamental cost object and uses the costs for these activities to compile indirect costs of goods and services is

activity-based costing

the eight wastes of traditional operations includes all of the following except

utilizing people to their full potential

which of the following is a lean strategy

produce in a smaller batches than a traditional system

which of the following is true about lean thinking

customer orders drive the production process

which of the following is not a factor in the success of a lean company

inflexible production operations

the management strategy designed to eliminate waste is called

lean thinking

which of the following items is NOT a characteristic of a lean company

machines are arranged by function

which term listed below describes a system where companies purchase raw materials when needed in production and complete finished goods when needed by customers

just-in-time

lean thinking is a management strategy that includes maintaining large inventories

false

lean thinking is a management philosophy that strives to create value by eliminating waste

true

lean companies typically arrange production activities into self-contained cells

true

product line manager salary

product level

machine setup costs that are incurred whenever a new production order is started

batch level

patent for new product

product level

factory utilities

facility level

direct materials

unit level

cost to inspect each product as it is finished

unit level

CEO salary

facility level

engineering costs for new product

product level

order processing

batch level or unit level

depreciation on factory

facility level

direct labor

unit level

shipment of an order to a customer

batch level or unit level

plantwide overhead rate *

total manufacturing overhead / total machine hours

department overhead rate *

total department overhead / department machine hours

prevention costs *

-personnel training -preventative maintenance

appraisal costs *

-inspecting products at half-way point -inspection of raw materials

internal failure costs *

– production loss due to machine breakdowns -costs of defective products -cost of disposing of rejected products

external failure costs *

– recall of batch #59374 – warranty claims

Do any additional subjective costs appear to be missing from the report?

Because the company has warranty returns and has had a product recall, the company may suffer a reputation for poor quality products. If so, they are probably losing profits from losing sales. Unsatisfied customers will be reluctant to buy from the company again. This report does not include an estimate of the lost profits arising from a reputation for poor-quality products.

What can be learned from the report?

The costs of quality report shows that very little is being spent on prevention and appraisal, which is probably why the internal and external failure costs are so high. It appears that the company is inspecting the product half-way through the production process and not again at the end of the process. Perhaps that is the reason their external failure costs are so high. The CEO should use this information to develop quality initiatives in the areas of prevention and appraisal. Such initiatives should reduce future internal failure and external failure costs.

strength-testing one item from each batch of panels

appraisal

training employees in TQM

prevention

training suppliers in TQM

prevention

identifying preferred suppliers who commit to on-time delivery of perfect quality materials

prevention

avoid lost profits from lost sales due to disappointed customers

external failure

avoid rework and spoilage

internal failure

avoid inspection of raw materials

appraisal

avoid warranty costs

external failure

quality-related costs generally fall into four different categories, which include all of the following except

transportation costs

on a cost of quality report, which of the following cost items should be classified as a prevention cost

technical support provided to suppliers

which of the following is an example of a cost item that should be classified as an internal failure cost

rework costs

which of the following is an example of a cost item that should be classified as an external failure cost

warranty claims

if a company were to decrease its prevention costs by eliminating employee training, the company’s external failure costs would most likely

increase

on a cost of quality report, which of the following cost items would be classified as an external failure cost

customer returns of defective products

costs incurred in detecting poor quality goods or services are what type of costs

appraisal costs

what type of costs are incurred to avoid poor quality goods or services in the first place

prevention costs

the costs incurred when poor quality goods or services are detected and corrected before deliver to customers are called ___ costs

internal failure

the cost of evaluating potential raw material suppliers is an example of what type of cost

prevention cost

the lost profits from lost customers are an example of what type of cost

external failure costs

the costs of training production personnel on their job tasks is an example of which of the following types of costs

prevention costs

production loss caused by downtime is an example of a(n)

internal failure cost

which of the following cost of quality categories represent the cost incurred to "re-inspect a reworked blender?"

