Question 1

Mist Company sells two products-A and B. Mist predicts that it will sell 2,500 units of A and 1,500 units of B during the next period. The unit contribution margins are $3.50 and $4.80, respectively. What is the weighted-average unit contribution margin?

Accepted Answer

A)
Weighted contribution = ($3.50 × 2,500 units) + ($4.80 × 1,500 units) = $8,750 + $7,200 = $15,950
Weighted-average contribution margin per unit = $15,950 ÷ 4,000 units = $3.99 per unit

Question 2

Which of the following costs is considered a period cost under variable costing?

Accepted Answer

Fixed manufacturing overhead is considered a period cost under variable costing because it is not directly related to production levels and is expensed in the period incurred. Direct labor and direct materials are considered product costs under variable costing because they vary with production levels. Variable manufacturing overhead is also a product cost because it varies with production levels.

Question 3

Antique Works is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen, and collectors. The cost data are as follows: $$\begin{array} { | l | r | } 
\hline \text { Price per unit } & \$ 720 \
\hline \text { Variable costs per unit } & 470 \
\hline \text { Fixed costs per month } & 8,000 \
\hline
\end{array}$$ If Antique expects to sell 40 units per month, what is his margin of safety expressed in units per month?

Accepted Answer

The break-even point in units is calculated as Fixed Costs / (Price per unit - Variable costs per unit) = 8,000 / (720 - 470) = 32 units. The margin of safety in units is the expected sales minus the break-even sales, which is 40 - 32 = 8 units.

Question 4

Browning Company sells two products-X and Y. Product X is sold for $25 per unit and has a variable cost per unit of $15. Product Y is sold for $30 per unit and has a unit variable cost of $20. Total fixed costs for the company are $20,000. Browning Company typically sells three units of Product X for every unit of Product Y. What is the breakeven point in total units?

Accepted Answer

A)
 11ea858e_d72d_6cfd_a31f_674ce1ce4d4d_TB5023_00 Weighted contribution = ($10 × 3) + ($10 × 1) = $40
Weighted-average contribution margin per unit = $40 ÷ 4 = $10
Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit
Required sales in units = ($20,000 + 0) ÷ $10 per unit = 2,000 units

Question 5

Variable costing cannot be used for preparing financial reports for external users, such as investors and creditors.

Accepted Answer

Variable costing only includes variable costs in its calculation of the cost of goods sold and does not allocate fixed costs, which can lead to distorted financial statements. Therefore, it is not accepted by generally accepted accounting principles (GAAP) for external reporting purposes.

Question 6

Becky's Bakery sells three large muffins for every two small ones. A small muffin sells for $3.00, with a variable cost of $2.00. A large muffin sells for $5.00 with a variable cost of $2.50. What is the weighted-average contribution margin? (Round your intermediate calculations to one decimal place)

Accepted Answer

The answer of Becky's Bakery sells three large muffins for...

Question 7

Which of the following is true of absorption costing?

Accepted Answer

Absorption costing considers both variable and fixed manufacturing costs as product costs. This means that these costs are included in the cost of goods sold and inventory valuation for each unit of product.

Question 8

Under variable costing, fixed manufacturing overhead costs are treated as a product cost.

Accepted Answer

Under variable costing, only variable manufacturing costs are treated as a product cost, while fixed manufacturing overhead costs are considered period costs and are expensed in the period they are incurred.

Question 9

Which of the following is true of variable costing?

Accepted Answer

Variable costing only assigns variable manufacturing costs to products, while fixed manufacturing costs are treated as period costs and are expensed in the period in which they are incurred. This method is used to calculate the cost of goods sold and gross profit.

Question 10

Antique Works is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen, and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows: $$\begin{array} { | l | r | } 
\hline \text { Price per unit } & \$ 720 \
\hline \text { Variable costs per unit } & 470 \
\hline \text { Fixed costs per month } & 8,000 \
\hline
\end{array}$$ If Antique expects to sell 40 units per month, how much is his margin of safety expressed in sales revenue?

Accepted Answer

The margin of safety is calculated as the difference between actual sales and break-even sales. Break-even sales = Fixed Costs / (Price per unit - Variable costs per unit) = $8,000 / ($720 - $470) = 32 units. Actual sales = 40 units. Margin of safety in units = 40 - 32 = 8 units. Margin of safety in sales revenue = 8 units * $720 = $5,760.

Question 11

Divine Foods produces a gourmet condiment which sells for $16 per unit. Variable costs are $6 per unit, and fixed costs are $5,000 per month. If Divine expects to sell 1,500 units, compute the margin of safety in units.

