Cost Behavior Analysis
This type of cost varies in total in direct proportion with changes in activity level
What is a variable cost?
Using the high-low method, the resulting variable cost per unit if the total cost is $29,480 at a production level of 19,600 units and the total cost is $22,200 at a production level of 14,000 units
What is a variable cost per unit of $1.30 per unit?
($29,480 - $22,200)/(19,600 - 14,000) units =
$7,280/5,600 units = $1.30 per unit
The formula for calculating the break even point in units
What is Fixed Costs divided by unit contribution margin?
The formula used to calculate break even point in units if there is a target level of net income
What is (Fixed Costs + Target Net Income) divided by unit Contribution Margin?
Direct materials is one example of this type of cost
Acceptable Answers:
What is a product cost?
What is an inventoriable cost?
What is a manufacturing cost?
This type of cost would increase, but would not double, if the level of activity doubles
What is a mixed cost?
Using the high-low method, the resulting total fixed cost if the total cost is $29,480 at a production level of 19,600 units and the total cost is $22,200 at a production level of 14,000 units
What is a fixed cost of $4,000?
($29,480-$22,200)/(19,600 - 14,000) units
= $1.30 variable cost/unit
$29,480 - ($1.30 x 19,600) = $4,000 OR
$22,200 - ($1.30 x 14,000) = $4,000
The break even point in dollars if the selling price per unit is $25, the variable cost per unit is $5, and total fixed costs are $250,000?
What is a break even point of $312,500?
$250,000/($25-$5) = 12,500 units break even
12,500 units x $25 = $312,500
OR $250,000/($25-$5/$25)= $312,500
The required sales in dollars to generate a target net income of $60,000 if fixed costs are $100,000, the selling price per unit is $50 and variable costs per unit are $10
What is a sales amount of $20,000?
$100,000+$60,000/($50-$10)= 4,000 units
4,000 units x $50 = $200,000 OR
($100,000+$60,000)/ contribution margin ratio .8 =$200,000
Contribution margin ratio = ($50-$10)/$50 = .80
The cost of goods manufactured if all raw materials are direct materials and Beg. WIP Inventory $10,000, Ending WIP Inventory $20,000, Beg. Raw Materials Inventory $5,000, Ending Raw Materials Inventory $3,000, $1,000 of Raw Materials were purchased, Direct Labor $50,000 and Manufacturing Overhead $100,000
What is $143,000
Direct Mat. Used:$5,000 + $1,000 - $3,000=$3,000
Product Cost:$3,000+$50,000 +$100,000 = $153,000
COGM = $10,000 + $153,000 - $20,000 = $143,000
One a per unit basis, this type of cost varies inversely with an increase in volume
What is a fixed cost?
The way in which a mixed cost responds if the activity index doubles
What is an increase that is not in direct proportion to the change in activity index?
The contribution margin ratio if total sales revenue is $500,000 at a quantity of 10,000 units, total variable costs are $20,000 at a production quantity of 10,000 units and fixed costs are $5,000
What is a contribution margin ratio of 96%?
$500,000/10,000 = $50 selling price per unit
$20,000/10,000 = $2 variable cost per unit
$50-$2/$50 = 96%
The target net income if fixed costs total $400,000, unit contribution margin is $400 and 3,200 units are produced
What is a target net income of $880,000?
($400,000 + X) / $400 = 3,200 units
$400,000 + X = 3,200 units x $400
$400,000 + X = $1,280,000
X = $880,000
An example of a period cost for a manufacturing company
Sample answers:
What is the salary of the staff acountant?
What is the depreciation expense for the corporate headquarters?
The production levels over which a company expects to operate during a year
What is the relevant range?
An example of a cost that can be considered a mix cost
What is a flat internet fee plus a usage fee?
(Any example of a cost that has both a flat fee and a variable cost component)
This information is displayed in a cost-volume-profit (CVP) graph
What is the break even point in dollars and in units?
What is the amount of profit that results if total sales exceeds total costs?
What is the net loss that results if total costs exceed total sales?
What amount of variable and fixed costs exist?
The margin of safety ratio if actual (expected sales) total $500,000 and break even sales total $400,000
What is a margin of safety ratio of 20%?
Margin of Safety in Dollars =
$500,000 - $400,000 = $100,000
Margin of Safety Ratio = $100,000/$500,000= 20%
The required formula that a manufacturer uses to calculate cost of goods sold
What is Beg. Finished Goods Inventory + COGM - Ending Finished Goods Inventory?
The cost of direct labor is one example of this type of cost
What is a variable cost? OR What is a product cost? OR What is an inventoriable cost?
Under CVP Analysis, this type of cost is never classified as a mixed cost
Sample answers:
What is the cost of direct materials?
What is the cost of direct labor?
What is a variable cost?
What is a fixed cost?
The selling price per unit that results if a company breaks even by selling 20,000 units with a variable cost of $20 per unit and total fixed costs of $5,000
What is a selling price per unit of $20.25 ?
(20,000X) - ($20 x 20,000 units) - $5,000 = $0
20,000X - $400,000 - $5,000 = $0
20,000X = $405,000
20,000X/20,000 = $405,000/20,000 = $20.25
The resulting business implications if the margin of safety percentage decreases during the current period, compared to earlier periods
What is an increased level of risk that a company will operate at a loss during the current period, compared to prior periods?
An example of strategy that management can use to reduce manufacturing overhead costs
Sample answers:
What depreciation method results in a lower depreciation expense for manufacturing equipment?
What is a reduction in the cost of a plant manager's salary?
What is a reduction in the cost to clean the plant?