Definitions
Costs easily traced to the final product
Direct costs
Costs that do not change on a per unit basis based on activity
Variable costs
Costs not easily traced to a final product
Indirect costs
Costs that change in total when there is a change in activity
Variable costs
Contribution margin
Sales - variable costs
Your company shows the following:
units sold: 10,000
sales price per unit: $5
variable cost per unit: $1.50
fixed cost: $25,000
What is the total contribution margin?
$35,000
Your your company reports the following for the month of December:
sales: $175,000
variable costs: $45,000
fixed costs: $90,000
how much operating income does your company have for the month?
$40,000
Costs that do not change in total when there is a change in activity
The range where fixed costs remain the same in total
Relevant range
Gross Profit
Sales - cost of goods sold
Your company shows the following:
units sold: 9,000
sales price per unit: $12
direct materials per unit: $3.25
direct labor per unit: $2.50
variable manufacturing overhead per unit: $1.75
fixed manufacturing overhead: $18,000
what would the total manufacturing overhead be if you sell 6,000 units instead?
$28,500
Your company makes and sells 10,940 units. Average costs PER UNIT at that level were:
Direct materials $6.00
Direct labor $3.50
Variable manufacturing overhead $1.50
Fixed manufacturing overhead $4.00
Fixed selling costs $3.00
Fixed administrative costs $2.00
Sales commissions $2.00
Variable administrative expense $0.50
What was the total period costs incurred during the period?
$82,050
The 3 inventory accounts we have learned
Raw materials, work in process, and finished goods
A cost that is already incurred, can't be changed, and can't be relevant
Sunk cost
Prime costs
Direct materials + direct labor
Your company makes and sells 10,120 units. Average costs PER UNIT at that level were:
Direct materials $7.00
Direct labor $3.50
Variable manufacturing overhead $1.50
Fixed manufacturing overhead $4.00
Fixed selling costs $3.00
Fixed administrative costs $2.00
Sales commissions $3.00
Variable administrative expense $0.50
What was the total product costs incurred during the period?
$161,920
Your company makes and sells 10,000 units. Average PRODUCT costs PER UNIT at that level were:
Direct materials $7.00
Direct labor $3.50
Variable manufacturing overhead $1.50
Fixed manufacturing overhead $2.00
Fixed selling costs $3.00
Fixed administrative costs $2.00
Sales commissions $2.00
Variable administrative expense $0.50
What would be the cost per unit if they produced and sold 8,710 units during the period?
$14.29
Costs that include both a variable and fixed component
Mixed costs
The benefit given up by choosing another option
Opportunity cost
Conversion costs
Direct Labor + Manufacturing overhead
Your company shows the following for March:
units sold 1,000
selling price per unit $179.00
variable selling costs per unit $40.00
fixed selling costs per unit $1.00
administrative costs (all fixed) $41,000
beginning merchandise inventory $10,000
ending merchandise inventory $20,000
merchandise purchases $86,000
What was the contribution margin (in total) for this period?
$63,000
Your company reported the following for the month of December:
beginning merchandise inventory: $20,000
merchandise purchases: $112,000
ending merchandise inventory: $15,000
what is the cost of goods sold for the month?
$117,000