COST CLASSIFAMOTHERFUCKINGCATION
Name the three specific components that make up total product cost.
Direct Materials, Direct Labor, and Manufacturing Overhead
A product has a 25% CM ratio. If fixed costs increase by $10,000, how much must sales increase just to maintain the same Net Income?
$40,000
If the Margin of Safety is $0, what is the company’s Net Operating Income?
$0!
Why is the "initial investment" in Year 0 always multiplied by a discount factor of exactly 1.000?
Because a dollar today is worth exactly one dollar today; there is no time to discount
A project has a negative NPV of $5,000 at a 10% discount rate. Does the project's actual rate of return exceed, meet, or fall below 10%?
Fall below 10%
This type of cost is "inventoriable," meaning it stays on the Balance Sheet until the product is sold.
Product Cost
A company pays $5,000 for factory utilities and $2,000 for office utilities; $1,000 of the factory utility bill is for the showroom. Calculate the total "inventoriable" cost from this data
$4,000
If fixed cost per unit is $10 at 5,000 units, what is the total fixed cost if the company produces 10,000 units?
$50,000 (Total fixed costs remain constant in total: $10 x 5,000)
Total production costs are $200,000. 10% is indirect materials, 20% is indirect labor, and 40% is direct materials. Calculate the dollar amount of the "touch labor
$60,000
A firm has a Gross Margin of 40% on $1M in sales. If "Outside the Factory" costs are $250,000, what is the Net Income?
150,000(1M Sales - $600,000 COGS = $400,000 Gross Profit; $400,000 - $250,000 Operating Expenses = $150,000)
A manager wants to reduce "fixed cost per unit" by 50%. By what percentage must they increase production volume to achieve this?
100% (Doubling production cuts fixed cost per unit in half)
Actual sales are $500,000 and the Margin of Safety is 20%. If the CM Ratio is 30%, what are the total Fixed Costs?
$120,000 (Breakeven sales = 400,000(500k - 20%). Fixed Costs = $400,000 x 30% CM ratio)
Kilroy’s is deciding whether to make pizza dough in-house or buy it. The cost to make 10,000 units includes: Direct Materials (2.00), Direct Labor (3.00), Variable Overhead (1.00), and Allocated Fixed Overhead (4.00). If they buy the dough for 7.50 per unit, 75% of the fixed overhead remains. Additionally, buying the dough allows them to use the space to generate 5,000 in extra profit. What is the financial impact of buying?
$10,000 Disadvantage
At 1,000 units, total costs are $15,000. At 2,000 units, total costs are $25,000. Calculate the total fixed costs
$5,000 (VC per unit is $10; $25,000 - $15,000 / 1,000 units. $15,000 total - $10,000 total VC = $5,000)
Target profit is $50,000, Fixed Costs are $150,000, and Sales are $800,000. Calculate the Contribution Margin Ratio
25% ($150,000 FC + $50,000 Profit = $200,000 CM needed. $200,000 / $800,000 = 0.25)
A CEO’s salary is $500,000, and the factory supervisor’s salary is $80,000. The company produced 10,000 units but sold none. How much of these two salaries combined hits the Income Statement this period?
$500,000 (The CEO salary is a period cost expensed immediately; the supervisor's salary is a product cost trapped in inventory on the Balance Sheet until sale)
A company reports a contribution margin ratio of 35% and total fixed costs of 140,000. If the company is currently selling 8,000 units at 100 per unit, what is their current margin of safety in dollars?
$400,000
In an NPV calculation, how do you treat the $20,000 spent 3 years ago on a feasibility study for this project?
Ignore TS
An executive at a furniture factory is reviewing last month's expenditures: assembly line wages of 45,000, factory supervisor salary of 8,000, sales commissions of 12,000, and factory depreciation of 5,000. What is the total amount that should be classified as 'inventoriable' costs?
$58,000
A project requires $50,000 in Working Capital at start. It is "released" at the end of Year 5. If the discount factor for Year 5 is 0.600, what is the total NPV impact of these two events combined?
-20,000(−50,000 today + $30,000 present value of release)
To make 10,000 units, costs are: $5 DM, $3 DL, $2 Variable OH, and $4FixedOH(3 is unavoidable). A supplier offers the part for $12. If buying frees up space to make $15,000 in profit elsewhere, what is the net financial impact of Buying?
$6,000 Advantage to Buy (Relevant Make: 5+3+2+1 avoidable = $11. Buy: $12. Buy is 1moreperunit(10k total), but the $15k opportunity cost makes buying the winner by $5k—wait, recalculating: Make total $110k + $15k Opp Cost = $125k. Buy total = $120k. Net Advantage = $5,000)
An 8-year solar project costs $1M today. It saves $200k annually. In Year 4, a $100k overhaul is needed. In Year 8, it has a $50k salvage value. Calculate the Total Un-discounted Net Cash Flow
550,000(−1M + ($200k x 8) - $100k + $50k)
A company has $100,000 in total costs at a volume of 5,000 units. If the variable cost ratio is 60%, what is the fixed cost per unit?
$8 per unit (Total VC is $60,000, leaving $40,000 in Total Fixed Costs. $40,000 / 5,000 units = $8)
If the selling price and variable cost per unit both increase by $5, what is the specific effect on the Breakeven Point in units?
No Effect
A company currently produces 15,000 units of a product. At this volume, the total cost of production is 225,000, and the fixed cost per unit is exactly 5. If the company decides to increase production to 20,000 units next year to meet higher demand, what will the new total cost of production be, assuming the variable cost per unit remains constant?
$275,000