ACC-1A Chapter Notes - Chapter 3: Total Absorption Costing, Variable Cost, Income Statement

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6 Jun 2020

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No extrapolation/ cost structure is constant in relevant range. Understand how changes in volume affect total variable cost and per unit fixed cost. As volume increase= total variable cost increase; per unit variable cost stays the same. As volume increase= total fixed cost stay the say; per unit fix cost decreases. Average cost= per unit variable cost + per unit fixed costs. Estimate the cost equation using high/low estimation technique. Step 1: find the high and low points based off volume size. If finding costs with income statement: costs= cogs+ s&a. Plug in the ve you found in step 2 as m. Use either high or low points for y and x; find b. Convert an absorption costing income statements into variable costing income statement. Identify the two variable costing income statement assumptions. List the four variable costing income statement levers. =total fixed expense ($)/ contribution margin per unit. =total fixed expense ($)/ contribution margin %

Related Questions

1. ABC Company has produced a higher level of production in May than it produced in April, but had the same variable costs per unit and the same total fixed costs. Which of the following is true about Mayâs reported costs?

A. Total variable cost is less in May

B. Total cost per unit is less in May

C. Total cost per unit is more in May

D. Total fixed costs are more in May

2. Depreciation on sewing machines used in apparel manufacturing is classified as

A. Variable, selling & administrative cost

B. Variable manufacturing overhead

C. Fixed, selling & administrative cost

D. Fixed manufacturing overhead

3. ABC Company finds that its utility costs increase as its production goes up, but the costs also include a baseline amount that doesnât vary with production. The following information is gathered.

Month	Production Units	Utility Costs
January	390	$4,578
February	301	$4,352
March	500	$4,936
April	490	$5,098
May	470	$4,611
June	240	$4,048

Using the High-low method and the information above, what is the variable cost of utilities per production unit being used in the factory, rounded to the nearest penny?

A. $4.35

B. $10.36

C. $11.59

D. $12.47

4. Using the High-low method XYZ Company analyzed its manufacturing overhead that was a mixed cost. It identified the following points as its HIGH and LOW points and calculated the variable component of the cost as $3 per unit:

Manufacturing Overhead Production in Units

HIGH $580,000 160,000 units

LOW $310,000 70,000 units

What is the fixed component of manufacturing overhead?

A. $ 90,000

B. $100,000

C. $210,000

D. $270,000

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

jadeduck36

(TCO A) Wages paid to an assembly line worker in a factory are a(Points : 6) Prime Cost YES.....Conversion Cost YES. Prime CostYES.....Conversion Cost NO. Prime Cost NO....Conversion Cost NO.Prime Cost NO.....Conversion Cost YES. Question 2. 2. (TCO A) Thecosts of staffing and operating the accounting department atCentral Hospital would be considered by the department of surgeryto be (Points : 6) indirect costs. sunk costs. incremental costs.direct costs. Question 3. 3. (TCO A) The cost of lubricants used togrease a production machine in a manufacturing company is anexample of a(n) (Points : 6) period cost. direct material cost.indirect manufacturing cost. direct product cost. None of the aboveQuestion 4. 4. (TCO C) When the activity level is expected toincrease within the relevant range, what effects would beanticipated with respect to each of the following? (Points : 6)Fixed costs per unit decrease and variable costs per unit do notchange. Fixed costs per unit increase and variable costs per unitdo not change. Fixed costs per unit do not change and variablecosts per unit do not change. Fixed costs per unit do not changeand variable costs per unit increase. Question 5. 5. (TCO B) EmcoCompany uses direct labor cost as a basis for computing itspredetermined overhead rate. In computing the predeterminedoverhead rate for last year, the company included in direct laborcost a portion of indirect labor. The effect of thismisclassification will be to (Points : 6) overstate thepredetermined overhead rate. understate the predetermined overheadrate. have no effect on the predetermined overhead rate. Thiscannot be determined from the information given. Question 6. 6.(TCO B) Under a job-order costing system, the product beingmanufactured (Points : 6) is homogeneous. passes from onemanufacturing department to the next before being completed. can becustom manufactured. has a unit cost that is easy to calculate bydividing total production costs by the units produced. Question 7.7. (TCO B) The weighted-average method of process costing differsfrom the FIFO method of process costing in that theweighted-average method (Points : 6) can be used under anycost-flow assumption. does not require the use of predeterminedoverhead rates. keeps costs in the beginning inventory separatefrom current period costs. does not consider the degree ofcompletion of units in the beginning work-in-process inventory whencomputing equivalent units of production. Question 8. 8. (TCO C)The contribution margin ratio always decreases when the (Points :6) fixed expenses increase. fixed expenses decrease. variableexpenses as a percentage of net sales increase. variable expensesas a percentage of net sales decrease. Question 9. 9. (TCO C) Whichof the following would not affect the break-even point? (Points :6) Variable expense per unit Number of units sold Total fixedexpenses Selling price per unit Question 10. 10. (TCO D) In anincome statement prepared using the variable costing method, fixedmanufacturing overhead would (Points : 6) not be used. be used inthe computation of the contribution margin. be used in thecomputation of net operating income but not in the computation ofthe contribution margin. be treated the same as variablemanufacturing overhead.

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ACC-1A Chapter Notes - Chapter 3: Total Absorption Costing, Variable Cost, Income Statement

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