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?
The weighted average unit contribution margin that results if a company sells 2,000 units of product A and 6,000 units of product B, and product A has a unit contribution margin of $100 and product B has a unit contribution margin of $500
What is a weighted average unit contribution margin of 400?
Product A: 2,000/8,000 = 25%
Product B: 6,000/8,000=75%
$100 (.25) + $500 (.75)= $400
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 $200,000?
$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 required number of units to break even if a company has fixed costs of $5,200,000 and sells products A, B and C with the following sales mix and unit contribution margin data.
Sales Mix: A 25%; B 30%; C 45%
Unit Contribution Margin: A $10; B $30; C $40
What is a break even point of 176,271.186 units?
Weighted CM = (.25 x $10)+(.3x$30)+(.45x$40)=
Weighted CM= $2.50+$9+$18=$29.50
$5,200,000/$29.50=176,271.186 units
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
The relative percentage in which a company sells its products
What is sales mix?
The production levels over which a company expects to operate during a year
What is the relevant range of the activity index?
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 break even units of products A, B and C if a company has fixed costs of $19,500 and sells products A, B and C with the following sales mix and unit contribution margin data.
Sales Mix: A 25%; B 30%; C 45%
Unit Contribution Margin: A $12; B $60; C $40
What are break even units of 125 units for product A, 150 units for product B and 225 units for product C?
Break Even units =
Fixed Costs/weighted avg. unit CM
$19,500/$39= 500 units
Weighted avg. unit CM=
$5,200,000/(.25x$12) + (.3x$60)+(.45x$40)= $39
A: .25x500 = 125 units
B: .30x500=150 units
C: .45x500 = 225 units
The cost of direct materials is one example of this type of cost
What is a variable cost?
Under CVP Analysis, this type of cost is never classified as a mixed cost
What is the cost of direct materials?
What is the cost of direct labor?
Direct labor and direct materials are variable costs.
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 result on a business 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?
The sales mix percentages as a function of units sold if a Toyota dealership sells 1,000 Toyota RAV4's, 2,200 Toyota Camry's and 1,800 Toyota Corollas
What is a sales mix percentage of 20% for the Toyota RAV4, 44% for the Toyota Camry and 36% for the Toyota Corolla?
RAV4: 1,000/(1,000+2,200+1,800)=20%
Camry: 2,200/(1,000+2,200+1,800)= 44%
Corolla: 1,800/(1,000+2,200+1,800)= 36%