ACCTMIS 2300 Lecture Notes - Lecture 1: Income Statement, Fixed Cost, Variable Cost

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fuchsiaelk478

11 Sep 2017

School

Ohio State University

Department

Accounting and Management Info

Course

ACCTMIS 2300

Professor

Marc Smith

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Document Summary

Describes how costs change to the changes in volume of activity. In total: change is directly proportional to changes in activity. Per unit: constant, so no change due to changes in activity. In total: constant and doesn"t change with volume of activity. Per unit: change inversely with changes in volume of activity. Costs above are assumed to exist in a relevant range (range of activity which assumptions are made are valid) Costs above are linear within the relevant range (straight line) Allows managers to predict costs at any level of activity. Managers should use variable costs on a per- unit basis and fixed costs on a total basis a) Both are constant, so allows for making predictions. Split into the fixed and variable costs to isolate the constant costs. Using the high-low method i) b) ii) iii) From a set of data, use the highest and lowest activity level point (2) and take the mixed cost numbers.

Related Questions

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would:

a. increase.

b. remain the same.

c. decrease.

d. increase or decrease, depending upon the percentage increase in wage rates.

Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are:

a. 53% and $7 per unit.

b. 47% and $11 per unit.

c. 52% and $11 per unit.

d. 47% and $8 per unit.

If sales are $500,000, variable costs are 75% of sales, and operating income is $40,000, what is the operating leverage?

a. 0

b. 1.3

c. 3.1

d. 1.25

Which of the following describes the behavior of the fixed cost per unit?

a. Increases with increasing production

b. Remains constant with changes in production

c. Decreases with increasing production

d. Decreases with decreasing production

If variable costs per unit decreased because of a decrease in utility rates, the break-even point would:

a. increase.

b. increase or decrease, depending upon the percentage increase in utility rates.

c. decrease.

d. remain the same.

Costs that vary in total in direct proportion to changes in an activity level are called:

a. differential costs.

b. fixed costs.

c. variable costs.

d. sunk costs

Which of the following conditions would cause the break-even point to increase?

a. Total fixed costs decrease

b. Unit variable cost decreases

c. Unit variable cost increases

d. Unit selling price increases

In cost-volume-profit analysis, all costs are classified into the following two categories:

a. discretionary costs and sunk costs

b. variable costs and fixed costs

c. mixed costs and variable costs

d. sunk costs and fixed costs

ochrespider8

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

Payton Industries has fixed costs of $490,000, the unit sellingprice is $35, and the unit variable costs are $20. What is thebreak-even sales (units) if fixed costs are reduced by $40,000?

	a.	32,667 units
	b.	14,000 units
	c.	24,500 units
	d.	30,000 units

Rusty Co. sells two products, X and Y. Last year, Rusty sold5,000 units of X and 35,000 units of Y. Related data are:

	Unit Selling Price	Unit Variable	Unit Contribution
Product	Price	Cost	Margin
X	$110.00	$70.00	$40.00
Y	70.00	50.00	20.00

What was Rusty Co.âs weighted average unit contributionmargin?

	a.	$20.00
	b.	$22.50
	c.	$60.00
	d.	$40.00

Charlotte Co. has budgeted salary increases to factorysupervisors totaling 9%. If selling prices and all other costrelationships are held constant, next year's break-even point

	a.	cannot be determined from the data given
	b.	will increase by 9%
	c.	will decrease by 9%
	d.	will increase at a rate greater than 9%

Flying Cloud Co. has the following operating data for itsmanufacturing operations:

Unit selling price	$250
Unit variable cost	100
Total fixed costs	$840,000

The company has decided to increase the wages of hourly workerswhich will increase the unit variable cost by 10%. Increases in thesalaries of factory supervisors and property taxes for the factorywill increase fixed costs by 4%. If sales prices are held constant,the next break-even point for Flying Cloud Co. will be

	a.	increased by 800 units
	b.	increased by 640 units
	c.	increased by 400 units
	d.	decreased by 640 units

Given the following cost and activity observations for BountyCompanyâs utilities, use the high-low method to calculate Bountyâvariable utilities costs per machine hour. Round your answer to thenearest cent.

â	Cost	Machine Hours
March	$3,100	15,000
April	2,700	10,000
May	2,900	12,000
June	3,600	18,000

	a.	$10.00
	b.	$0.11
	c.	$0.63
	d.	$0.67

Costs that remain constant in total dollar amount as the levelof activity changes are called

	a.	variable costs
	b.	mixed costs
	c.	product costs
	d.	fixed costs

Lee Industry sales are $525,000, variable costs are 53% ofsales, and operating income is $19,000. What is the contributionmargin ratio?

	a.	47%
	b.	26.5%
	c.	53%
	d.	9.5%

If Kaden Company's fixed costs are $46,800, the unit sellingprice is $42, and the unit variable costs are $24. What is thebreak-even sales (units)?

	a.	1,950
	b.	1,114
	c.	2,400
	d.	2,600

Contribution margin is

	a.	the same as sales revenue
	b.	the excess of sales revenue over variable cost
	c.	another term for volume in the "cost-volume-profit" analysis
	d.	profit

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ACCTMIS 2300 Lecture Notes - Lecture 1: Income Statement, Fixed Cost, Variable Cost

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