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Q:
The following information describes a product expected to be produced and sold by Hadley Company:
Selling price............................................................. $80 per unit
Variable costs............................................................. $32 per unit
Total fixed costs............................................................. $630,000
Required:
(a) Calculate the contribution margin ratio.
(b) Calculate the break-even point in dollar sales.
(c) What dollar amount of sales would be necessary to achieve a pretax income of $120,000?
Q:
Wilson Co. is preparing next period's forecasts. Total fixed costs are expected to be $300,000 and the contribution margin ratio is expected to be 30%. The applicable income tax rate is 25%. (a) Calculate the company's break-even point in dollar sales.
(b) If sales are $1,800,000 above the break-even point, what will income be (i) pretax income and (ii) after-tax income?
Q:
A firm provides the following sales data:
Expected unit sales.. 5,000 Unit variable cost.. $10
Unit selling price. $16 Total fixed cost. $12,000 Required:
(a) Calculate the break-even point in dollar sales.
(b) Calculate the margin of safety in dollar sales.
Q:
A product has a contribution margin per unit of $17 and sells at $25 per unit. If the break-even point is 82,000 units, calculate (a) the variable costs per unit and (b) the total fixed costs.
Q:
A company manufactures a product and sells it for $120 per unit. The total fixed costs of manufacturing and selling the product are expected to be $155,250, and the variable costs are expected to be $75 per unit. What is the company's break-even point in (a) units and (b) dollar sales?
Q:
Torville Company's contribution margin income statement is presented below. Sales for the current period consisted of 5,000 units. Determine the company's break-even point in dollars.
Q:
Narrows Co. is considering the production and sale of a new product line with the following sales and cost data: unit sales price $125; unit variable costs $75; and total fixed costs of $140,000. Calculate the break-even point in units and in dollar sales.
Q:
Hess Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Hess can buy a newer production machine that will increase total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit. What effect would the purchase of the new machine have on Hess's break-even point in units?
Q:
A company sells a single product that has a contribution margin ratio of 24%. If the company's total fixed costs are $84,000, what is the break-even point in dollar sales?
Q:
Macleod Company's product has a contribution margin per unit of $62.50 and a contribution margin ratio of 25%. What is the per unit selling price of the product?
Q:
Q:
Outback Products reports the following information:
Total Contribution Margin.. $32,000
Total Fixed Costs. $28,000
Required:
(a) Calculate Outback Products' degree of operating leverage (DOL).
(b) Outback Products forecasts a 6% increase in sales. What is the expected effect in percent on pretax income?
Q:
Duxbury Co. reports the following data for the current year:
Units Sold............................................................. .................................................... 1,200
Unit Sales Price............................................................. .................................................... $30
Unit Variable Cost............................................................. .................................................... $10
Total Fixed Cost.. $18,000
Required:
(a) Calculate Duxbury's pretax income.
(b) Calculate Duxbury's degree of operating leverage.
Q:
The following information describes a product expected to be produced and sold by Pepin Corporation:
Selling price............................................................. $32 per unit
Variable costs............................................................. $27 per unit
Total Fixed costs............................................................. $850,000 per year
Required:
(a) Calculate the contribution margin per unit.
(b) Calculate the break-even point in units.
Q:
A company has total fixed costs of $360,000. Its product sells for $40 per unit and variable costs amount to $25 per unit. What is the break-even point in dollar sales?
Q:
Abington Corporation provides the following data from a recent period for its manufacture of shoes: variable manufacturing costs, $24,000; variable selling costs, $12,000; and total fixed costs, $40,000. Sales were $60,000 based on 12,000 units sold during the period. Calculate the contribution margin and the contribution margin ratio.
Q:
Hanover Hats produces specialty logo baseball caps for a variety of customers. Selected cost data for Hanover follows: direct materials cost $8,000; sales commissions, $9,000; depreciation on factory equipment, $21,000; factory labor, $16,000; factory lease, $24,000. If Hanover Hats sells 6,100 caps at an average price of $12 for each cap, what is the company's contribution margin?
Q:
Plymouth Industries incurs the following costs during the current year: Depreciation of machinery ......................
$15,000 Direct labor...............................................
6,000 Direct materials.........................................
4,000 Executive salaries.....................................
20,000 Insurance...................................................
2,000 Rent on building.......................................
8,000 Sales commissions....................................
10,000 Vehicle lease cost.....................................
5,000 Sales for the year were $80,000 and Plymouth Industries determined that only the direct production costs (prime costs) and sales commissions are to be classified as variable costs; all other costs are classified as fixed costs. Plymouth sold 400 units. (a) Calculate the unit contribution margin and the contribution margin ratio for Plymouth
Industries.
