Intro to Accounting Principles Exam 1

Exam date: September 10th

The formula for total product cost is (choose 1 answer only, it isn't a multiple answer situation):

Direct materials + direct labor + manufacturing overhead

What is the primary use of a multi-step income statement for Coca-Cola?

To separate operating from non-operating activities

Which is NOT an inventoriable cost?

Sales commissions

Which cost is most likely to change if Coca-Cola doubles production?

Machine operator wages paid per hour

What type of cost is the plant manager’s salary?

Fixed, indirect

Which of the following is a period cost for Coca-Cola?

Advertising campaign

The main reason to distinguish product costs from period costs is:

For inventory valuation and accurate profit measurement

Which cost is not variable for Coca-Cola?

Factory rent

If the net margin is 22.6% in 2024, what was Coca-Cola’s net income (use Net income = Revenue × margin)?

$10.65B

What was Coca-Cola’s COGS as a percentage of revenue in 2024?

38.9%

If Coca-Cola sold 1.884B cases at an average price per case, what is the average sales price per case in 2024?

$24.99

What is the gross profit margin (Use gross profit ÷ revenue) for Coca-Cola in 2024?

61.1%

In 2024, Coca-Cola reported revenue of $47.1B and cost of goods sold (COGS) of $18.32B. What was gross profit?

$28.78B

Which of the following is a relevant cost in decision making?

Opportunity cost of a new product line 

Which of the following is NOT included in manufacturing overhead?

Direct materials

Which of the following is a sunk cost?

Original purchase price of obsolete equipment

Which of the following would be classified as a product cost?

Factory supervisor salary

Which of the following is NOT a characteristic of variable costs?

Include fixed overhead

Which of the following is a period cost?

Sales salaries

Variable costing differs from absorption costing in that:

It treats fixed manufacturing overhead as a period cost

Which of the following is a fixed cost?

Factory rent

A company incurs $8,000 in selling expenses and $5,000 in administrative expenses. Where are these costs reported?

Income Statement as Operating Expenses

A factory line worker’s hourly pay is classified as:

Fixed Costs - No; Direct Labor - Yes

Which of the following is NOT found on the income statement?

Cash

Which type of accounting information is intended to satisfy the needs of internal users of accounting information?

Managerial accounting

Variable costs expressed on a per unit basis:

Are not affected by activity

Which cash flow would typically be ignored when preparing an NPV analysis?

The company’s current year corporate tax payment on unrelated income

Which of the following is irrecoverable once spent and should NOT affect the capital budgeting decision?

Previous research expenses on a failed product

At the end of a 5-year project, what two inflows are commonly received and included in NPV?

Working capital release and salvage value

Which element would usually increase a project’s NPV (all else equal)?

Adding a salvage value at project end

Select the item below that is typically NOT included in project cash inflows:

Increased inventory purchases

Which of the following is a relevant cost in decision making?

Opportunity cost of a new product line 

A 5-year project has $100,000 initial outlay, $32,000 annual inflows, $8,000 working capital in (Year 0), which is released in Year 5, no salvage. Required return: 12%.  What is the project’s NPV (rounded to the nearest dollar)?

Use PV of $1 table.

$11,896

Which of the following is often not a relevant cost in a make vs. buy decision?

property taxes on the factory building

Which of the following is a sunk cost?

Original purchase price of obsolete equipment

For a capital budgeting project, why is depreciation expense not included as a cash outflow in NPV analysis?

It is not a real cash flow

What happens to net income if sales increase above the breakeven volume?

Net income increases

Given sales price $100, variable cost $45, and fixed costs $11,000, what is the breakeven sales in units?

200 units

If the margin of safety is 0, then

The company is breaking even.

in the cost volume profit (CVP) graph:

Losses are represented by the area where the total cost line is above the total revenue line.

What is the breakeven point in sales dollars if fixed costs are $120,000 and CM% is 30%?

$400,000

A company sells a fire pit for $400 per unit and has $45,000 in fixed costs.  The variable cost per unit is $325. 

What is the net income (loss) if the company sells 542 units?

Net loss of ($4,350)

A company sells units for $25 each, with variable costs of $15. Fixed costs are $50,000. What is the breakeven in units?

5,000

The contribution margin per unit is $55. If fixed costs are $11,000, how much net income will result from selling 400 units?

$11,000 profit

Managerial Accounting

Internal reporting that helps managers plan, control, and make decisions.

Cost of Inventory

Directing materials, direct labor, and manufacturing overhead

What are fixed costs?

Same total, per unit decreases as production increases (ex. rent)

What are variable costs?

Total changes with production, per unit stays the same (Ex. Raw Materials)

Relevant Cost

• avoidable

• future costs

• differ among alternatives

• Ex. DM, DL, MOH, outside purchase price

Irrelevant Cost

• Unavoidable/sunk

• Same among alternatives

• past costs

• Ex. Fixed Costs

Opportunity Cost

Potential benefits missed when one alternative is chosen over another.

Action plan for Make vs. Buy Decisions

1. Organize all costs as relevant or irrelevant

2. Consider qualitative factors (Ex. quality, timing issues)

3. Consider opportunity costs

Capital Budgeting Decisions

1. Plant expansion

2. Equipment selection/replacement

3. New products

4. Sustainability Initiatives

Cash Outflows (-)

1. Initial Investment

2. Outlays for repairs and maintenance

3. Working capital expansion

Cash Inflow (+)

1. Increased revenues +/or decreased Expenses

2. Salvage Value

3. Working capital release

NPV

Net Profit Value

Contribution margin income statement formula

Sales - variable costs = Contribution Margin - fixed costs = Net Income (loss)

Contribution Margin per unit formula

Sales price per unit - variable cost per unit = Contribution Margin

Contribution Margin Percentage formula

Contribution margin / sales

Margin of Safety

The amount of expected/ actual units sold less the number of units needed to breakeven.

Breakeven Point Formula

Total fixed costs / contribution margin per unit

Target Profit Formula

(Total fixed costs + Target profit) / Contribution margin per unit