openstax HW

Which of the following is the primary source of revenue for a service business?

C. providing ___ goods and services

intangible

Which of the following is the primary source of revenue for a merchandising business?

B. the purchase and resale of ____products

finished 

____buy ____ goods and ___them (retailers, wholesales)

merchandisers, finished, resell 

Which of the following is the primary source of revenue for a manufacturing business?

A. the production of products from ___ materials

raw

___ transform raw materials → finished goods and __ those

manufacturers, sell

Which of the following represents the components of the income statement for a service business?

B.  = operating income

service revenue - operating expenses 

Service firms report service revenue - operating (period) expenses — no

COGS

Which of the following represents the components of the income statement for a manufacturing business?

__= gross profit

sales revenue - cost of good sold 

Manufacturing firms report sales - COGS = ___ profit (COGS includes cost of goods made)

gross

income statement for a merchandising business?

A. ___= gross profit

sales revenue - cost of goods sold 

Merchandising income statement is ___= gross profit

sales - COGS

Conversion costs include all of the following except:

D. ___ materials purchased

direct

Conversion costs= direct ____ + ___ overhead (except direct materials).

labor, manufacturing

not considered a product cost?

D. ___expense

selling 

____ costs=direct materials, labor, manufacturing overhead. Selling expense is a __ cost

product, period

Fixed costs are expenses that ________.

D. remain ___as activity changes

constant 

Variable costs are expenses that ________.

A. remain constant on a ____ basis but change in total based on activity level

per-unit 

Variable cost per unit is ____; total variable cost changes with __

constant, activity

Total costs for ABC Distributing are $250,000 when the activity level is 10,000 units. If variable costs are $5 per unit, what are their fixed costs?

200 000 = variable total (5 × 10 000=50 000) + fixed —> fixed = 250 000 - 50 000 = 200 000

not manufacturing overhead 

direct labor 

Manufacturing overhead excludes ___ labor; indirect materials, indirect labor, factory taxes=overhead

direct

prime costs?

D. direct ___and direct materials

labor 

____ costs = direct materials + direct labor (costs directly ___ to units)

prime, traceable

average fixed costs?

C. Average fixed costs per unit ___ as the level of activity __.

fall, rises 

Fixed cost per unit = ____ — as units increase, fixed cost per unit ___

total fixed / units, decreases

Service — sells intangible services (consulting, haircuts). No inventory of _____; revenue from service fees.

goods 

Merchandising — buys finished goods and resells them (retailers/wholesalers). Has inventory and ___.

COGS

____— converts raw materials into finished goods; has raw materials, work-in-process, finished goods, and reports Cost of Goods Manufactured then COGS.

manufacturing 

manufacturing company’s COGS is derived from Cost of Goods Manufactured (includes direct materials, direct labor, and manufacturing overhead applied to ___).

production 

• A merchandiser simply records COGS equal to the cost of ____ purchased and sold. In short: manufacturing has extra steps (raw materials → ___→ finished goods → COGS).

merchandise, WIP 

Product costs (_____): costs to units (direct materials, direct labor, manufacturing overhead). They become part of ____on the balance sheet and flow to ____ when _.

inventoriable, inventory, COGS, sold 

Period costs: ____ costs (selling & ___). Expensed in the period ___ (not ___).

non-manufacturing, administrative, incurred, inventoried

Relevant range = the activity interval where cost behavior assumptions (fixed vs. variable) are valid. Within that range, total ____ costs remain ____. Outside it (expansion requiring new factory) fixed costs can change.

fixed constant

Gross revenue from sales=86 500 

Operating expenses=27 500 

COGS=24% of gross revenue 

COGS= ____

Net operating income NOI = ___

COGS = COGS % x gross revenue

NOI = sales - COGS - operating expenses

1. Lumber to construct decks $12 per square foot 

   1. ____ (cost per unit of output, varies with deck area)

   2. ____ cost (direct material used to build deck)

variable product

1. Carpenter labor to construct decks $10/hour

   1. ___ (varies with hours worked on each job) 

   2. ___ cost (direct labor – directly traceable to each deck)

variable product

1. Construction salary $45000 per year

   1. ___(salary is constant regardless of job number in short run) 

   2. ____cost if production/supervisory salary (manufacturing overhead equivalent). If corporate admin, period cost — based on wording, fixed product cost (site/production salary)

fixed product 

1. Depreciation on tools $6000 per year

   1. ____ (straight-line per year)

   2. ___ cost (manufacturing/product overhead — tools to build deck)

fixed product

1. Selling and admin expenses $35000 per year

   1. ___(period expenses, don’t vary with job number monthly)

   2. __cost (selling and admin)

selling period 

1. Rent on corporate office space $34000 per year

   1. ___

   2. __ cost (office expense, not part of inventory)

fixed period

1. Nails and other materials required to construct deck (varies per job) 

   1. __ 

   2. ___cost (indirect materials or possibly direct materials depending on material significance — still product cost)

variable product 

he amount of a unit’s sales price that helps to cover fixed expenses is its

contribution margin

Contribution margin/unit= ____; left to cover fixed costs and profit

sales price - variable cost/unit

A company’s product sells for $150 and has variable costs of $60 associated with the product. What is its contribution margin per unit?