internal failure costs

which of the following cost of quality categories represent the cost incurred to seek and fine a new supplier that can provide quality raw materials compared to the low-quality raw materials received form a current supplier

prevention costs

total fixed costs do not change in response to changes in the volume of production

true

fixed costs per unit decrease as production levels increase

true

an expense such as advertising could be considered a discretionary fixed cost

true

the line on a graph representing total fixed costs will be a horizontal line

true

total variable costs change in direct proportion to changes in volume

true

the variable cost per unit of activity increases as activity increases

false

when graphing total fixed costs, the fixed cost per unit is the slope of the fixed cost line

false

when graphing total fixed costs, the cost line always begins at the origin

false

the graph of total variable cost will be a horizontal line over all activity levels within the relevant range

false

when graphing total variable costs, the cost line begins at the origin

true

total mixed costs increase as volume increases because of the variable cost component

true

total mixed cost graphs slope upward but do not begin at the origin

true

total mixed cost graphs intersect at the y-axis at the level of fixed costs

true

relevant range is the range of activity (volume) over which total fixed costs and variable costs per unit can be assumed to remain the same

true

in the equation y=vx+f, the x represents the fixed costs

false

in the equation y=vx+f, the f represents the volume of activity

false

cost behavior can be mathematically expressed using equations

true

the equation for a straight line is y=fx+v, where y is the total cost, f is the fixed cost per unit, x is the volume of activity, and v is the variable cost per unit

false

total fixed costs can be expressed as y=vx, where y=total variable cost, v=variable cost per unit of activity, and x=volume of activity

false

total fixed costs can be expressed as y=vx, where y=total variable cost, v=variable cost per unit of activity, and x=volume of activity

false

if production increases by 25 percent, how will total fixed costs likely react

remain the same

if production increases by 30 percent, how will total variable costs likely react

increase by 30 percent

which of the following would be considered a discretionary fixed cost

advertising

which of the following would be considered a committed fixed cost

depreciation

management has little or no control over

committed fixed costs

fixed, variable, mixed costs *

fixed cost per basketball *

total variable costs + total fixed costs *

= Total production costs — total variable cost=total variable cost /original packages produced –> X that number by how many packages are going to be produced — total fixed cost = total manufacturing costs – total variable costs —> then add those two numbers together

depreciation on equipment used to stitch the shoe together

fixed

shoelaces

variable

patents on the process used to create materials used in the shoe

fixed

rice husk filler (used to make the rubber-like outsole)

variable

recycled polyester fibers (used to make the synthetic suede in the show upper)

variable

glue

variable

quality inspectors salary

fixed

following schedule for 3 volumes *

total fixed costs = total variable cost/total garments (very top number) variable cost per garment = fixed cost per garment X total garments (top number) — to find if it is underestimated or over estimated, you take the last average cost per garment X how many garments they ask for in part 3, and then subtract that from the first total operating costs box

cost behavior

how costs change as volume changes

3 common cost behaviors

Variable costs Fixed costs Mixed costs

Key Characteristics of Variable Costs

Total variable costs change in direct proportion to changes in volume Variable cost per unit remains constant Slope

cost graphs

Vertical (y-axis) always shows total costs Horizontal axis (x-axis) shows volume of activity Note that the variable cost per customer remains constant in each of the graphs.

cost equation

Is a mathematical equation for a straight line, to predict total cost Variable cost line can be mathematically expressed? total variable cost (y)= variable cost per unit of activity (v) X volume of activity (x)

key characteristics of variable costs

-total variable costs change in direct proportion to changes in volume -the variable cost per unit of activity (v) remains constant and is the slope of the variable cost line -total variable cost graphs always begin at the origin (if volume is zero, total variable costs are zero) -total variable costs can be expressed as follows: y=vx where, y=total variable cost v=variable cost per unit of activity x=volume of activity

key characteristics of fixed costs

– total fixed costs stay constant over a wide range of volume -total fixed costs per unit of activity vary inversely with changes in volume: –fixed cost per unit of activity increases when volume decreases –fixed cost per unit of activity decreases when volume increases -total fixed cost graphs are always flat lines with no slop that intersect the y-axis at a level equal to total fixed costs -total fixed costs can be expressed as y=f where, y=total fixed cost f=fixed cost over a given period of time

key characteristics of mixed costs

total mixed costs increase as volume increases because of the variable cost component – mixed cost per unit decrease as volume increases because of the fixed cost component -total mixed costs graphs slop upward but do not begin at the origin– they intersect at the y-axis at the level of fixed costs -total mixed costs can be expressed as a combination of the variable and fixed cost equations: total mixed costs=variable cost component + fixed cost component y=vx +f where, y= total mixed costs v= variable cost per unit of activity (slope) x= volume of activity f= fixed cost over a given period of time (vertical intercept)

relevant range

Band of volume where total fixed costs remain constant at a certain level Variable costs per unit remain constant at a certain level

