Exam 7: Cost-Volume-Profit Analysis, Absorption and Variable Costing

During 2012, Caspar Corporation produced 50,000 units and sold 40,000 for $20 per unit. Variable manufacturing costs were $14 per unit. Annual fixed manufacturing overhead was $120,000 ($2 per unit). Variable selling and administrative costs were $2 per unit sold, and fixed selling and administrative costs were $45,000. Required: Prepare an absorption costing income statement for Caspar Corporation.

For external-reporting purposes, generally accepted accounting principles require that net income be based on:

All of the following are inventoried under absorption costing except:

St. Martin Company has computed the following unit costs for the year just ended: Direct material used \ 22 Direct labour 38 Variable manufacturing overhead 20 Fixed manufacturing overhead 25 Variable selling and administrative cost 11 Fixed selling and administrative cost 18 Under variable costing, each unit of the company's inventory would be carried at:

At a volume of 50,000 units, MGMT Incorporated reported sales revenues of $2,050,000, variable costs of $550,000, and fixed costs of $360,000. The company's contribution margin per unit is:

Oakville Company recently sold 70,000 units, generating sales revenue of $4,900,000. The company's variable cost per unit and total fixed cost amounted to $20 and $2,800,000, respectively. Management is in the process of studying the dollar impact of various transactions and events, and desires answers to the following independent cases: Case No. 1:Management wants to lower the firm's break-even point to 52,000 units. All other things being equal, what must happen to fixed costs in order to achieve this objective? Case No. 2: Oakville anticipates a $2 hike in the variable cost per unit. All other things being equal, if management desires to keep the firm's current break-even point, what must happen to Oakville's selling price? If selling price remains constant, what must happen to the firm's total fixed costs? Required: A. Answer the two cases raised by management. B. Determine the impact (increase, decrease, or no effect) of the following operating changes on the items cited.1. An increase in variable selling costs on net income.2. A decrease in direct material cost on the unit contribution margin.3. A decrease in the number of units sold on the break-even point.

Monex reported $65,000 of net income for the year by using absorption costing. The company had no beginning inventory, planned and actual production of 20,000 units, and sales of 18,000 units. Standard variable manufacturing costs were $20 per unit, and total budgeted fixed manufacturing overhead was $100,000. If there were no variances, net income under variable costing would be:

All of the following are expensed under variable costing except:

Sponge Manufacturing began business at the start of the current year and maintains its accounting records on an absorption-cost basis. The following selected information appeared on the company's income statement and end-of-year balance sheet: Income-statement data: Sales revenues (35.000 units \times\ 22) \ 770,000 Gross margin 210,000 Total sales and administrative expenses 160,000 Balance-sheet data: Ending finished-goods inventory (12,000 units) 192,000 Sponge achieved its planned production level for the year. The company's fixed manufacturing overhead totalled $141,000, and the firm paid a 10% commission based on gross sales dollars to its sales force. Required: A. How many units did Sponge plan to produce during the year? B. How much fixed manufacturing overhead did the company apply to each unit produced? C. Compute Sponge's cost of goods sold. D. How much variable cost did the company attach to each unit manufactured?

Which of the following formulas can often reconcile the difference between absorption-costing net income and variable-costing net income?

Franz began business at the start of this year and had the following costs: variable manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling and administrative costs per unit, $2; and fixed selling and administrative costs, $220,000. The company sells its units for $45 each. There were no variances. Planned and actual production was 10,000 units. Sales were 8,500 units. The net income (loss) under variable costing is:

The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units. Sales Less: Cost of goods sold Gross margin Less: Operating expenses \ Net income \ 1,600,000 1.120,000 \ 480,000 100,000 \ 380,000 Cost of goods sold consists of $810,000 of variable costs and $310,000 of fixed costs. Operating expenses consist of $30,000 of variable costs and $70,000 of fixed costs. Required: A. Calculate the break-even point in units and sales dollars. B. Calculate the safety margin. C. Bruggs & Strutton received an order for 6,000 units at a price of $25.00. There will be no increase in fixed costs, but variable costs will be reduced by $0.54 per unit because of cheaper packaging. Determine the projected increase or decrease in profit from the order.

Lucid Corporation has fixed costs of $2,800 and a per-unit contribution margin of $6. Which of the following statements is (are) true?

Miller Company has an operating leverage factor of 5. Thus, an 8% change in ______ should result in a 40% change in ______. The respective amounts that change are:

Which of the following underlying assumptions does not form the basis for cost-volume-profit analysis?

Ribco Co. makes and sells only one product. The unit contribution margin is $6 and the break-even point in unit sales is 24,000. The company's fixed costs are:

The following information was obtained from the accounting records of Maxamillion Manufacturing Company during a period when the company sold 200,000 units. A. Compute the company's per-unit contribution margin and break-even point. B. How many units must Maxamillion sell to produce a target net profit of $550,400? C. Assume that Maxamillion was able to reduce the variable cost per unit by $5. What selling price could management charge if it desired to maintain the current break-even point? D. Depreciation charges of $800,000 are included in the firm's fixed costs of $6,016,000. If these charges were to increase by 20%, what effect, if any, would this cost increase have on the company's contribution margin?

Dumphee Manufacturing has computed the following unit costs for the year just ended: Direct material used Direct labour Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative cost Fixed selling and administrative cost \ 44 16 30 20 18 40 Which of the following choices correctly depicts the per-unit cost of inventory under variable costing and absorption costing? Variable Costing Absorption Costing 1 \ 90 \ 110 2 \ 90 \ 168 3 \ 108 \ 110 4 \ 108 \ 168 5 \ 90 \ 108

Ralph Corporation has computed the following unit costs for the year just ended: Direct material used \ 21 Direct labour 27 Variable manufacturing overhead 31 Fixed manufacturing overhead 33 Variable selling and administrative cost 15 Fixed selling and administrative cost 37 Under absorption costing, each unit of the company's inventory would be carried at:

A manager who wants to determine the percentage impact on net income of a given percentage change in sales would multiply the percentage increase/decrease in sales revenue by the: