Managerial Decision Making

Question 1

Examples of Fixed Costs

Answer 1

Rent, insurance, wages of full-time or permanent employees, depreciation and interest of long-term debit.

Question 2

Variable Costs

Answer 2

Costs that increase in proportion to the output being produced by the business.

Question 3

Examples of Variable Costs

Answer 3

Inventory purchases, packaging, hourly wages and incentive payments

Question 4

Mixed Costs

Answer 4

Costs that contain some fixed and some variable.

Question 5

Examples of Mixed Costs

Answer 5

Motor vehicle expenses and telephone expenses

Question 6

Contribution Margin

Answer 6

Contribution Margin is a managerial accounting term that describes the amount of gross profit from sales after variable costs are deducted. The contribution margin can be prepared based on information found in the income statement.

Question 7

Contribution Margin Formula

Answer 7

Total Sales - Total variable costs

Question 8

Direct Materials

Answer 8

These are materials that can be traced to a particular product or service. It is usually possible to look at the manufacture of a good and determine exactly what the components of that good are.

Question 9

Examples of Direct Materials

Answer 9

Pizza Toppings, car tires

Question 10

Direct Labour

Answer 10

Labour that is directly traceable to the manufacture of a particular product or service

Question 11

Examples of Direct Labour

Answer 11

Staff

Question 12

Over head expenses

Answer 12

Other costs that are incurred in the production of the good or service other than direct materials or direct labour. An attempt must be made to determine how much overhead is necessary to manufacture the product or provide the service.

Question 13

Examples of Over head expenses

Answer 13

Electricity, rent, rates

Question 14

Period costs

Answer 14

Costs that are necessary in addition to the cost of actually producing the product

Question 15

Examples of Period Costs

Answer 15

Advertising expense, interest expense

Question 16

Break Even Point Formula units

Answer 16

Total fixed costs / contribution margin

Question 17

Managerial Accounting

Answer 17

Managerial accounting deals with providing information useful for decision making to management. This is information internal to the organisation, and as such is not governed by legislation. It is the opposite of financial accounting.

Question 18

Managerial accounting answers what questions?

Answer 18

1. Should the Selling Price increase or decrease?
2. How many units must be produced to make a profit?
3. Should advertising dollars be increased?
4. Should a product line be removed or retained?
5. How many units must be sold to break even?

Question 19

Contribution Margin %

Answer 19

Contribution Margin $ / sales x100

Question 20

Two main reason businesses are interested in their break even point.

Answer 20

1. To know what level of sales (volume) they must achieve as a minimum to cover costs.
2. To assess whether the current price structure is appropriate - does it need to increase, decrease or remain at its current level - is the profit generated by the sales sufficient

Question 21

Break even point $

Answer 21

Break even point in units x selling price

Question 22

Sales in units formula

Answer 22

(Fixed cost + target profit) / contribution margin per unit

Question 23

Sales amount $ formula

Answer 23

Sales units x selling price

Question 24

Fixed Costs

Answer 24

Costs that do not vary when the level of output (sales) changes