Exam 7: Cost-Volume-Profit Analysis, Absorption and Variable Costing

When advanced manufacturing systems are installed, what effect does such installation usually have on fixed costs and the break-even point? Fixed Costs Break-even Point 1 Increase Increase 2 Increase Decrease 3 Decrease Increase 4 Decrease Decrease 5 Do not change Does not change

Orion recently reported sales revenues of $800,000, a total contribution margin of $300,000, and fixed costs of $180,000. If sales volume amounted to 10,000 units, the company's variable cost per unit must have been:

Absorption and variable costing are two different methods of measuring income and costing inventory. Required: A. Product costs are defined as costs associated with the manufacturing process. How does the operational definition of product cost differ between absorption costing and variable costing? B. What is the difference between gross profit reported on an absorption costing income statement and the contribution margin reported on a variable-costing income statement?

McCann Mechanics, compiled the following information for the current year: Variable manufacturing cost \ 35 Fixed manufacturing cost 30 Variable selling and administrative 40 cost Fixed selling and administrative cost 16 Which of the following choices correctly depicts the per-unit cost of inventory under variable costing and absorption costing?

A recent income statement of Hendrix Inx. reported sales revenue of $5,000,000, variable costs of $3,000,000, and fixed costs of $1,000,000. If these data are based on the sale of 40,000 units, the contribution margin per unit would be:

The following data relate to CrossTime Incorporated which began operations on January 1, 2012: Planned and actual production Sales at \ 48 per unit Manufacturing costs: Variable Fixed Selling and administrative costs: Variable Fixed 300,000units 270,000units \ 20perunit \ 900,000 \ 10 \ 900,000 There were no variances during the period. Required: A. Determine the number of units in the ending finished-goods inventory at December 31, 2012. B. Calculate the cost of the ending finished-goods inventory at December 31, 2012 under (1) variable costing and (2) absorption costing. C. Determine CrossTime's variable-costing net income. D. Determine CrossTime's absorption-costing net income.

Cortez Enterprises is studying the addition of a new product that would have an expected selling price of $180 and expected variable cost of $120. Anticipated demand is 9,000 units. A new salesperson must be hired because the company's current sales force is working at capacity. Two compensation plans are under consideration: Plan 1: An annual salary of $38,000 plus 10% commission based on gross sales dollars Plan 2: An annual salary of $180,000 and no commission Required: A. What is meant by the term "operating leverage"? B. Calculate the contribution margin and net income of the two plans at 9,000 units respectively. C. Compute the operating leverage factor of the two plans at 9,000 units respectively. Which of the two plans is more highly leveraged? Why? D. Assume that a general economic downturn occurred during year no. 2, with product demand falling from 9,000 to 7,200 units. By using the operating leverage factors, determine and show which plan would produce a larger percentage decrease in net income.

Bonsai Company incurred the following costs during the past year when planned production and actual production each totaled 20,000 units: Direct materials used \ 400,000 Direct labour 320,000 Variable manufacturing overhead 260,000 Fixed manufacturing overhead 200,000 Variable selling and administrative costs 80,000 Fixed selling and administrative costs 70,000 The per-unit inventoriable cost for Bonsai under absorption costing is:

Coastal Corporation, which uses throughput costing, began operations at the start of the current year. Planned and actual production equaled 20,000 units, and sales totaled 17,500 units at $95 per unit. Cost data for the year were as follows: Direct materials (per unit) \ 18 Conversion cost: Direct labor 160,000 Variable manufacturing overhead 280,000 Fixed manufacturing overhead 340,000 Selling and administrative costs (total) 430,000 The company classifies direct materials as a throughput cost. Required: A. Compute Coastal Corporation's total cost for the year. B. How much of this cost would be held in year-end inventory under (1) absorption costing, (2) variable costing, and (3) throughput costing? C. How much of Coastal Corporation's total cost for the year would appear on the period's income statement under (1) absorption costing, (2) variable costing, and (3) throughput costing? D. Compute the year's throughput-costing net income.

At a volume level of 500,000 units, Sullivan reported the following information: sales price $60; variable cost per unit $20; fixed cost per unit $20. Sullivan's contribution margin ratio is:

The unit contribution margin is calculated as the difference between:

Red River Company sells its product for $12,000 per unit. Variable costs per unit are: Manufacturing overhead -$8,000 Selling and administrative -$150 Fixed costs are: Manufacturing overhead -$30,000 Selling and administrative -$40,000 Red River had no beginning inventory at January 1, 2010. Production was 20 units each year in 2010, 2011, and 2012. Sales were 20 units in 2010, 16 units in 2011, and 24 units in 2012. Income/(Loss) under absorption costing for 2012 is:

Tetra Manufacturing has the following sales mix for its three products: A, 40%; B, 20%; and C, 40%. Fixed costs total $800,000 and the weighted-average contribution margin is $100. How many units of product A must be sold to break-even?

The following information relates to Jenny Corporation: sales revenue $18,000,000; contribution margin $5,800,000; and net income $900,000. The operating leverage factor for Jenny Corporation is: