Fun with CM
If CM < FC, then
Op Inc ___ 0
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Designing a product is a unit, batch, or product-level activity?
product
If you were looking at segment income statement, what would be a big factor in deciding to eliminate a segment?
If their segment margin was negative
False
What expenses are included in product costs under both absorption and variable costing?
DM, DL, VMOH
Fixed Costs / Unit CM
Estimating electricity for your automated plant should be based on direct labor hours, machine hours, number of units produced?
machine hours (think what is the activity doing/using)
If using the high-low method, how do you calculate the variable cost/unit?
take the change in cost (from the high volume point to the low volume point) and divide it by thechange in volume (from the high point to low point)
T/F Lower sales volume will decrease your margin of safety
True
What costing system treats all fixed costs as period costs?
Variable Costing
How do you calculate the break-even point in Sales Dollars?
Fixed Expense / CM Ratio
If we had $5,000 in total expenses when we completed 20 tax returns. What is my activity rate for my tax return cost pool?
$5,000 / 20 returns = $250/tax return
If using the high-low level, how would you calculate the fixed costs?
You would take the total cost provided at either the high or the low point and solve for fixed costs - using the variable cost/unit you calculated:
TC = FC + bx
T/F Higher sales volume means your contribution margin ratio will decrease
False
What costing systems splits out your variable costs from your fixed costs and calculates a contribution margin?
Variable Costing System
How do you calculate the margin of safety in Dollars?
Current sales - break-even point sales
If our Unit CM is $14 and I sell 1,000 units, how much will by operating income increase if I spend another $2/unit on advertising and double my sales?
current CM = $14 * 1,000 = $14,000
New Unit CM = $14 - 2 = $12
New Sales Volume = 2,000
new CM = $12 * 2,000 = $24,000
Profit increased $10,000
Calculate your contribution margin if you have sales of $15,000, variable product costs of $7,500, fixed manufacturing costs of $1,500, and variable selling expense of $1,000.
15,000 - 7,500 - 1,000 = 6,500
If your product had 4,000 orders and used 480,000 machine hours, how much overhead would be assigned to it if you spent $452/order and $6.50/machine hour?
4,000 * 452 = 1,808,000
480,000 * $6.50 = 3,120,000
4,928,000
How do you calculate the target profit in units?
(Fixed expenses + Target net profit)/ Unit contribution margin
How much does tutoring a class cost if I spend $20,000 on wages, $10,000 on depreciating the computers and $6,000 on electricity this year? My grading cost pool uses 50% of the wages, 20% of the department's computers, and 20% of the building's electricity.
$20,000 * 50% = 10,000
$10,000 * 20% = 2,000
$6,000 * 20% = 1,200
10,000 + 2,000 + 1,200 = 13,200
Calculate your contribution margin ratio if you have sales of $15,000, variable product costs of $7,500, fixed manufacturing costs of $1,500, and variable selling expense of $1,000.
(15,000 - 7,500 - 1,000) / 15,000 = 43.33%