ACCT 002 Lecture Notes - Lecture 28: Variable Cost, Cost Driver, Income Statement

15 views3 pages

blackpig616

22 Oct 2020

School

College of The Sequoias

Department

Accounting (ACCT)

Course

ACCT 002

Professor

cooper

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Uses and limitations of traditional cost volume profit analysis. Cost structure relates to how much of the company"s costs are fixed and how much are variable. The relations among possible cost structures, potential volumes, and opportunities for profit provide a conceptual basis for profitability analysis and planning. Unit-level approach based on the assumption that units sold or sales dollars is the only activity cost driver. A cost hierarchy approach that incorporates non-unit as well as unit-level activity cost drivers. All costs are classified as fixed or variable. The total cost function is linear within the relevant range. Variable cost per unit does not change with changes in production. The total revenue function is linear within the relevant range. Sales price per unit does not change with changes in number of units sold. The analysis is for a single product, or the sales mix of multiple products is constant. There is only one activity cost driver: unit or dollar sales volume.

Related Questions

1. Which one of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range?

A. Average cost per unit.

B. Variable cost per unit.

C. Unit fixed cost.

D. Total variable cost.

2. The relevant range refers to the activity levels over which

A. Cost relationships hold constant.

B. Costs fluctuate.

C. Production varies.

D. Relevant costs are incurred.

3. When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior?

A. General and administrative costs are assumed to be variable costs.

B. Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity.

C. Total costs are assumed to be linear when plotted on a graph.

D. The relevant time period is assumed to be 5 years.

4. A management accountant is about to prepare graphs of total variable cost and per-unit variable cost for use in a short-term planning model. Dollars will be depicted on the vertical axis; activity will be shown on the horizontal axis. How will these graphs appear under completion?

Total Variable Cost; Per-Unit Variable Cost

A. Straight line, sloping upward to the right; Straight line, parallel to the horizontal axis

B. Curvilinear, sloping upward to the right; A line that basically parallels the horizontal axis, first decreasing and then increasing

C. Straight line, sloping upward to the right; Straight line, sloping upward to the right

D. Straight line, parallel to the horizontal axis; Straight line, sloping upward to the right

5. A company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning electricity cost is incorrect?

A. The total electricity cost will increase as production volume increases.

B. The total electricity cost per unit of production will increase as production volume increases.

C. The variable electricity cost per unit of production will remain constant as production volume increases.

D. The fixed electricity cost per unit of production will decline as production volume increases.

silversnake284

Kiwi Cellars has many competitors in the New Zealand domesticpremium wine market. The wines are judged similarly in quality& taste although KC employs different production and marketingmethods. Dissatisfied with its current profitability, KC managementis considering their competitive options. An accounting departmentanalyst compiled the following data for the most recent year tofacilitate our analysis.

Note: Assume that the company sells what itproduces, thus they do not produce wine to hold over ininventory.

	KC	BenchmarkCompetitor
Sales price per unit (750 ml bottle)	$8.50	$8.00
Variable materials (grapes, bottles, etc.) per unit	$2.25	$2.75
Variable labor per unit	$1.25	$2.00
Variable production overhead (utilities, etc.) perunit	$1.00	$1.25
Fixed production overhead (depreciation, etc.)	$750,000	$250,000
Marketing, administrative and other fixed costs	$250,000	$150,000
Last yearâs sales in units	350,000	400,000
Capacity in units	500,000	450,000

1. Demand in recent years has been volatile varying from a lowof 200,000 to a high of 400,000 units. As a measure of the impactof this uncertain demand on profit by assuming demand increases ordecreases by 10%.

Interpret the relative changes in profit.

2. Recommend a coherent plan for how KC could increase profit inthe coming year and calculate the resulting profit for yourplan.

Explain your answer, evaluating their current position relativeto your recommendation.

3. Now assume that the data above for Kiwi actually consists oftwo wines with the following data:

	KC-Chard	KC-Shiraz
Sales price per unit (750 ml bottle)	$ 7.50	$ 11.00
Variable cost per unit	$ 4.20	$ 5.25
Last yearâs sales in units	250,000	100,000

a. Describe the KC's Unit Level Cost-Volume-Profit (CVP)relationship.

b. Describe the Cost Behavior Analysis - by analyzing the KiwiCellar's business problems.

c. What are the concepts underlying cost-volume-profit analysisfor Kiwi Cellars?

d. What can be said about the Breakeven and Profit Planning ofthe company

e. What can you conclude by conducting an Analysis of OperatingLeverage

carminegoat45

________ is the excess of sales over the cost of goods sold.

A) Gross margin

B) Contribution-margin ratio

C) Variable-cost ratio

D) Contribution margin

Answer:

Which statement is FALSE?

A) Each different sales-mix of products has a differentbreak-even point.

B) Changes in the sales-mix of products sold affects a company'snet operating profit.

C) Changes in the sales-mix of products sold affects a company'scontribution margin.

D) If the sales-mix of products sold changes, the break-evenpoint does not change.

Answer:

With mixed costs, the ________ element is unchanged over therelevant range and the ________ element varies proportionately withcost-driver activity.

A) variable cost; fixed cost

B) fixed cost; variable cost

C) fixed cost; step cost

D) step cost; variable cost

Answer:

The sales price is $30 per unit, the contribution margin is $8per unit and total fixed costs are $32,000. What is the break-evenpoint in units?

A) 857

B) 1,200

C) 2,000

D) 4,000

Answer:

If the selling price per unit increases, what is the effect onthe break-even point? (Assume no other changes.)

A) The break-even point increases.

B) The break-even point decreases.

C) The break-even point remains the same.

D) The break-even point is zero.

plumcod490

ACCT 002 Lecture Notes - Lecture 28: Variable Cost, Cost Driver, Income Statement

Document Summary

Get access

Related Documents

ACCT 002 Lecture Notes - Lecture 23: Income Statement, Business Process, Fixed Cost

ACCT 002 Lecture Notes - Lecture 12: Operations Management, Matching Principle, Financial Statement

ACCT 002 Lecture Notes - Lecture 13: Contribution Margin, Direct Labor Cost, Sunk Costs

Related Questions