(b) Plymouth Industries is considering plans that would increase the contribution margin ratio for next year. Should it pursue these plans? Explain.
Q:
A company is looking into two alternative methods of producing its product. The following information about the two alternatives is available. If the company's expected sales volume is 35,000 units, which alternative should be selected? Prepare forecasted income statements and compute degree of operating leverage to assess the alternatives. Alternative#1
Alternative #2 Variable costs per unit........
$8
$12 Fixed costs .........................
$240,000
$140,000 Selling price per unit..........
$20
$20
Q:
Abrams Co. has total fixed costs of $240,000 and a contribution margin ratio of 40%. If rent expense increases by $5,000, how much will sales have to increase to cover this increase in costs?
Q:
A firm produces and sells a product with a contribution margin of $32 per unit. The firm is presently selling 90,000 units and earning $240,000 in after-tax income. Taxes are $80,000 at a 25% tax rate. If the firm desires to increase its after-tax income to $300,000, how many more units must it sell?
Q:
The following data relate to a product sold by Nelson Company:
Total Variable costs ............. $90,000
Total fixed costs............................................................. .................................................. 27,000
Predicted after-tax income (30% tax)............................................................. .................................................. 12,600
Contribution margin per unit............................................................. .................................................. 5
(a) Calculate the number of units expected to be sold.
(b) Calculate the expected total dollar sales.
Q:
Thomas Company has total fixed costs of $360,000 and variable costs of $14 per unit. If the unit sales price is reduced from $24 to $20 and advertising is increased by $10,000, sales will increase from 40,000 to 65,000 units. Should Thomas reduce its per unit sales price and pay for the additional advertising? (Support your answer with calculations.)
Q:
Rudy Co. has total fixed costs of $520,000. A unit of product sells for $15 and variable costs per unit are $11. a) Prepare a contribution margin income statement showing predicted net income (loss) if Rudy Co. sells 100,000 units for the year ended December 31.
b) At a minimum, how many units must Rudy Co. sell in order not to incur a loss?
Q:
Herriot Co. has total fixed costs of $180,000 and a contribution margin ratio of 40%. Assume that an additional advertising expenditure of $4,000 would increase sales by $8,000. Should the company spend this additional amount on advertising? (Support your answer with calculations.)
Q:
Boston Co. is considering the production and sale of a new product with the following sales and cost data: unit sales price, $300; unit variable costs, $180; total fixed costs, $270,000; and projected sales, $900,000. What is the margin of safety: (a) In dollar sales? And (b) As a percent of sales?
Q:
Legacy Company is considering the production and sale of a new product with the following sales and cost data: unit sales price $18; unit variable costs $8.10; and total fixed costs of $8,250. Legacy is subject to a 25% tax rate. Determine the dollar sales needed to generate an after-tax income of $33,000.
Q:
Hiller Co. anticipates total fixed costs of $120,000 and variable costs equal to 40% of sales. What is the pretax income if sales are $650,000?
Q:
Davison Company has fixed costs of $315,000 and a contribution margin ratio of 24%. If sales are expected to be $1,500,000, what is the percentage of the margin of safety?
Q:
A company has total fixed costs of $200,000. Its product sells for $25 per unit and variable costs amount to $15 per unit. The company wishes to earn an after-tax income of $35,000. Assume that the company has a 30% tax rate. How many units must be sold to achieve this after-tax income level?
Q:
A company has a goal of earning $100,000 in after-tax income. The company must pay $28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%. What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?
Q:
Describe how a cost-volume-profit analysis would be performed for a company that sells more than one product. (Assume that the sales mix is known.)
Q:
What is a scatter diagram? How is a scatter diagram used to estimate cost behavior?
Q:
What is operating leverage? How can the degree of operating leverage be used in analyzing changes in sales?
Q:
What are the unit contribution margin and the contribution margin ratio? What do these measures reveal about a company's cost structure?
Q:
What is an important feature that must be remembered when using cost identifying and behavior methods?
Q:
If the factory labor cost for a month was $123,000 (paid in cash), the following journal entry would be recorded by the process cost accounting system:
Factory Payroll...................... 123,000
Cash.. 123,000
Q:
After all process cost accounting journal entries are recorded and posted for a reporting period, the Factory Payroll account should have a zero balance.
Q:
If Department Q uses $60,000 of direct materials and Department T uses $15,000 of direct materials, the following journal entry would be recorded by the process cost accounting system:
Goods in Process Inventory, Department Q.......................... 60,000
Goods in Process Inventory, Department T.......................... 15,000
Raw Materials Inventory....................................................... .......................................... 75,000
Q:
A unique feature of process costing systems is the use of a single Goods in Process Inventory control account when more than one production department exists.
