Exhibit 6-4 Sanchez Company produces two different remote control products with the following monthly data for the most recent month: $\begin{array}{lccc} & \text { Plane } & \text { Boat } & \text { Total } \\ \text { Selling price per unit } & \$ 300 & \$ 100 & \\ \text { Variable cost per unit } & \$ 240 & \$ 60 & \\ \text { Expected unit sales } & 28,000 & 7,000 & 35,000 \\ \text { Sales mix } & 80 \% & 20 \% & 100 \% \\ \text { Fixed costs } & & & \$ 1,400,000 \end{array}$ -Refer to Exhibit 6-4.Assume the sales mix remains the same at all levels of sales. How many units in total must be sold to break even?

A) 25,000 B) 28,000 C) 14,000 D) 70,000 E) None of the answer choices is correct. A) 25,000 B) 28,000 C) 14,000 D) 70,000 E) None of the answer choices is correct.

Exhibit 6-7 Bodega Chocolate,Inc.is a new company that produces a single product.The company has no beginning inventory.During the year the company produced 10,000 units out of which 9,000 were sold.Below are Bodega's costs: $\begin{array}{ll} \underline{\text { Variable costs per unit:} } \\ \text { Production } & \$ 4.00 \\ \text { Selling and administrative } & \$ 2.50 \end{array}$ $\begin{array}{ll} \underline{\text { Total fixed costs for the year:}}\\ \text {Production}&\$20,700.00\\ \text {Selling and administrative}&\$85,000 \end{array}$ -Refer to Exhibit 6-7.What is the unit product cost using absorption costing?

A) $4.00 B) $6.07 C) $8.57 D) $9.42 E) None of the answer choices is correct. A) $4.00 B) $6.07 C) $8.57 D) $9.42 E) None of the answer choices is correct.

Exhibit 6-8 Perry,Inc.produced 15,000 units during the year.Of these,12,000 were sold for $50 each.Other Perry,Inc.data are as follows: $\begin{array}{lr} \text { Direct materials } & \$ 8.00 \text { per unit } \\ \text { Direct labor } & \$ 6.00 \text { per unit } \\ \text { Variable manufacturing overhead } & \$ 2.00 \text { per unit } \\ \text { Variable selling and administrative costs } & \$ 1.00 \text { per unit }\\ \text { Fixed manufacturing overhead}&\$75,000\\ \text { Fixed selling and administrative costs}&\$50,000 \end{array}$ -Refer to Exhibit 6-8.Calculate Perry's operating profit assuming the company uses variable costing.

A) $271,000 B) $286,000 C) $396,000 D) $370,000 E) None of the answer choices is correct. A) $271,000 B) $286,000 C) $396,000 D) $370,000 E) None of the answer choices is correct.

Exam 6: How Is Cost-Volume-Profit Analysis Used for Decision Making

Smart Products Inc.produces smart phones.The company has no finished goods inventory at the beginning of year 1.The following information pertains to Smart Products Inc. Annual production 200,000 units Sales price \ 400 per unit Variable production cost per unit: Direct materials \ 120 Direct labor 60 Manufacturing overhead 80 Total variable cost per unit \ 260 per unit Fixed production costs \ 400,000 each year; \ 2 per unit at 200,000 units of production Variable selling and admin. cost \ 20 per unit Fixed selling and admin. costs \ 400,000 each year (1) All 200,000 units produced during year 1 are sold during year 1 . a. Prepare a traditional income statement assuming the company uses absorption costing. b. Prepare a contribution margin income statement assuming the company uses variable costing (2) Although 200,000 units are produced during year 2 , only 160,000 are sold during the year. The remaining 40,000 units are in finished goods inventory at the end of year 2 . a. Prepare a traditional income statement assuming the company uses absorption costing. b. Prepare a contribution margin income statement assuming the company uses variable costing

