Accounting
Which of the following are inventory accounts for a manufacturing firm? Raw materials, work in process, and finished goods inventory
Which of the following is true? Inventory is recorded as an expense when the product it is on is sold
These are false: Inventory is recorded as an expense when it is purchased. Inventory is recorded as an expense when the suppliers are paid. Inventory is recorded as an expense when it is put into production. Inventory is recorded as an expense when it goes from work-in-process inventory to finished goods.
Which of the following is true of a manufacturing company's inventory accounts? The inventory accounts are raw materials, work in process, and finished goods.
Which of the following would be included as a cost of inventory? Property taxes on the factory building
Which of the following is true of fixed and variable costs? Fixed costs per unit decrease as you produce and sell more units.
Management wants to use their production facilities to full capacity because….it will reduce the fixed costs per unit.
Which of the following is true of the contribution margin income statement? The breakeven point is the level of sales at which total sales equals variable costs plus fixed costs.
A company sells a product for $700 per unit and has $63,000 in fixed costs. The variable cost per unit is $575. How many units does the company need to sell to earn $50,000? 904 units
Last year Dallas Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, Dallas needed how much in total sales to breakeven? $800,000
The contribution margin is the difference between sales and variable costs.
If the variable cost per unit goes up? The contribution margin decreases and the breakeven point increases.
If a company sells one unit above the breakeven point, the net income would be equal to? the unit contribution margin
Which one of the costs are irrelevant to business decisions? Sunk Cost
Which costs are relevant to business decisions? avoidable costs, variable costs, costs that differ between alternatives
The act of granting division-level managers authority by top management is commonly referred to as: decentralization
In a make or buy decision, relevant costs include: direct materials costs per unit, outside purchase price per unit, direct labor costs per unit
Managers can improve ROI by: reducing variable and/or fixed costs.
What does Residual Income (RI) measure in the context of financial performance? The profit remaining after deducting all costs of capital used to generate revenues.
Which of the following is not a reason for having a decentralized organization? Organizational goals are easily aligned.
Variable costs: vary in total directly and proportionately with the changes in activity.
Electricity used in the factory is a … manufacturing overhead
hourly wages of factory worker (direct labor) are a…variable cost
Property taxes are a… fixed cost
Which of the following is not a user of internal accounting information? commercial lender
Margin of safety is computed as….. actual sales - breakeven sales
A restaurant sells 100,000 KOK burgers and fries for $12. Fixed costs are $300,000 and reported net income is $200,000. What is the total amount of variable expenses reported on the contribution margin income statement? $700,000
Variable costs remain the same per unit, and vary in total
Fixed costs vary per unit, but remain the same in total
As production increases, fixed costs decrease.
Sales minus variable costs = contribution margin
contribution margin minus fixed costs = Net income
Cash is not on the income statement
Managerial Accounting is Internal users only, like managers, CEO, and BOD, net set rules for reporting
Financial accounting is external users only, like investors
Revenue minus expense is Net Income (loss if negative).
Contribution margin is the amount left over to cover fixed costs and contribute to net income.
Contribution margin per unit: sales price per unit minus variable cost per unit = Contribution margin per unit
Hourly wages of a factory worker (direct labor) are variable.
Salary worker is fixed..
Electricity used in the factory is a manufacturing overhead.
Break even point: level of sales where CM=FC: Fixed costs/CM per unit
Target Profit: level of sales where all costs are covered and the company earns an expected Net Income. (Fixed costs+Target Profit)/CM per unit
Margin of Safety: the amount of actual/expected units sold minus units needed to breakeven
As sales price increases, CM increases, and BE decreases
As Variable costs decrease, CM increases, and BE decreases
As Fixed costs decrease, BE decreases
Return on Investment: Operating income/average operating assets
Residual Income: operating income minus (min rate of return times avg. operating assets)s
Purpose of ROI and Residual Income is
ROI and RI formulas (recall formulas only, not calculations or interpretations) from Week 3.
Income Statement
Total Product Costs: Direct Materials + Direct Labor + Manufacturing Overhead
Contribution Margin Per Unit: Sales Price Per Unit - Variable Costs Per Unit
Breakeven point in units: Total fixed costs/Contribution margin per unit
Sales in units to achieve a target profit: (Total fixed costs + Target profit)/ Contribution margin per unit
Return on Investment: Operating Income / Average Operating Assets
Residual Income: Operating Income - (Minimum Rate of Return x Average Operating Assets)
No calculations on this, but know the formula and concept:
Margin of Safety: Number of Expected units - Number of units needed to break even