Q:
If Department A uses $10,000 of direct materials and Department B uses $15,000 of direct materials, the following journal entry would be recorded by the process cost accounting system:
Goods in Process Inventory, Department A.......................... 10,000
Goods in Process Inventory, Department B.......................... 15,000
Raw Materials Inventory. 25,000
Q:
A materials consumption report is a source document that summarizes the materials used during a reporting period.
Q:
In a process cost accounting system, the entry to record cost of materials assigned to a production department requires a debit to the Raw Materials Inventory account and a credit to the Goods in Process Inventory account for that department.
Q:
In a process cost accounting system, the purchase of raw materials is debited to the Raw Materials Inventory.
Q:
In a process cost accounting system, the purchase of raw materials is credited to the Raw Materials Inventory.
Q:
In process cost accounting, materials are always classified as indirect if they are not physically incorporated into the final product.
Q:
Process cost accounting systems consider direct costs to include those costs that can be readily identified with a particular process.
Q:
Direct costs in process cost accounting include only those costs that can be readily identified with individual product units.
Q:
In process cost accounting, the classification of materials as direct or indirect depends on whether they are clearly linked with a specific process.
Q:
The use of process costing is of little benefit to a service type of operation.
Q:
Process cost accounting systems are commonly used by companies that manufacture standardized products by passing them through a series of manufacturing steps.
Q:
Process cost accounting systems are used only by companies that manufacture physical products; meaning that companies and other organizations that provide services to their customers do not use process cost accounting.
Q:
Companies that use a series of repetitive manufacturing processes to produce standardized products should use a process cost accounting system.
Q:
In process cost accounting, all labor that is applied exclusively in a single production department is considered to be direct labor.
Q:
Process costing is applied to operations with repetitive production and heterogeneous products.
Q:
When defining direct costs and indirect costs in process costing, it is the process that is the cost object.
Q:
In a process cost accounting system, with the exception of the first department, each department receives output from the prior department as a partially processed product.
Q:
A production department is an organizational unit that has the responsibility for at least partially processing a product.
Q:
Accountants use the term process cost accounting system because this system uses a number of trained individuals and computers to process the collected cost information.
Q:
Process cost accounting systems are commonly used by companies that produce a large volume of standardized units on a continuous basis.
Q:
Process and job order manufacturing operations both combine materials, labor, and overhead items in the process of producing products.
Q:
The FIFO method does not use the beginning inventory costs in computing the cost per equivalent unit for the current period.
Q:
If a department that uses process costing starts the reporting period with 100,000 physical units that were 20% complete with respect to direct labor, it must add 80% direct labor in the current period to complete the units.
Q:
The FIFO method separates prior period costs from costs incurred during the current period.
Q:
A process cost summary shows the cost of a particular job manufactured in the reporting period.
Q:
A process cost summary includes the amounts of equivalent units of production for the period.
Q:
A process cost summary is an accounting report that describes the costs charged to a department, the equivalent units of production by the department, and how the costs were assigned to the output.
Q:
The process cost summary is an important managerial accounting report produced by a process cost accounting system.
Q:
The last step in the four-step accounting procedure for process costing is the calculation of equivalent units of production.
Q:
Equivalent units of production is an engineering term used to describe the process by which one company attempts to manufacture units of a product that are equivalent to the product manufactured by a competitor.
Q:
Equivalent units of production need to be determined only if a processing department adds materials and labor to its products at different rates.
Q:
Equivalent units of production are always the same as the total number of physical units finished during the period.
Q:
In a process cost accounting system, a department's production should be measured in terms of equivalent units when its beginning or ending inventory includes goods in process.
Q:
Equivalent units of production refer to the number of units that would be completed if all effort during a period had been applied only to those units that were started and completed in a period.
Q:
To determine unit cost under a process cost accounting system, equivalent units produced must be calculated if the company has goods in process inventories.
Q:
Process manufacturing usually reflects a manufacturer that produces large quantities of identical products.
Q:
The managers of process manufacturing systems focus on the series of processes needed to complete the production of products.
Q:
When the completed goods are sold, the cost of the completed goods are transferred to ____________________ .
Q:
When the final production department completes goods, the cost of the completed goods are transferred to ____________________ .
Q:
On a process cost summary, the total costs to account for (the processing costs for the period plus the goods in process at the end of the period) should equal ___________________ (____________________ plus _____________________).