Exam 30: Cost-Revenue Analysis for Decision Making

A segment of a business reported a contribution margin of $36,000 and controllable fixed costs of $12,000. If the segment had been eliminated, the company-wide net income would have been

Using direct costing, the manufacturing margin is:

In deciding whether to manufacture or to purchase a product, fixed costs are generally ignored.

A company has sales of $100,000, ending finished goods inventory of $9,000, variable manufacturing costs of $50,000, and fixed manufacturing costs of $28,000 for the year. Assuming the company uses direct costing, the cost of goods sold for the year is

Before deciding whether to purchase new equipment, a firm should consider employee morale and the quality of the new equipment's output.

A segment of a business probably should be discontinued if it cannot produce a(n) __________________.

Which of the following should NOT be a consideration when deciding whether to make or buy a part?

On an income statement prepared with a direct costing approach, the excess of sales over the cost of goods sold, based on variable costs only, is referred to as

Under the contribution margin approach, common costs are deducted from the total of all segment contributions to determine the company's profit.

If the finished goods inventory increases during the period, the reported net income will be larger under direct costing than under absorption costing.

Under direct costing, all fixed manufacturing overhead is charged off as a current expense.

A segment of a business reported a contribution margin of $36,000 and common costs of $12,000. If the segment had been eliminated, the company-wide net income would have been

The direct costing procedure is not used for financial reporting.

The Sloan Corporation is considering the purchase of a new factory machine at a cost of $30,000. The machine would perform a function that is now being performed by hand. The new machine would have a life of five years and would produce 5,000 units a year (the current output). Direct labor costs would be reduced by $1.10 a unit. Variable overhead costs would be reduced by $0.35 a unit. Fixed costs, other than depreciation, would increase by $2,500 a year. 1. Should the machine be purchased? 2. What impact would the decision have on net income?

Using the absorption method, cost of goods manufactured for the year is:

The data given below pertains to the operations of the Newton Products Corporation for the year ended December 31, 2013 Sales: 3,400 units at \ 55 a unit Variable manufacturing costs: 3,200 units at \ 25 a unit Variable selling and admin. expenses: \ 5 a unit Fixed manufacturing costs: \ 24,000 Fixed selling and admin. expenses: \ 16,000 Finished goods inventory, Jan. 1, 2013: 500 units Finished goods inventory, December 31, 600 units -Based on the information given prepare an income statement for the year using the absorption costing approach. Assume that the beginning finished goods inventory had a cost of $35 per unit.

The difference in cost between one alternative and another is called a(n) ____________________ cost.

Which inventory costing system is not acceptable for financial reporting purposes?

The data given below is taken from the budgeted income statement of the Arrow Corporation for 2013. It shows the projected net income or loss for each of the firm's three products. Management is concerned about the budgeted loss for Product C and wants to discontinue it. Prepare an analysis indicating the effects of discontinuing Product C. Based on the analysis, indicate the decision that should be made. Product A Sales Cost of Goods Sold Direct Materials \5 ,000 Direct Labor \ 7,000 Mfg. Overhead Total Gross Profit on Sales \ 19,500 Operating Expenses Net Income or (Loss) Product B \ 11,000 16,000 \ 55,000 Product C \ 4,000 6,000 \ 7,000 Total \ 20,000 29,000 \ 81,500 Additional information: (a.) Materials and labor are variable costs. (b.) Total manufacturing overhead is applied at 50 percent of the direct labor costs. (c.) Variable overhead is 10 percent of the direct labor costs. (d.) Fixed overhead totals $11,600 a year. (e.) Operating expenses include variable costs at 20 percent of sales dollars. (f.) Fixed operating expenses total $18,000. (g.) Fixed overhead costs and fixed operating expenses are expected to continue if Product C is eliminated.

The variable operating expenses are deducted from the manufacturing margin to arrive at the ____________________ on sales.