Accepted Answer

B)
 11ea858e_d72c_f7c7_a31f_5df9a8b08064_TB5023_00 Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit
Required sales in units = ($5,000 + 0) ÷ $10 = 500 units
Expected sales - Breakeven sales = Margin of safety in units
1,500 units - 500 units = 1,000 units

Question 12

The primary focus of a contribution margin income statement is on gross profit.

Accepted Answer

The primary focus of a contribution margin income statement is on the contribution margin, which is the difference between total sales revenue and variable costs. Gross profit is a component of contribution margin, but not the primary focus.

Question 13

The only difference between absorption costing and variable costing in the determination of product costs is the way fixed manufacturing overhead costs are treated.

Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in product costs, while under variable costing, they are expensed as period costs.

Question 14

The type of information provided by managerial accounting differs from the information provided by financial accounting.

Accepted Answer

Managerial accounting provides information for internal decision-making, planning, and controlling operations of a company, while financial accounting provides information for external stakeholders such as investors, creditors, and regulators. Managerial accounting is more detailed and time-sensitive, whereas financial accounting is regulated by accounting standards and is prepared according to Generally Accepted Accounting Principles (GAAP).

Question 15

Divine Foods produces a gourmet condiment which sells for $16.00 per unit. Variable costs are $6 per unit, and fixed costs are $5,000 per month. If Divine expects to sell 1,500 units, compute the margin of safety in dollars.

Accepted Answer

A)
 11ea858e_d72c_f7c8_a31f_179538365fd8_TB5023_00 Required sales in units = (Fixed costs + Target profit) ÷ Contribution margin per unit
Required sales in units = ($5,000 + 0) ÷ $10 = 500 units
Margin of safety in units × Sales price per unit = Margin of safety in dollars
(1,500 units - 500 units) × $16 per unit = $16,000

Question 16

The purpose of managerial accounting is to provide managers with information that is useful for internal decision making.

Accepted Answer

Managerial accounting is focused on providing managers with information that can help them make informed decisions related to planning, controlling, and evaluating the operations of their organization. This information is not intended for external parties, like investors or lenders, and is often not subject to the same reporting requirements as financial accounting information.

Question 17

McDaniel Company sells two products-J and B. McDaniel predicts that it will sell 7,200 units of J and 5,600 units of B in the next period. The unit contribution margins are $2.85 and $6.30, respectively. What is the weighted-average unit contribution margin?

Accepted Answer

D)
Weighted contribution = (7,200 × $2.85) + (5,600 × $6.30) = $55,800
Weights = 7,200 units + 5,600 units = 12,800 units
Weighted-average contribution margin per unit = $55,800 ÷ 12,800 = $4.36

Question 18

Under variable costing, the fixed manufacturing overhead costs are classified as period costs and are expensed in the period in which they are incurred.

Accepted Answer

Under variable costing, fixed manufacturing overhead costs are expensed as period costs in the period in which they are incurred, rather than being included in the cost of goods sold as with absorption costing.

Question 19

Jackson Company has provided the following information regarding the two products that it sells: $$\begin{array} { | l | r | r | } 
\hline & \text { Jet Boats } & \text { Ski Boats } \
\hline \text { Sales price per unit } & \$ 8,000 & \$ 20,000 \
\hline \text { Variable cost per unit } & \$ 4,800 & \$ 14,000 \
\hline
\end{array}$$ Annual fixed costs are $280,000.
How many units must be sold in order for Jackson to breakeven, assuming that Jackson sells five jet boats for every two ski boats sold?

Accepted Answer

The answer of Jackson Company has provided the following information...

Question 20

Pep Soda, a local convenience store, sells soft drinks. It sells two large drinks for every small drink. A large drink sells for $1.50 with a variable cost of $0.60. A small drink sells for $1.00 with a variable cost of $0.50. The weighted average contribution margin is: (Round your intermediate calculations and final answer to two decimal places)

Accepted Answer

To find the weighted average contribution margin, we need to calculate the contribution margin per unit of each size of drink, weighted by the proportion in which they are sold.

Large Drink Contribution Margin = Selling Price - Variable Cost = $1.50 - $0.60 = $0.90
Proportion sold = 2/3

Small Drink Contribution Margin = Selling Price - Variable Cost = $1.00 - $0.50 = $0.50
Proportion sold = 1/3

Weighted Average Contribution Margin = (0.9 * 2/3) + (0.5 * 1/3) = 0.6 + 0.1667 = $0.77 per drink.

Therefore, the best choice is C.

Quiz 4: Cost-Volume-Profit Analysis