Explain the difference between cost and expense.
> All-star Exposure designs and sells advertising services to small, relatively unknown companies. Last month, All-star had sales commissions costs of $50,000, technology costs of $75,000, and research and development costs of $200,000. Selling expenses we
> Dartmouth Company produces a single product with a price of $12, variable cost per unit of $3, and total fixed cost of $7,200. The variable cost ratio and the contribution margin ratio for Dartmouth are e. The contribution margin ratio cannot be determ
> Dartmouth Company produces a single product with a price of $12, variable cost per unit of $3, and total fixed cost of $7,200. Dartmouth’s break-even point in units a. is 600. b. is 480. c. is 1,000. d. is 800. e. cannot be determined from the informati
> The contribution margin is the a. amount by which sales exceed total fixed cost. b. difference between sales and total cost. c. difference between sales and operating income. d. difference between sales and total variable cost. e. difference between var
> If the margin of safety is 0, then a. the company is precisely breaking even. b. the company is operating at a loss. c. the company is earning a small profit. d. the margin of safety cannot be less than or equal to 0; it must be positive. e. none of the
> The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves a. margin of safety. b. operating leverage. c. degree of operating leverage. d. sensitivity analysis. e. variable cost reduction.
> An important assumption of cost-volume-profit analysis is that a. both costs and revenues are linear functions. b. all cost and revenue relationships are analyzed within the relevant range. c. there is no change in inventories. d. the sales mix remains
> In the cost-volume-profit graph, a. the break-even point is found where the total revenue curve crosses the x-axis. b. the area of profit is to the left of the break-even point. c. the area of loss cannot be determined. d. both the total revenue curve a
> Break-even revenue for the multiple-product firm can a. be calculated by dividing total fixed cost by the overall contribution margin ratio. b. be calculated by dividing segment fixed cost by the overall contribution margin ratio. c. be calculated by di
> The amount of revenue required to earn a targeted profit is equal to a. total fixed cost divided by contribution margin. b. total fixed cost divided by the contribution margin ratio. c. targeted profit divided by the contribution margin ratio. d. total
> If the variable cost per unit goes down, Contribution margin Break-even point а. increases increases. b. increases c. decreases d. decreases decreases. decreases. increases. decreases remains unchanged. е.
> Slaps hot Company makes ice hockey sticks and sold 1,880 sticks during the month of June at a total cost of $433,000. Each stick sold at a price of $400. Slaps hot also incurred two types of selling costs: commissions equal to 10% of the sales price, and
> Why is a declining margin of safety over a period of time an issue of concern to managers?
> Explain what is meant by the term operating leverage. What impact does increased leverage have on risk?
> Define the term margin of safety. Explain how it can be used as a crude measure of operating risk.
> Explain how a change in sales mix can change a company’s break-even point.
> How does targeted profit enter into the break-even units equation?
> Since break-even analysis focuses on making zero profit, it is of no value in determining the units a firm must sell to earn a targeted profit. Do you agree or disagree with this statement? Why?
> Explain how CVP analysis developed for single products can be used in a multiple-product setting.
> Define the term sales mix. Give an example to support your definition.
> What is the variable cost ratio? The contribution margin ratio? How are the two ratios related?
> Define the term break-even point.
> Why do firms like to calculate a percentage column on the income statement (in which each line item is expressed as a percentage of sales)?
> Explain how CVP analysis can be used for managerial planning.
> Required: Classify each of the following costs for a jeans manufacturing company as a variable cost, committed fixed cost, or discretionary fixed cost. a. The cost of buttons b. The cost to lease warehouse space for completed jeans—the lease contract ru
> Explain the meaning of the coefficient of determination.
> What is meant by the best-fitting line?
> What is the scatter graph method, and why is it used? Why is a scatter graph a good first step in separating mixed costs into their fixed and variable components?
> Describe the cost formula for a strictly variable cost such as electrical power cost of $1.15 per machine hour (i.e., every hour the machinery is run, electrical power cost goes up by $1.15).
> Describe the cost formula for a strictly fixed cost such as depreciation of $15,000 per year.
> Why do mixed costs pose a problem when it comes to classifying costs into fixed and variable categories?
> What is a driver? Give an example of a cost and its corresponding output measure or driver.
> Which of the following is a period expense? a. Factory insurance b. CEO salary c. Direct labor d. Factory maintenance e. All of these.
> Slaps hot Company makes ice hockey sticks. During the month of June, 1,900 sticks were completed at a cost of goods manufactured of $437,000. Suppose that on June 1, Slaps hot had 350 units in finished goods inventory costing $80,000 and on June 30, 370
> Stone Inc. is a company that purchases goods (e.g., chess sets, pottery) from overseas and resells them to gift shops in the United States. Stone Inc. is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of
> Target is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of these.
> Kellogg’s makes a variety of breakfast cereals. Kellogg’s is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of these.
> Bobby Dee’s is an owner-operated company that details (thoroughly cleans—inside and out) automobiles. Bobby Dee’s is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of these.
