Chapter 5
Selling price is $40 and variable cost is $15 per unit. What is contribution margin per unit?
$25 per unit. ($40 − $15)
Which costing method is appropriate for external reporting?
Absorption costing.
What budget combines expected cash receipts and cash payments to show cash surpluses or shortages?
The cash budget
An unfavorable activity variance for revenue usually means what happened to units sold compared with plan?
Fewer units were sold than originally planned.
Fixed costs are $42,000, selling price is $700, and variable cost is $300 per fence. How many fences to break even?
105 fences. ($42,000 ÷ $400)
If fixed manufacturing overhead is $300,000 and 10,000 units are produced, what is fixed MOH per unit?
$30 per unit.
A company sells 30 fences per month at $1,000 each. What is monthly budgeted revenue?
$30,000.
Actual operating costs are $3,865 and flexible-budget operating costs are $4,005. What is the spending variance?
$140 favorable, because actual costs are below flexible-budget costs.
Selling price falls while costs stay the same. What happens to contribution margin and break-even point?
Contribution margin decreases; break-even point increases.
If sales exceed production and inventory decreases, which method generally reports higher operating income?
Variable costing, because fixed MOH previously deferred in inventory is released under absorption costing, making absorption income lower
Sales are all on account. January sales are $30,000 and February sales are $15,000; 20% is collected in the month of sale and 80% next month. What is Account Receivable's balance at February 28?
$12,000. 80% of February sales ($15,000 × 80%).
What is the difference between an activity variance and a revenue/spending variance?
Activity variance compares flexible budget with planning budget; revenue/spending variance compares actual results with flexible budget.
The regression has R² = 0.883. Is the relationship relatively strong according to the review's rule of thumb?
Yes. R² is above 0.8, indicating a highly reliable equation by the review's stated criterion.
Kaufman has absorption-costing NOI of $65,000; production is 11,000 units and sales are 8,000. Fixed MOH is $3 per unit. Find variable-costing NOI.
$56,000. Inventory increases by 3,000 units × $3 = $9,000 deferred under absorption; variable NOI = $65,000 − $9,000.
A company plans to sell 30 fences and wants 2,000 boards in ending inventory. It starts with zero boards and needs 1,000 boards per fence. How many boards must be purchased?
32,000 boards. (30 × 1,000) + 2,000 − 0.
Actual units sold are below planned units. What happens to flexible-budget revenue compared with planning-budget revenue when price is unchanged?
Flexible-budget revenue is lower.
When production volume decreases, what happens to fixed cost per unit, assuming total fixed costs stay constant?
Fixed cost per unit increases
Frances sells for $200; DM $75, DL $50, and variable MOH $10 per unit. What is variable manufacturing cost per unit?
$135 per unit.
For February, sales are $120,000, COGS is 40%, desired ending inventory is 10% of March COGS ($44,000), and beginning inventory is 10% of February COGS ($4,800). What are purchases?
$47,600. ($48,000 + $4,400 − $4,800)
Planning-budget variable costs are $135,000 and flexible-budget variable costs are $123,750. What is the activity variance?
$11,250 favorable for costs, because the flexible budget is lower