Fun with CM
If CM < FC, then
Op Inc (</>) 0
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Are the following activities a unit-level, batch-level, product-level, or company-level activity?
- mixing the ingredients up for a new batch of cookies
- designing a product
- operating a cafeteria for employees
- advertising a product
- folding a shirt in order to package it
- batch
- product
- company
- product
- unit
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
What expenses are included in product costs under both absorption and variable costing?
DM, DL, VMOH
Calculate the CM Ratio:
Sales = $100,000
VMOH = $20,000
FMOH = $15,000
VSG&A = $25,000
FSG&A = $30,000
$100,000 - 20,000- 25,000 = 55,000
55,000 / 100,000 = 55%
In activity based costing, how to you calculate the activity rate for an activity cost pool?
Which of the following costs would be considered product costs under variable costing?
- DM
- DL
- FMOH (depreciation on equipment, property taxes on the plant, supervisor salaries)
- VMOH
- Sales Commissions
DM, DL, VMOH
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
T/F Lower sales volume will decrease your margin of safety
True
(T/F) An income statement using absorption costing will calculate Contribution Margin?
False; it will calculate gross margin because it uses Sales - COGS
How do you calculate the margin of safety in sales dollars if given the unit selling price, the break-even sales volume, and the current sales volume. The margin of safety as a percent of sales?
Margin of safety in sales dollars: (current sales - break-even sales ) * selling price per unit
Margin of safety as a percent of sales: margin of safety in $ / current total 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
Which of the following would be a common fixed cost in relation to a department store:
- store manager salary
- different department manager's salary
- depreciation on the building
- Advertising for the store
- Cost of goods sold for the store
not included - a department's manager's salary (because you would not have that manager if you eliminated the department) and the cost of goods sold - not a fixed cost
Direct Materials: $10/unit
Direct Labor: $8/unit
VMOH: $12/unit
VSG&A: $6/unit
FMOH: $100,000
FSG&A: $80,000
units made and sold: 5,000
What is the variable product cost / unit?
$10 + 8 + 12 = $30
Only the variable cost per unit
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
Direct Materials: $10/unit
Direct Labor: $8/unit
VMOH: $12/unit
VSG&A: $6/unit
FMOH: $100,000
FSG&A: $80,000
units made and sold: 5,000
What is the absorption product cost / unit?
Need to first calculate the fixed cost/unit: $100,000 / 5,000 = $20/unit
now add to all product costs
$10 + 8 + 12 + 20 = 50