Formulas/Problems
What is the formula for gross margin?
Sales - COGS = gross margin
What is the difference between traceable fixed costs and common fixed costs?
traceable fixed costs are charged to segments and common fixed costs are not
True or false: Traditional absorption costing is designed to provide data for external reports
True
What is a cost that is a fixed cost incurred because of the existence of a segment?
Traceable fixed cost
What is the formula for calculating a segment's break even point?
segment traceable fixed expenses / segment CM ratio
What is the first budget prepared in the master budget and the last budget prepared in the master budget?
True or false: Companies usually create budgets by relying on self-imposed budgeting
False: companies usually rely on a combination of top-down and self-imposed budgeting
BAC Company uses activity based costing & has 3 activities below. If one customer needs 30 installations and 10 repairs how much total cost would be assigned to the customer:
Installations: $200 per installation
Repairs: $100 per repair
Customer relations: $500 per customer
$7,500 = 500 + (200 x 30) + (100 x 10)
Selling price is $5 per unit. What is the amount of sales revenue on their budgeted income statement for February; Expected sales:
Jan: 10,000
February: 15,000
March: 12,000
75,000
When units produced are ______ (greater/less) than, absorption costing net operating income is greater than the variable costing net operating income
Greater (because inventories increase)
True or false: The production is prepared after the sales budget
True
Placing purchase orders would be what type of activity in activity based costing? (unit level, batch level, product level, customer level, organization sustaining)
Batch level
If 40,000 units are produced and 35,000 units are sold, what is the unit product cost under variable costing?
Variable costs per unit: DM $24; DL $14; Variable mfg. OH $2; variable selling and admin $4
Fixed costs per year:
-fixed MOH: 800,000
-fixed selling and admin: 496,000
24 + 14 + 2 = 40
What is the main difference between variable and absorption costing?
Under variable costing, only the manufacturing costs that vary with output are treated as product costs (DL, DM and variable MOH). Under absorption costing, fixed and variable manufacturing costs could be treated as product costs
True or False: selling and admin costs can be treated as product costs under absorption costing
false: selling and admin costs are always treated as period costs (under both variable and absorption costing)
If the company wants to maintain finished goods inventory equal to 25% of next month's sales, how many units should they produce in January?
Jan: 10,000
February: 15,000
March: 12,000
13,750 = 10,000 units in January + 3,750 desired ending inventory (25% of February's expected sales: 15,000 x 0.25 = 3,750)
If 40,000 units are produced and 35,000 units are sold, what is the unit product cost under absorption costing?
Variable costs per unit: DM $24; DL $14; Variable mfg. OH $2; variable selling and admin $4
Fixed costs per year:
-fixed MOH: 800,000
-fixed selling and admin: 496,000
24 + 14 + 2 + ($800,000 / 40,000 units produced = $20) = $60
What are the 5 levels of activities in activity-based costing?
1. unit level activities
2. batch level activities
3. product level activities
4. customer level activities
5. organization sustaining activities
True or false: under activity based costing, the costs of an idle manufacturing facility could affect customer margin
FALSE: under ABC, idle capacity or costs associated with an idle manufacturing facility will not impact customer margin
What is the formula for calculating ending retained earnings?
Ending RE = beginning RE + net income - dividends