Incremental analysis is an analytical approach that focuses only on those revenues and costs that will change as a result of a decision.
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TRUE
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For a given level of sales, a low contribution margin ratio will produce less net operating income than a high contribution margin ratio.
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TRUE
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The difference between total sales in dollars and total variable expenses is called:
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the contribution margin.
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The amount by which a company's sales can decline before losses are incurred is called the:
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margin of safety.
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The variable expense per unit is $12 and the selling price per unit is $40. Then the contribution margin ratio is 70%.
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TRUE
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Sproles Inc. manufactures a variety of products. Variable costing net operating income was $102,000 last year and its inventory decreased by 3,810 units. Fixed manufacturing overhead cost was $9 per unit. What was the absorption costing net operating income last year?
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$67,710
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Although the contribution format income statement is useful for external reporting purposes, it has serious limitations when used for internal purposes because it does not distinguish between fixed and variable costs.
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TRUE
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The traditional format income statement is used as an internal planning and decision-making tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management performance appraisals, and budgeting.
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FALSE
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In a contribution format income statement, sales minus cost of goods sold equals the gross margin.
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FALSE
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Variable cost:
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remains constant on a per unit basis as the number of units produced increases.
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Which of the following statements regarding fixed costs is incorrect?
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Expressing fixed costs on a per unit basis usually is the best approach for decision making.
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A decrease in production will ordinarily result in an increase in fixed production costs per unit.
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TRUE
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Danneman Corporation's fixed monthly expenses are $13,000 and its contribution margin ratio is 56%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $41,000?
Knoke Corporation's contribution margin ratio is 29% and its fixed monthly expenses are $17,000. If the company's sales for a month are $98,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change.
the average variable expense per unit is constant.
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The break-even point in unit sales increases when variable expenses:
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increase and the selling price remains unchanged.
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All other things the same, which of the following would be true of the contribution margin and variable expenses of a company with high fixed costs and low variable costs as compared to a company with low fixed costs and high variable costs?
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Option C
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With regard to the CVP graph, which of the following statements is not correct?
answer
The CVP graph assumes that variable costs go down as volume goes up.
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Street Company's fixed expenses total $150,000, its variable expense ratio is 60% and its variable expenses are $4.50 per unit. Based on this information, the break-even point in units is:
answer
50,000 units
CM ratio = 1 − Variable expense ratio = 1 − 0.60 = 0.40
Dollar sales to break even = Fixed expenses ÷ CM ratio
= $150,000 ÷ 0.40 = $375,000
Variable expense ratio = Total variable expenses ÷ Total dollar sales
0.60 = Total variable expenses ÷ Total dollar sales
0.60 = $4.50 per unit × Unit sales ÷ Selling price per unit × Unit sales
0.60 = $4.50 per unit ÷ Selling price per unit
Selling price = $4.50 per unit ÷ 0.60 = $7.50 per unit
Dollar sales = Unit selling price × Unit sales
$375,000 = $7.50 per unit × Unit sales
Unit sales = $375,000 ÷ $7.50 per unit = 50,000 units
question
Moncrief Inc. produces and sells a single product. The selling price of the product is $170.00 per unit and its variable cost is $62.90 per unit. The fixed expense is $300,951 per month. The break-even in monthly unit sales is closest to:
answer
2,810 units
Unit sales to break even = Fixed expenses ÷ Unit CM
= $300,951 ÷ ($170.00 per unit − $62.90 per unit)
= $300,951 ÷ $107.10 per unit
= 2,810 units
question
Olis Corporation sells a product for $130 per unit. The product's current sales are 28,900 units and its break-even sales are 25,721 units. What is the margin of safety in dollars?
answer
$413,270
Margin of safety in dollars = Total sales − Break-even sales
= $130 per unit × 28,900 units − $130 per unit × 25,721 units
= $3,757,000 − $3,343,730 = $413,270
question
Puchalla Corporation sells a product for $230 per unit. The product's current sales are 13,400 units and its break-even sales are 10,720 units. The margin of safety as a percentage of sales is closest to:
answer
20%
Margin of safety in dollars = Total sales − Break-even sales
= ($230 per unit × 13,400 units) − ($230 per unit × 10,720 units)
= $3,082,000 − $2,465,600 = $616,400
Margin of safety percentage = Margin of safety in dollars ÷ Total sales
= $616,400 ÷ $3,082,000 = 0.20
question
The unit product cost under absorption costing does not include fixed manufacturing overhead cost.
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FALSE
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Variable manufacturing overhead costs are treated as period costs under both absorption and variable costing.
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FALSE
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Under variable costing, all variable costs are treated as product costs.
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FALSE
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A company using lean production methods likely would show approximately the same net operating income under both absorption and variable costing because:
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A company using lean production methods likely would show approximately the same net operating income under both absorption and variable costing because:
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Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if:
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Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if:
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In responsibility accounting, each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs.
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FALSE
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A common cost that should not be assigned to a particular product on a segmented income statement is:
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the salary of the corporation president.
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Fixed costs that are traceable to a segment may become common if the segment is divided into smaller units.
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TRUE
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The salary of the treasurer of a corporation is an example of a common cost which normally cannot be traced to product segments.
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TRUE
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Only those costs that would disappear over time if a segment were eliminated should be considered traceable costs of the segment.
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TRUE
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Segment margin is sales minus:
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variable expenses and traceable fixed expenses.
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Contribution margin and segment margin mean the same thing.
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FALSE
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All other things being equal, if a division's traceable fixed expenses increase:
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the division's segment margin will decrease.
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An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:
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all of the above are reasons why an activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles.
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Which of the following is not a limitation of activity-based costing?
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More accurate product costs may result in increasing the selling prices of some products.
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The premise of ABC is that it takes activities to make products and provide services and these activities drive costs.
answer
TRUE
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A cost pool:
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Is a collection of costs that are related to the same or similar activity.
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A cost pool is a collection of costs that are related to the same or similar activity.
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TRUE
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Activity-based costing often shifts overhead costs from large volume, standardized products to low-volume, specialty products that consume disproportionate resources.
answer
TRUE
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South Company sells a single product for $21 per unit. If variable expenses are 60% of sales and fixed expenses total $12,800, the break-even point in sales dollars will be: (Do not round intermediate calculations.)
answer
$32,000
CM ratio = 1 - Variable expense ratio
CM ratio = 1 - 0.60 = 0.40
Dollar sales to break even = Fixed expenses ÷ CM ratio
=$12,800 ÷ 0.40 = $32,000
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