Sustainability and Cost Behavior

-Sustainable companies and changes in cost behavior –E-banking and e-billing drive down variable costs Greener lifestyles Environmental Impact

cost behavior analysis

Four methods to analyze cost behavior Account analysis Scatter plots High-low method Regression analysis

account analysis

Use of judgment to classify each general ledger account as variable, fixed, or mixed Subjective

scatter plot

Use historical data to determine a cost’s behavior Scatter plot is the graph of historical cost data on the y-axis and volume data on the x-axis Helps managers visually determine how strong the relationship is between the cost and the volume of the chosen activity base

high-low method

Step 1: Find variable cost per unit (slope) of cost line Step 2: Find the fixed costs (vertical intercept) Step 3: Create the cost equation Advantage: Easy to use Disadvantage: Only uses 2 data points

R-Square Value

"Goodness of fit" How well does the line fit the data points? Ranges from 0 to 1

Data Concerns

Data Concerns –Only valid within relevant range –Seasonal variations –Inflation –Outliers—abnormal data points

Absorption Costing

Required by GAAP for external reporting Assign all manufacturing costs to products (DM, DL, Variable MOH, and Fixed MOH)

Variable Costing

Assigns only variable manufacturing costs to products (DM, DL, and Variable MOH) Fixed manufacturing overhead = period cost For internal management decisions Contribution margin income statement

Reconciling Operating Income Between the Two Costing Systems

difference in operating income= (change in inventory level, in units) X (fixed MOH per unit)

Absorption Costing and Manager Incentives

When inventories increase, absorption costing income is higher than variable costing income. When inventories decrease, absorption costing income is lower than variable costing income. Therefore . . . managers may increase production to build up inventory to maximize income and, therefore, their own bonus.

what is true about a scatter plot

if there is a strong relationship between cost and volume, the points will fall in a linear pattern

using account analysis, what type of cost is the rental of a space at $6000 per month

fixed

using account analysis, what type of cost is the local phone service which charges a plat fee for unlimited local calls

fixed

using account analysis, what type of cost is the price of gasoline when your car gets 30 miles per gallon and each gallon costs $3.65

variable

using account analysis, what type of cost is a community activity pass that costs $80 plus $15 per event

mixed

manufacturing overhead (consisting of costs like factory rent, factory utilities, factory maintenance, and other similar costs) is usually

mixed

which method are managers using when they use their judgement to classify costs as variable, fixed, or mixed

account analysis

when preparing a scatter plot, how should the data be graphed

cost data on the y-axis

what are scatter plots used for

-determining the overall strength of the relationship between historical cost and volume -identifying potential outliers *BOTH OF THE ABOVE

the high-low method is theoretically better than regression analysis because the high-low method uses more data points than regression analysis

false

if there is little or no relationship between the cost and the volume, the data points on a scatter plot will appear almost as a straight line

false

a scatter plot will help managers identify potential outliers

true

if a scatter plot reveals a fairly weak relationship between cost and volume, the cost equation based on that data would not be very useful for predicting future costs

true

outliers are data points that fall in the same general pattern as the other data points

false

if a manager sees a potential outlier in the data, he or she should first determine whether the data is correct

true

variable cost (slope) *

change in cost/change in volume

fixed cost *

total operating cost – total variable cost

traditional income statement **

Sales revenue LESS: COGS – Gross profit LESS: -operating expenses -sales commissions -payroll costs -lease Operating income =

contribution margin income statement **

Sales revenue LESS: -variable expenses -COGS -sales commissions Contribution margin LESS: -fixed expenses -payroll costs -lease Operating income

the data points with the ___ should be selected for use in calculating the variable cost per unit and the total fixed costs when using the high-low method

highest volume and the lowest volume

which step is performed first when using the high-low method

find the slope

when using the high-low method, what is the correct order of the following three steps –> 1) write the cost equation 2) find the vertical intercept 3) find the slope

