Accounting Exam 2 Flashcards
Cost Behavior is:
the way in which costs change when the activity level changes
A cost driver is:
is an activity that causes total costs to change
A company’s normal operating activity is to produce 500 units per month. During its first two months of operations, it produced 100 units per month. Following a great article about the product, product sales spiked to 1,000 units per month, but the spike only lasted for one month. Which of the following best approximates the company’s relevant range?
450-510 units
When Carter Inc. sells 48,000 units, its total variable cost is $115,200. What is its total variable cost when it sells 54,000 units?
$129,600
What is a variable cost?
A cost that is $26,000 when production is 65,000, and $36,400 when production is 91,000.
Fixed costs are _____
constant in total dollars
All else being equal, if sales revenue doubles, fixed costs will:
decrease on a per unit basis
Mohave, Inc. produces approximately 4,000 units per month, and it places a quality assurance logo on each of its units. To use this logo, it must pay the quality assurance firm $5,000 per month plus $1 per unit. The cost to Mohave of using the quality assurance logo would be a:
mixed cost
Total contribution margin is defined as:
total sales revenue less total variable costs
Jasmine Corp. has a selling price of $15, variable costs of $10 per unit, and fixed costs of $25,000. Contribution margin is $85,000. How many units did Jasmine sell?
17,000 (Contribution margin = Sales revenue − Variable costs = $15X − $10X = $85,000. X = $85,000/$5 =)
Rose Corp. has contribution margin of $65,000, variable costs of $10 per unit, and fixed costs of $25,000. If Rose sells 13,000 units, what was the selling price per unit?
$15.00 (Contribution margin = Sales revenue − Variable costs = (SR × 13,000) − ($10 × 13,000) = $65,000. SR = $195,000/13,000 = $15)
Maple Corp. has a selling price of $20, variable costs of $15 per unit, and fixed costs of $25,000. Maple expects profit of $300,000 at its anticipated level of production. What is Maple’s unit contribution margin?
$5.00
The contribution margin ratio is
the contribution margin stated as a percentage of sales.
Booble, Inc. has a contribution margin ratio of 45%. This month, sales revenue was $200,000, and profit was $40,000. How much are Booble’s fixed costs?
$50,000 (Contribution margin is $90,000. ($200,000 × 45% = $90,000) Fixed costs are $50,000. ($90,000 − $40,000 = $50,000)
What is true about Cost Volume Profit
A decision making tool for managers, focusing on the relationship among volume and mix units sold, prices, variable costs, fixed costs, and profit
Profit is indicated on a cost-volume-profit graph by:
the vertical difference between the revenue line and the cost line.
The formula for break-even point in terms of units is:
total fixed costs/Unit Contribution Margin
Quail, Inc., has a contribution margin of 40% and fixed costs of $130,000. What is the break-even point in sales dollars?
$325,000
Mira Corp. has a selling price of $50 per unit, variable costs of $40 per unit, and fixed costs of $90,000. How many units must be sold to break-even?
9,000 units
Jasper Corp. has a selling price of $30, and variable costs of $20 per unit. When 12,000 units are sold, profits equaled $70,000. How many units must be sold to break-even?
5,000 units (Fixed costs are [($30 − $20) × 12,000] − $70,000 = $50,000. Break-even point is $50,000/($30 − $20)
Belle Corp. has a selling price of $50 per unit, variable costs of $40 per unit, and fixed costs of $100,000. What sales revenue is needed to break-even?
$500,000 (Break-even point in units is $100,000/($50 − $40) = 10,000. Revenue = 10,000 × $50 = $500,000. Alternatively, break-even point in sales dollars is fixed costs divided by contribution margin ratio. ($100,000/($10/$50)
Merlot, Inc. has fixed costs of $200,000, sales price of $50, and variable cost of $30 per unit. How many units must be sold to earn profit of $80,000?
14,000 units (Calculate target profit by adding fixed costs to target profit, and dividing the result by the per unit contribution margin. ($200,000 + $80,000)/($50 − $30)
Elk Corp. has sales of $300,000, a contribution margin ratio of 40%, and a target profit of $30,000. If 20,000 units were sold, what is the variable cost per unit?
$9.00 (Contribution margin is $300,000 × 40% = $120,000. Total variable costs are $300,000 − $120,000 = $180,000. Variable cost per unit is $180,000/20,000 = $9.00. Alternatively, if contribution margin ratio is 40%, then variable cost ratio is 60%, so sales multiplied by the variable cost ratio divided by units is the variable cost per unit. ($300,000 × 60% = $180,000/20,000 = 9 per unit)
Harvest Corp. has a contribution margin ratio of 30%, fixed costs of $45,000, and a profit of $60,000. What are total sales?
$350,000 (Contribution margin is $60,000 + $45,000 = $105,000 = Sales × 30%.)
The margin of safety is the difference between:
actual sales and break-even sales
Dragon, Inc. has actual sales of $400,000 and a margin of safety of $150,000. What is Dragon’s break-even point in sales?
$250,000 (Actual sales less margin of safety equals the break-even point. $400,000 - $150,00)
Idaho Corp. has fixed costs of $20,000 and a contribution margin ratio of 50%. Currently, sales are $75,000. What is Idaho’s margin of safety?
$35,000 (Sales less fixed costs divided by contribution margin ratio equals margin of safety. $75,000 - ($20,000/0.50)
Degree of operating leverage is used to:
calculate change in profit given change in sales
Frontier Corp. has a contribution margin of $450,000 and profit of $150,000. What is its degree of operating leverage?
3.00
Which of the following steps in the managerial decision-making process involves differential analysis?
Evaluate the costs and benefits of the alternatives
The steps in the managerial decision making process
Identify problem, Brainstorm: find alternatives, Pros/Cons of alternatives, Make a decision, Review results
Which of the following is true of a firm that has reached the limit on its resources?
Opportunity costs are now relevant
Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales?
Special-Order
Be cautious of __________ expressed on a per-unit basis when weighing make-or-buy decisions. The total value (instead of the per unit value) is relevant to the decision.
fixed costs
The law firm of Regal and Porter is examining its client base to determine how profitable its regular clients are. Its analysis indicates that Hawthorne, Inc. paid $179,200 in fees last year, but cost the firm $208,600 ($168,000 in billable labor, supplies, and copying, and $40,600 in allocated common fixed costs). If Regal and Porter dropped Hawthorne, Inc. as a client, and all fixed costs are unavoidable, how would profit be affected?
Decrease 11,200 ($179,200 − $168,000 = $11,200 in lost profit. Included in the cost is $40,600 in allocated fixed costs, which are unavoidable, so these would be excluded from the analysis.)
It costs Camp, Inc. $35 per unit to manufacture 1,000 units per month of a product that it can sell for $50 each. Alternatively, Camp could process the units further into a more complex product, which would cost an additional $30 per unit. Camp could sell the more complex product for $75 each. How would processing the product further affect Camp’s profit?
Profit would decrease by $5,000 (Incremental revenue $25,000 − Incremental cost $30,000 = ($5,000)