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Question 1

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(1) a. Traditional incorne statement (absorption costing), Year I:
$\begin{array}{lr}\text { Sales } & \$ 80,000,000 ^a\\\text { Cost of goods sold } & 52,400,000 ^b\\\text { Gross margin } & \$ 27,600,000 \\\text { Selling and admin. costs } & \underline{4,400,000}^c \\\text { Operating profit } & \$ 23,200,000\end{array}$

${}^{a} \$ 80,000,000=\$ 400 \times 200,000$ units sold
${}^{b} \$ 52,400,000=(\$ 2$ per unit fixed production cost $\times 200,000$ units sold $)+$
($260 per unit variable production cost $\times 200,000$ units sold)
${}^{c } \$ 4,400,000=\$ 400,000$ fixed selling and admin. cost $+(\$ 20$ per unit
variable selling and admin. cost $\times 200,000$ units sold)

$(1) a. Traditional incorne statement (absorption costing), Year I: \begin{array}{lr} \text { Sales } & \$ 80,000,000 ^a\\ \text { Cost of goods sold } & 52,400,000 ^b\\ \text { Gross margin } & \$ 27,600,000 \\ \text { Selling and admin. costs } & \underline{4,400,000}^c \\ \text { Operating profit } & \$ 23,200,000 \end{array} {}^{a} \$ 80,000,000=\$ 400 \times 200,000 units sold {}^{b} \$ 52,400,000=(\$ 2 per unit fixed production cost \times 200,000 units sold )+ ($260 per unit variable production cost \times 200,000 units sold) {}^{c } \$ 4,400,000=\$ 400,000 fixed selling and admin. cost +(\$ 20 per unit variable selling and admin. cost \times 200,000 units sold) (2) a. Traditional incorme statement (absoption costing), Year 2: \begin{array}{lr} \text { Sales } & \$ 64,000,000^a \\ \text { Cost of goods sold } & 41,920,000 ^b\\ \text { Gross margin }& \$ 22,080,000 \\ \text { Selling and admin costs } & \underline{3,600,000}^c \\ \text { Operating profit } & \$ 18,480,000 \end{array} {}^{a} \$ 64,000,000=\$ 400 \times 160,000 units sold {}^{b} \$ 41,920,000=(\$ 2 per unit fixed production cost \times 160,000 units sold )+ ($260 per unit variable production cost \times 160,000 units sold) {}^{c} \$ 3,600,000=\$ 400,000 fixed selling and admin. cost +(\$ 20 per unit variable selling and admin. cost \times 160,000 units sold) {}^a \$ 64,000,000=\$ 400 \times 160,000 units sold {}^b \$ 41,600,000=\$ 260 per unit variable production cost \times 160,000 units sold {}^c\$ 3,200,000=\$ 20 per unit variable selling and admin. cost \times 160,000 units sold {}^d Variable costing treats fixed manufacturing overhead as a period cost. Thus, all fixed manufacturing overhead costs are expensed in the period incurred regardless of the level of sales. {}^e Given$
(2) a. Traditional incorme statement (absoption costing), Year 2:
$\begin{array}{lr}\text { Sales } & \$ 64,000,000^a \\\text { Cost of goods sold } & 41,920,000 ^b\\\text { Gross margin }& \$ 22,080,000 \\\text { Selling and admin costs } & \underline{3,600,000}^c \\\text { Operating profit } & \$ 18,480,000\end{array}$

${}^{a} \$ 64,000,000=\$ 400 \times 160,000$ units sold
${}^{b} \$ 41,920,000=(\$ 2$ per unit fixed production cost $\times 160,000$ units sold $)+$ ($260 per unit variable production cost $\times 160,000$ units sold)
${}^{c} \$ 3,600,000=\$ 400,000$ fixed selling and admin. cost $+(\$ 20$ per unit
variable selling and admin. cost $\times 160,000$ units sold)