3,2,1

when using the high-low method, the variable cost per unit can be found as

rise over run

the tennis club where you play charges $50 per month and $10 per hour of court time. If your current month’s bill is $100, how many hours of court time did you use

5 hours

on a regression analysis output generated with excel, a regression equations fixed cost component is represented by the

intercept coefficient

on a regression analysis output generated with excel, a regression equations "goodness of fit" component is represented by the

R-square

on a regression analysis output generated with excel, the slope of a mixed cost line is represented by the

x variable 1 coefficient

when predicting costs at other volumes using a cost equation derived from either the high-low method or regression analysis, managers should consider

Seasonality Outliers General inflation D – ALL OF THE ABOVE

if a regression analysis shows an R factor of 0.15, it is safe to assume

a very weak relationship between cost and volume

variable cost per unit *

change in costs / change in volume

total fixed costs *

total mixed (operating) cost – total variable cost mixed operating costs = highest dollar value total variable cost = highest number in the opposite column X variable cost per unit

Contribution margin income statemet

Sales Revenue LESS: variable expenses cost of goods sold variable selling and marketing expenses variable website maintenance expenses other variable operating expenses Contribution margin LESS: fixed expenses fixed selling and marketing expenses fixed website maintenance expensfes other fixed operating expenses Operating income

contribution margin per passenger *

sales price per passenger – variable cost per passenger

contribution margin ratio *

contribution margin per passenger / sales price per passenger operating income –> __ passengers X contribution margin per passenger – fixed expenses operating income –> __ $ amount X contribution margin ratio – fixed expenses

operating income increase *

contribution margin per passenger X additional tickets sold

total contribution margin less total fixed expenses equals

operating income

the unit contribution margin is computed by

subtracting the variable cost per unit by the sales revenue

the contribution ratio explains the percentage of each sales dollar that

contributes towards fixed costs and generating a profit

CVP analysis assumes all of the following except

inventory levels will increase

by multiplying ___ and then subtracting fixed cots, managers can quickly forecast the operating income

projected sales revenue by the contribution margin ratio

managers can quickly forecast the total contribution margin by multiplying the

projected sales revenue by the contribution margin ratio

contribution margin ratio is computed by

dividing contribution margin by sales revenue

to find the sales revenue (sales in dollars) needed in order to breakeven or generate a target profit, the formula used is

(fixed expenses + operating income) / contribution margin ratio

to find the breakeven point using the shortcut formulas, you use

zero for the operating income

to find the number of units that need to be sold to breakeven, the formula used could be

fixed expenses / contribution margin per unit

to find the sales revenue needed to breakeven, the formula used could be

fixed expenses / contribution margin ratio

when using the income statement approach to finding breakeven, which of the following is true

sales revenue – variable expenses – fixed expenses = operating income

on a CVP graph, the total cost line intersects the total revenue line at which of the following points

the break even point

which of the following is NOT an approach used to calculate the breakeven point

the balance sheet approach

the breakeven point may be defined as the number of units a company must sell to do which of the following

generate a zero profit

sales above the breakeven point indicate a ___, where sales below the breakeven point indicate a ___

profit;loss

the line that begins at the origin on a CVP graph represents

total sales revenues

breakeven units *

fixed expenses + operating income / contribution margin per unit

breakeven sales *

fixed expenses + operating income / contribution margin ratio

target sales units *

fixed expenses + operating income / contribution margin per unit

Description of CVP graph *

A: fixed expense line B: total expense line C: sales revenue line D: dollars (vertical axis) E: units (horizontal axis) F: operating loss area G: operating income area H: breakeven point I: 150 J: 300

contribution margin per unit *

sales price per unit – variable cost per unit

break even sales in units *

operating income + fixed expenses / contribution margin per unit

break even sales in dollars *

fixed expenses + operating income / contribution margin ratio

find the number of packages Trendy Ten needs to sell to earn 23000 operating income

fixed expenses + operating income / contribution margin per unit

operating income projection *

sales revenue X contribution ration Contribution margin fixed costs

when absorption costing is used and management bonuses are related to operating income, managers are more likely to

increase inventory levels

on a traditional income statement, sales revenue less cost of goods sold equals

gross profit

for external reporting purposes, U.S. GAAP allows companies to

only the traditional format of the income statement

on a contribution margin income statement, sales revenue less variable expenses equals

contribution margin

on a traditional income statement, all manufacturing-related costs, whether fixed or variable, are listed

above the gross profit line

the contribution margin income statement presents ___ above the contribution margin line

all variable expenses

the contribution margin income statement presents ___ below the contribution margin line

all fixed expenses

which of the following statements ins true concerning income if production exceeds units sold

a higher operating income will result under an absorption costing income statement

how is operating income affected if the number of units sold exceeds the number of units produced

operating income would be higher under a variable costing income statement

which type of costing system is the only acceptable costing system for external financial reporting

absorption costing

a basic tenet of variable costing is that fixed manufacturing overhead costs be currently expensed. what is the rationale behind this

fixed manufacturing overhead costs occur regardless of level of production

net income reported under absorption costing will exceed net income reported under variable costing for a given period if

production exceeds sales for that period`

the income statement is organized by ___ under absorption costing

product and period costs

what will happen to the contribution margin if fixed costs related to a product increase while variable costs and sales price remain constant

will not change

what factor related to manufacturing costs causes the difference between operating income computed using absorption costing and operating income computed using variable costing

absorption costing "inventories" all fixed manufacturing costs

income statement using variable costing *

Sales revenue LESS: variable expenses variable costs of goods sold variable operating expenses Contribution margin LESS: fixed expenses fixed manufacturing overhead fixed operating expenses Operating income HOW to do calculations: 1) Sales revenue: number of units sold X the sales price per unit 2) Variable costs of goods sold: total variable costs per unit X number of units 3) Variable operating expenses: number of units sold X the variable operating expenses per unit sold 4) Fixed manufacturing overhead: is given 5) Fixed operating expenses: is given

Income Statement using absorption costing *

Sales revenue LESS: cost of goods sold gross profit LESS: operating expenses OPERATING INCOME Calculations: Sales revenue is same as variable costing from above 2) cost of goods sold: fixed manufacturing overhead in total for the year / units manufactured and sold for the year. + variable manufacturing costs per unit manufactured X units manufactured and sold for the year 3) operating expenses: # of units X variable operating expenses per unit sold + fixed operating expenses

Contribution margin per unit table *

Sales price per ticket LESS: variable cost per ticket =contribution margin per ticket X sales mix =contribution margin

margin of safety in units *

expected sales in units – breakeven sales in units

margin of safety in dollars *

expected sales in dollars – breakeven sales in dollars

operating leverage factor *

contribution margin / operating income

which of the following statements is true if the sales price per unit decreases while the variable cost per unit and total fixed costs remain constant

the contribution margin decreases and the breakeven point increases

if the sales price per unit increases while the variable cost per unit and total fixed costs remain constant, which of the following statements is true

the contribution margin increases and the breakeven point decreases

if the variable cost per unit decreases while the sales price per unit and total fixed costs remain constant, which of the following statements is true

the contribution margin increases and the breakeven point decreases

if the fixed costs increase while the sales price per unit and variable costs per unit remain constant, which of the following statements is true

the contribution margin stays the same and then breakeven point increases

if the variable cost per unit increases while the sale price per unit and total fixed costs remain constant, which of the following statements is true

breakeven point in units increases

if total fixed costs decrease while the selling price er unit and variable cost per unit remain constant, which of the following statements is true

breakeven point in units decreases

if a company sells 13 of Product A for every 3 of Product B that it sells, the sales mix can be stated as

both 13:3 and 13/16 A and 3/16 B are correct

fixed costs divided by weighted average contribution margin per unit equals

breakeven sales in units

contribution margin less fixed costs yields

operating income

gabe industries sells two products, basic models and deluxe models. basic models sell for 42 dollars per unit with variable costs of 30 dollars per unit. deluxe models sell for 50 dollars per unit with variable costs of 40 dollars per unit. total fixed costs for the company are 75,400 dollars. gabe industries typically sells four basic models for every deluxe model. what is the breakeven point in total units

6500

sally’s fries sells three large fries for every two small ones. a small fry sells for 2 dollars with a variable cost of 1 dollar. a large fry sells for 3 dollars with a variable cost of 1.25 dollars. what is the weighted average contribution margin