> Which of the following is an indirect cost? a. The cost of denim in a jeans factory b. The cost of mixing labor in a factory that makes over-the-counter pain relievers c. The cost of bottles in a shampoo factory d. The cost of restriping the parking lot
> The accountant in a factory that produces biscuits for fast-food restaurants wants to assign costs to boxes of biscuits. Which of the following costs can be traced directly to boxes of biscuits? a. The cost of flour and baking soda b. The wages of the m
> Product (or manufacturing) costs consist of a. direct materials, direct labor, and selling costs. b. direct materials, direct labor, manufacturing overhead, and operating expense. c. administrative costs and conversion costs. d. prime costs and manufact
> Accumulating costs means that a. costs must be summed and entered on the income statement. b. each cost must be linked to some cost object. c. costs must be measured and tracked. d. costs must be allocated to units of production. e. costs have expired a
> What is the cost of goods manufactured?
> Define selling cost. Give five examples of selling cost.
> Slaps hot Company makes ice hockey sticks. During the month of June, the company purchased $132,000 of materials. Also during the month of June, Slaps hot Company incurred direct labor cost of $113,000 and manufacturing overhead of $187,000. Inventory in
> How does a period cost differ from a product cost?
> Explain the difference between direct materials purchased in a month and direct materials used for the month.
> Define manufacturing overhead.
> What is allocation?
> Which of the following is typically found in a corporation’s code of ethics? a. Compliance with the rule of law b. Integrity c. Honesty d. Competence e. All of these.
> Which of the following is not a common form of certification for managerial accountants? a. Certificate in Internal Auditing b. Certificate in External Auditing c. Certificate in Public Accounting d. Certificate in Management Accounting
> Which of the following is a characteristic of managerial accounting? a. There is an internal focus. b. Subjective information may be used. c. There is an emphasis on the future. d. It is broad-based and multidisciplinary. e. All of these.
> The process of choosing among competing alternatives is called a. planning. b. decision making. c. controlling. d. performance evaluation. e. None of these.
> The users of managerial accounting information include a. for-profit companies. b. not-for-profit organizations. c. city governments. d. educational institutions. e. All of these.
> The following statements have appeared in newspaper editorials: 1. Business students come from all segments of society. If they have not been taught ethics by their families and by their elementary and secondary schools, a business school can have little
> The provision of accounting information for internal users is known as a. accounting. b. financial accounting. c. managerial accounting. d. information provision. e. accounting for planning and control.
> The controller should be a member of the top management staff. Do you agree or disagree? Explain.
> What is the difference between a staff position and a line position?
> Jenna Suarez, the controller for Arben Company, has faced the following situations in the past two weeks: a. Ben Heald, head of production, wondered whether it would be more cost effective to buy parts partially assembled or to buy individual parts and a
> Each of the following scenarios requires the use of accounting information to carry out one or more managerial accounting objective. a. Laboratory Manager: An HMO approached me recently and offered us its entire range of blood tests. It provided a price
> What is the value chain? Why is it important?
> The chief accounting officer for a firm is the a. chief executive officer. b. chief operating officer. c. vice president of sales. d. production head. e. controller.
> Explain the role of financial reporting in the development of managerial accounting. Why has this changed in recent years?
> In terms of strategic positioning, which two general strategies may be chosen by a company? a. Revenue production and cost enhancement b. Activity-based costing and value chain emphasis c. Increasing customer value and decreasing supplier orientation d.
> An effective managerial accounting system should track information about an organization’s activities in which of the following areas? a. Development b. Marketing c. Production d. Design e. All of these.
> Manager: If I can reduce my costs by $40,000 during this last quarter, my division will show a profit that is 10% above the planned level, and I will receive a $10,000 bonus. However, given the projections for the fourth quarter, it does not look promisi
> What is meant by controlling?
> Should a managerial accounting system provide both financial and nonfinancial information? Explain.
> Setting objectives and identifying methods to achieve those objectives is called a. planning. b. decision making. c. controlling. d. performance evaluation. e. None of these.
> What are the three broad objectives of managerial accounting?
> What is managerial accounting?