$(1) a. Traditional incorne statement (absorption costing), Year I: \begin{array}{lr} \text { Sales } & \$ 80,000,000 ^a\\ \text { Cost of goods sold } & 52,400,000 ^b\\ \text { Gross margin } & \$ 27,600,000 \\ \text { Selling and admin. costs } & \underline{4,400,000}^c \\ \text { Operating profit } & \$ 23,200,000 \end{array} {}^{a} \$ 80,000,000=\$ 400 \times 200,000 units sold {}^{b} \$ 52,400,000=(\$ 2 per unit fixed production cost \times 200,000 units sold )+ ($260 per unit variable production cost \times 200,000 units sold) {}^{c } \$ 4,400,000=\$ 400,000 fixed selling and admin. cost +(\$ 20 per unit variable selling and admin. cost \times 200,000 units sold) (2) a. Traditional incorme statement (absoption costing), Year 2: \begin{array}{lr} \text { Sales } & \$ 64,000,000^a \\ \text { Cost of goods sold } & 41,920,000 ^b\\ \text { Gross margin }& \$ 22,080,000 \\ \text { Selling and admin costs } & \underline{3,600,000}^c \\ \text { Operating profit } & \$ 18,480,000 \end{array} {}^{a} \$ 64,000,000=\$ 400 \times 160,000 units sold {}^{b} \$ 41,920,000=(\$ 2 per unit fixed production cost \times 160,000 units sold )+ ($260 per unit variable production cost \times 160,000 units sold) {}^{c} \$ 3,600,000=\$ 400,000 fixed selling and admin. cost +(\$ 20 per unit variable selling and admin. cost \times 160,000 units sold) {}^a \$ 64,000,000=\$ 400 \times 160,000 units sold {}^b \$ 41,600,000=\$ 260 per unit variable production cost \times 160,000 units sold {}^c\$ 3,200,000=\$ 20 per unit variable selling and admin. cost \times 160,000 units sold {}^d Variable costing treats fixed manufacturing overhead as a period cost. Thus, all fixed manufacturing overhead costs are expensed in the period incurred regardless of the level of sales. {}^e Given$ ${}^a \$ 64,000,000=\$ 400 \times 160,000$ units sold
${}^b \$ 41,600,000=\$ 260$ per unit variable production cost $\times 160,000$ units sold
${}^c\$ 3,200,000=\$ 20$ per unit variable selling and admin. cost $\times 160,000$ units sold
${}^d$ Variable costing treats fixed manufacturing overhead as a period cost. Thus, all fixed manufacturing overhead costs are expensed in the period incurred regardless of the level of sales.
${}^e$ Given

Absorption costing treats all manufacturing costs as period costs.

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Question 2

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False

It is important for all profit and non-profit companies to determine their profit desired after accounting for income taxes.

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Showing 1 - 20 of 79

Absorption costing treats all manufacturing costs as period costs.

It is important for all profit and non-profit companies to determine their profit desired after accounting for income taxes.

The margin of safety cannot be calculated for multiple product and service organizations.

The only difference between absorption costing and variable costing is the treatment of fixed manufacturing overhead costs.

Although absorption costing meets the requirements of generally accepted accounting principles,variable costing is typically more useful for internal decision making purposes.

If the number of units produced is more than the number of units sold,which of the following statements is true when comparing operating profit under absorption versus variable costing?

Using the information below,identify the mathematical equation used to find total profit. S= Selling price per unit; V= Variable cost per unit; F= Total fixed costs;and Q= Quantity of units produced and sold

Sensitivity analysis can be used to determine how changes in variables will impact target profit.

High operating leverage means:

Which of the following is not found on an income statement prepared using absorption costing?

Paco's Bikes sells 120 bicycles each month for $400 per unit.Variable cost per unit is $160 and fixed costs total $4,800 per month.What is the contribution margin per unit?

Contribution margin per unit is calculated by subtracting variable costs per unit and fixed costs per unit from the selling price per unit.

Target profit before taxes is calculated as target profit after tax divided by one minus the tax rate.

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