1.45

company A has a higher margin of safety while company b has a lower margin of safety. company a would be considered ____ company b when considering only margin of safety

less risky than

a company’s margin of safety is computed by

expected sales – sales at breakeven

all else being equal, a company with a high operating leverage will have

relatively high contribution margin ratio

all else being equal, a company with a low operating leverage will have

relatively high variable costs

to find a firm’s operating leverage factor at a given level of sales, you

divide the contribution margin by operating income

by multiplying the operating leverage factor by the anticipated percentage change in volume, one can find

the anticipated change in operating income

the higher the operating leverage factor, the

greater the impact of volume on operating income

all of the following would be considered a company with high operating leverage, except

retailer

total predicted sales (in unites) minus the total breakeven sales in units divided by total predicted sales (in units) yields

margin of safety percentage

margin of safety in units *

Expected sales in units – breakeven sales in units * breakeven sales in units = fixed expenses + operating income / contribution margin per unit

margin of safety in dollars *

expected sales in dollars – breakeven sales in dollars * expected sales in dollars = expected amount to sell X sales price * breakeven sales in dollars = breakeven sales in units X sales price

margin of safety as a percentage of sales *

margin of safety in dollars / expected sales in dollars * expected sales in dollars = expected amount to sell X sales price

operating leverage factor *

1) contribution margin / operating income * contribution margin = expected posters sold X (sales price – variable cost) * operating income = total contribution margin – fixed expenses 2) increase in operating income = increase in volume (percent) X operating leverage factor 3) original volume (posters) + increase in volume (increase in volume = volume increase X original posters)

Cedric and marc work at the same company. cedric, the manager of a production department, buys lunch for marc, who works in accounting …..

integrity

tomas’ company has signed him up for outside training on operating leverage and cost structures ….

competence

heather provides reports to key decision makers based on CVP assumptions despite knowing that the decision makers are looking at situations …..

competence

kara works in accounting at a chain of car dealerships. her best friend, nikki, is looking for a new car….

confidentiatlity

gayle is an accountant for BuySmart, a cooperative grocery chain. gayle prepares internal reports with the breakeven volumes for each division listed

credibility

sales in units *

fixed expenses + operating income / contribution margin per unit ** use the original package price – the variable cost it needs to be changed to, use the increased fixed costs (second one)

Operating income statement *

1) contribution margin per unit X average sales volume units = contribution margin LESS: fixed expenses = operating income * average sales volume units = use the "most locations WERE selling 2) new contribution margin per unit (‘lower sales price per bowl’ – ‘variable costs would be’) X new sales volume units (‘each restaurants volume to increase 8,000 bowls’) = contribution margin LESS: new fixed expenses (original fixed expenses + (‘400 advertising costs)

target sales in dollars *

fixed expenses + operating income / contribution margin ratio * fixed expenses + monthly operating income / new contribution margin ratio requirement 2) (sales in dollars X shrunk contribution margin ratio) – operating income = fixed expenses –> old fixed expenses – new fixed expenses = amount of fixed costs to cut

computing weighted-average contribution margin per unit, first identify the formula labels *

sales price per unit LESS: variable cost per unit = contribution margin per unit sales mix =contribution margin == weighted average contribution margin per unit ** fixed expenses + operating income / weighed-average CM per unit = breakeven sales in units * sales mix –> 4:1 sales mix –> add 4 + 1 contribution margin –> add them together ** weighted average contribution margin per unit –> divide 65 by 5

breakeven sales in units *

fixed expenses + operating income / weighted-average CM per unit –> breakeven sales in units X product line’s proportion

Share This
Flashcard

More flashcards like this

NCLEX 10000 Integumentary Disorders

When assessing a client with partial-thickness burns over 60% of the body, which finding should the nurse report immediately? a) ...

Read more

NCLEX 300-NEURO

A client with amyotrophic lateral sclerosis (ALS) tells the nurse, "Sometimes I feel so frustrated. I can’t do anything without ...

Read more

NASM Flashcards

Which of the following is the process of getting oxygen from the environment to the tissues of the body? Diffusion ...

Read more

Unfinished tasks keep piling up?

Let us complete them for you. Quickly and professionally.

Check Price

Successful message
sending