90 

product sells for $150 and has variable costs of $60 associated with the product. What is its contribution margin ratio?

CM ratio = CM / sales = 90 / 150 × 100

contribution margin per unit is $25. If the company increases its activity level from 200 units to 350 units, how much will its total contribution margin increase?

CM = increase in units x CM/unit

A company sells its products for $80 per unit and has per-unit variable costs of $30. What is the contribution margin per unit?

50 

fixed costs of $6,000 per month and their product that sells for $200 has a

contribution margin ratio of 30%, how many units must they sell in order to break even?

break even dollars = fixed / CM ratio

wants to earn $5,000 profit in the month of January. If their fixed costs are $10,000 and their product has a per-unit contribution margin of $250, how many units must they sell to reach their target income?

units = (fixed + target profit) / CM per unit

wants to earn an income of $60,000 after-taxes. If the tax rate is 32%, what must be the company’s pre-tax income in order to have $60,000 after-taxes?

pre tax income = after-tax / (1-tax rate) 

When sales price increases and all other variables are held constant, the break-even point will ___

decrease 

Price up and nothing else changes, ___ per unit increases, ___ units needed to break even 

CM, fewer

When sales price decreases and all other variables are held constant, the break-even point will ___

increase 

If price down, CM per unit down, need __ units to break even 

more

When variable costs increase and all other variables remain unchanged, the break-even point will ____

increase 

If variable costs up, CM per unit decreases, break-even __ 

increases

When fixed costs decrease and all other variables remain unchanged, the break-even point will___

decrease 

• If fixed costs down, break-even ___ 

decreases 

When fixed costs increase and all other variables remain unchanged, the contribution margin will

remain unchanged 

Contribution margin depends only on ____ price and ___ costs per unit. Increasing ___ costs doesn’t change CM per unit (affects break-even/___)

sales, variable, fixed, profit

Contribution margin (per unit): Selling price per unit —-

variable cost per unit

• The amount from each unit sale that contributes to covering ___ costs and then to profit. (If CM per unit is $40 and fixed costs are $4,000, you’d need 100 units to cover fixed costs.)

fixed

contribution margin ratio: 

contribution margin per unit / selling price (or total CM / sales)

contribution margin ratio - Shows the portion of each sales dollar that contributes to fixed costs and profit. Helpful for quick “how much profit per sales dollar” checks and for converting dollar sales targets into __ goals.

profit

Explain how a contribution margin income statement can be used to determine profitability.

• It separates variable costs from fixed costs, showing contribution margin (sales − variable costs). From CM you subtract fixed costs to get ___ income. This makes clear how changes in volume, price, or costs affect profit.

operating

Break-even = point where total revenue = total costs → profit = 0. Companies usually want profit (a cushion) to survive downturns; staying at break-even has no __ margin (no profit cushion).

safety

CM ratio lets managers convert sales dollars to ___dollars quickly: Contribution = ____. Useful for sales mix decisions, break-even in dollars, and estimating required sales to hit target profit.

contribution, sales x CM ratio 

CVP (cost volume profit) shows effects of changing ___, cost structure, or volume. A manager can test “what-ifs”: raise price, cut variable cost, add fixed marketing, or change product mix to see impact on profitability and break-even.

price

Translating CVP cost volume profit results into a projected income statement makes the impact on financial statements ___ (sales, variable costs, fixed costs, and net income) and helps with budgeting, cash planning, and stakeholder communication.

concrete

Calculate per unit contribution margin of product sale price $200 if variable cost per unit $65.

200 - 65 

Calculate per unit contribution margin of product sale price $400 if variable cost per unit is $165.

400 - 165

Product has sales price $150 and per unit CM of $50. Contribution margin ratio.

50 / 150

Product sales price $250 and per unit contribution margin of $75. What is contribution margin ratio

CM ratio = CM / product price

Single product with selling price $75 and variable costs per unit of $30. Monthly fixed expense 22500. 

1. Break even point in units

fixed / CM per unit 

Single product with selling price $75 and variable costs per unit of $30. Monthly fixed expense 22500. 

Break even point in dollars

break even units x price CM/unit 

sales =

units x selling price

variable costs =

units x variable cost per unit

contribution margin =

sales - variable cost

operating income =

contribution margin - fixed costs

units to sell to reach target profit

units = (fixed + target) / CM per unit

dollars sales needed to reach target profit

unit x price selling

CM per unit =

selling price - variable cost/unit

CM ratio

CM per unit / selling price