Chapter 1-4

Question 1

Traditional Income Statement Merchandising Company

Answer 1

Sales
COGS
  Begin. Inv. 
\+ Purchases
  Goods available for use
-  Ending Inv. 
Goods used for production 

Gross Margin (Sales-COGS)

Operating Expenses
Selling Exps.
+ Admin. Exps.

Operating Income

Question 2

Traditional Income Statement Manufacturing Company

Answer 2

Sales
COGS
  Begin. Inv. 
\+ COGM
  Goods available for use
-  Ending Inv. 
Goods used for production 

Gross Margin (Sales-COGS)

Operating Expenses
Selling Exps.
+ Admin. Exps.

Operating Income

Question 3

Manufacturing Cost or Production Cost

Answer 3

DM+DL+MOH

Question 4

Prime Cost

Answer 4

DM+DL

Question 5

Conversion Cost

Answer 5

DL+MOH

Question 6

Schedule of COGM

Answer 6

DM:
  Raw material inv., Begin
\+ purchase raw material 
  Raw material available for use
-  raw managerial inv., end

DL:

MOH:
Depreciation 
Insurance
Indirect labor 
Etc

Production cost (DM+DL+MOH)
\+ WIP, begin 

-WIP, ending
=COGM
~~~

Question 7

Contribution format Income Statement

Answer 7

Sales
- variable expenses
Contribution margin 
- fixed expenses
=Operating income

Question 8

CVP analysis Decision rules

Answer 8

Make a change if…
Increase in CM>increase in FC
Decrease in CMdecrease in FC

Question 9

Contribution Margin Ratio

Answer 9

CM/Sales

Question 10

Break-Even (Equation method)

Answer 10

*profit=0

Profit= sales-variable Exps.- fixed Exps.

Question 11

Break-Even (formula method)

Answer 11

Break-even in units= fixed Exps/ CM Per Unit

Break-even in $= fixed Exps/ CM Ratio

Question 12

Target Operating Profit (equation method)

Answer 12

*profit= given target profit

Profit= sales-variable Exps-fixed Exps

Question 13

Target Operating Profit (formula method)

Answer 13

In $= fixed Exps+ target profit/ CM Ratio
OR
Fixed Eps+ [(target profit aftertax/(1-taxrate)]/ CM Ratio

In units= fixed Exps+ target profit/ CM per unit
OR
Fixed Eps+ [(target profit aftertax/(1-taxrate)]/ CM per unit

Question 14

Margin of Safety

Answer 14

In $= total sales- break even sales

Question 15

Margin of Safety in %

Answer 15

=margin of safety in dollars/ total sales

Question 16

Operating Leverage

Answer 16

CM/Operating Income

Question 17

% change in Operating Leverage

Answer 17

Operating Leverage x %change in sales

Question 18

Indifference Analysis

Answer 18

1. (CM Unit1 x # of units)- fixed cost1 = (CM Unit2 x #of units)- fixed cost2
2. (Fixed cost 1- fixed cost 2)/ (CM Per Unit1- CM Per Unit2)

Question 19

Weighted Average CM Per Unit

Answer 19

(CM per unit1sales mix%)+(CM per unit2 sales mix%)…

Question 20

4 functions performed by managers

Answer 20

1. Planning
2. Directing + Motivating
3. Controlling
4. Decision-Making

Question 21

Decision making for Indifferences

Answer 21

If sales are >indifference point–> profitability greater for alternative 1

If sales are profitability greater for alternative 2