> Candy land Inc. produces a particularly rich praline fudge. Each 10-ounce box sells for $5.60. Variable unit costs are as follows: Pecans ………………………………………………….. $0.70 Sugar ……………………………………………………… 0.35 Butter ……………………………………………………… 1.85 Other ingredients ……
> Abraham Company had revenues of $830,000 last year with total variable costs of $647,400 and fixed costs of $110,000. Required: 1. What is the variable cost ratio for Abraham? What is the contribution margin ratio? 2. What is the break-even point in sal
> Victoria Company produces a single product. Last year’s income statement is as follows: Sales (29,000 units) ………………………………………………. $1,218,000 Total variable cost ……………………………………………………… 812,000 Contribution margin ………………………………………………. $ 406,000 Total fixed c
> Polaris Inc. manufactures two types of metal stampings for the automobile industry: door handles and trim kits. Fixed cost equals $146,000. Each door handle sells for $12 and has variable cost of $9; each trim kit sells for $8 and has variable cost of $5
> Carlyle Lighting Products produces two different types of lamps: a floor lamp and a desk lamp. Floor lamps sell for $30, and desk lamps sell for $20. The projected income statement for the coming year follows: Sales ……………………………………………………………………… $600,000
> Consider the following scenario between Dave, a printer, and Steve, an assistant in the local university’s athletic department. Steve: Dave, our department needs to have 10,000 posters printed for the basketball team for next year. Here’s the mock-up, an
> Elgart Company produces plastic mailboxes. The projected income statement for the coming year follows: Sales ……………………………………………………………… $460,300 Total variable cost …………………………………………….. 165,708 Contribution margin ………………………………………. $294,592 Total fixed cost
> Legrand Company produces hand cream in plastic jars. Each jar sells for $3.40. The variable cost for each jar (materials, labor, and overhead) totals $2.55. The total fixed cost is $58,140. During the most recent year, 81,600 jars were sold. Required: 1
> Aldovar Company produces a variety of chemicals. One division makes reagents for laboratories. The division’s projected income statement for the coming year is: Sales (203,000 units @ $70) ………………………………………. $14,210,000 Total variable cost ………………………………………
> Kallard Manufacturing Company produces t-shirts screen-printed with the logos of various sports teams. Each shirt is priced at $13.50 and has a unit variable cost of $9.85. Total fixed cost is $197,600. Required: 1. Compute the break-even point in units
> Khumbu Company’s projected profit for the coming year is as follows: Required: 1. Compute the break-even point in units. 2. How many units must be sold to earn a profit of $240,000? 3. Compute the contribution margin ratio. Using that
> Income statements for two different companies in the same industry are as follows: Required: 1. Compute the degree of operating leverage for each company. 2. CONCEPTUAL CONNECTION Compute the break-even point in dollars for each company. Explain why th
> Parker Pottery produces a line of vases and a line of ceramic figurines. Each line uses the same equipment and labor; hence, there are no traceable fixed costs. Common fixed cost equals $30,000. Parker’s accountant has begun to assess t
> Medina Company produces a single product. The projected income statement for the coming year is as follows: Sales (40,000 units @ $45) …………………………….. $1,800,000 Total variable cost …………………………………………….. 1,044,000 Contribution margin …………………………………………. $ 756
> Klamath Company produces a single product. The projected income statement for the coming year is as follows: Sales (54,600 units @ $34) …………………………………….. $1,856,400 Total variable cost …………………………………………………….. 1,064,700 Contribution margin …………………………………………
> Lotts Company produces and sells one product. The selling price is $10, and the unit variable cost is $6. Total fixed cost is $10,000. Required: 1. Prepare a CVP graph with ‘‘Units Sold’’ as the horizontal axis and ‘‘Dollars’’ as the vertical axis. Labe
> The Bedron Company is a closely held investment service group that has been quite successful over the past 5 years, consistently providing most members of the top management group with 50% bonuses. In addition, both the chief financial officer and the ch
> Arberg Company’s controller prepared the following budgeted income statement for the coming year: Sales ……………………………………………………….. $415,000 Total variable cost ……………………………………… 302,950 Contribution margin …………………………………. $112,050 Total fixed cost ……………………………
> Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $8.12 per string. The variable costs per string are as follows: Direct materials ……………………………………. $1.87 Direct labor ……………………………………………. 1.70 V
> Werner Company produces and sells disposable foil baking pans to retailers for $2.75 per pan. The variable cost per pan is as follows: Direct materials …………………………………………………… $0.37 Direct labor …………………………………………………………… 0.63 Variable factory overhead ………………
> The controller of Pelley Company prepared the following projected income statement: Sales ……………………………………………………………….. $95,000 Total variable cost ……………………………………………… 68,400 Contribution margin ………………………………………… $26,600 Total fixed cost ………………………………………………….
> For each of the following independent situations, calculate the amount(s) required. Required: 1. At the break-even point, Jefferson Company sells 115,000 units and has fixed cost of $349,600. The variable cost per unit is $4.56. What price does Jefferso
> Suppose that Adams Company sells a product for $20. Unit costs are as follows: Direct materials …………………………………………………….. $1.90 Direct labor …………………………………………………………….. 1.40 Variable factory overhead ………………………………………… 2.10 Variable selling and administrative
> Jellico Inc.’s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Total Sales …………………………………………………… $11,700,000 Total variable cost …………………………………… 8,190,000 Contribution margin …………………………….. $ 3,510,000 Total
> Suppose a firm with a contribution margin ratio of 0.3 increased its advertising expenses by $10,000 and found that sales increased by $30,000. Was it a good decision to increase advertising expenses? Suppose that the contribution margin ratio is now 0.4
> Explain why contribution margin per unit becomes profit per unit above the break-even point.
> Describe the difference between the units sold approach to CVP analysis and the sales revenue approach.
> Identify the three forms of accounting certification. Which form of certification do you believe is best for a managerial accountant? Why?
> What is the difference between a product and a service? Give an example of each.
