break even topic of finance

8/10/2019 Break Even Topic of Finance

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Chapter 9

True/False

6.Changes in inventory levels do not afect income amounts between variable and absorptioncosting because the diference in accounting or ed manuacturing overhead ofsets theefect.

!."#ariable costing" should be called "variable manuacturing costing" when nonmanuacturingvariable costs are ignored in the computation o the contribution margin.

$.#ariable costs o value chain areas other than manuacturing are typically written of asperiod costs% regardless o the costing method used.

9.#ariable costing will generally report less operating income than absorption costing when theinventory level decreases.

&'.There is an inverse relationship between the number o units produced and the number ounits sold in absorption costing brea()even analysis.

&$)&9.*onda *eaven produces and sells an auto part or +,'.'' per unit. -irect materials are+$ per unit% while direct manuacturing labor averages +&.' per unit. #ariable overhead is+'.' per unit and ed overhead is +,'%''' per year. dministrative epenses% all ed% run

+9'%''' per year% with sales commissions o +, per part. 0roduction is &''%''' parts per year.1n &9&% !%''' boes were sold.

&$. 2hat is the inventory cost per bo using variable costing3

a. + 9.' b. +&'.'' c. +&,.' d. +&4.'

&9. 2hat is the inventoriable cost per bo using absorption costing3

a. + 9.' b. +&'.'' c. +&,.' d. +&4.'

,'.5nder variable costing% which o the ollowing epenses are 7T inventoriable3

a. direct materials and variable manuacturing overhead

b. direct manuacturing labor and variable manuacturing overhead

c. mar(eting and direct manuacturing labor

d. mar(eting and administrative

,&.7ne o the biggest reasons variable costing is controversial 1#78#:

a. eternal nancial statements.

b. corporate goals and mission statements.

c. internal management control reports.

d. internal management reports.

,,.#ariable costing regards ed manuacturing overhead as

a. an unepired cost.

b. an inventoriable cost.

c. a charge against sales.

d. a product cost.

;!.2hich o the ollowing statements is 7T C7


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d. bsorption operating income does not eceed variable costing operating income i there is anet deerral o ed manuacturing overhead.

;$.The diference between absorption costing and variable costing is more important or mostmanuacturers because

a. o the diference in changing inventory systems.

b. o the large amounts o inventory involved.c. absorption)costing is re=uired or >ust)in)time inventory.

d. o the diference in the treatment o inventory costs.

;9% 6)!.?r. @ohnson% :tratord Alass CompanyBs president% has heard that there are multiplebrea()even points or every product. *e does not believe this and has as(ed you to provide theevidence o such a possibility. :ome inormation about :tratord Alass Company or &9& is asollows

Total ed manuacturing overhead +;6'%'''

Total other ed epenses +4''%'''

Total variable manuacturing epenses +,4'%'''

Total other variable epenses +,4'%'''

5nits produced &,'%''' Dudgeted production &,'%'''

5nits sold &''%'''

:elling price + ,'

;9. 2hat is the brea()even sales in units using variable costing3

a. ,,%'' units b. ,;%'!! units c. 4!%'' units d. 4$%!&$ units

6. 2hat is brea()even sales in units using absorption costing3

a. ,,%'' units b. ,6%66! units c. ;'%!69 units d. ;,%''' units

!. 2hat is brea()even sales in units using absorption costing i the production units areactually &''%'''3

a. ,,%'' units b. ,6%66! units c. ;'%66! units d. ;%;$ units

4'% 9)6'.leanderBs incurred the ollowing epenses during &9&

Fied manuacturing overhead +9'%'''

Fied nonmanuacturing costs +!'%'''

5nit selling price + ,''

Total unit cost + $'

Fied manuacturing overhead rate + 4'

5nits produced &%;4'

4'. 2hat will be the brea()even point i variable costing is used3

a. &%;;4 units b. &%&, units c. &%''' units d. 6; units

9. 2hat will be the brea()even point in units i absorption costing is used3

a. &%;;' units b. &%''' units c. $$! units d. 6; units

6'. 2hat is the brea()even point in units using absorption costing i the units produced areactually ,%''3

a. &%;;' units b. &%''' units c. $$! units d. $4 units

4)46.Dalloon rrangements produces balloon bou=uets. The ollowing inormation has beenprovided by management

Dudgeted production &''%''' bou=uets

-irect manuacturing costs +,.'/bou=uet

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Fied manuacturing overhead +&.''/bou=uet

#ariable manuacturing overhead +'.!/bou=uet

#ariable administrative costs +&.,/bou=uet

4. 2hat is the cost per bou=uet i "super)absorption costing" is used3

a. +.' b. +4.! c. +;.! d. +,.'

46. 2hat is the cost per bou=uet i "super)variable costing" is used3

a. +.' b. +4.! c. +;.! d. +,.'

4!.ll o the ollowing are eamples o drawbac(s o using absorption costing EC0T

a. it allows management the ability to manipulate operating income via production schedules.

b. manipulation o operating income may ultimately increase the companyBs costs incurred overthe long run.

c. the companyBs sales level typically doesnBt reect the manipulation o production schedules.

d. a manager may increase maintenance activities above the budgeted level or the currentperiod.

4$.2hich o the ollowing criteria should be used to evaluate management according to criticso absorption costing3

a. the etent to which inventoried costs are decreased

b. the etent to which nancial perormance measures are used

c. the etent to which operating income is increased

d. the etent to which production =uotas are met

49.0ractical capacity is the denominator)level concept that

a. reduces theoretical capacity or unavoidable operating interruptions.

b. is the maimum level o operations at maimum eGciency.

c. is based on the level o capacity utiliHation that satises average customer demand overperiods generally longer than one year.

d. is based on anticipated levels o capacity utiliHation or the coming budget period.

69.8ongview Aol Company sells a special putter or +,' each. 1n ?arch% it sold ,$%''' putterswhile manuacturing ;'%'''. There was no beginning inventory on ?arch &. 0roductioninormation or ?arch was

-irect manuacturing labor per unit & minutes

Fied selling and administrative costs + 4'%'''

Fied manuacturing overhead &;,%'''

-irect materials cost per unit ,

-irect manuacturing labor per hour ,4

#ariable manuacturing overhead per unit 4

#ariable selling epenses per unit ,


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-uring &9,% the company bought another ,%''')acre island and developed it eactly the sameway. 8ot sales in &9, totaled ;'' with an average selling price o +&6'%'''. ll costs werethe same as in &9&.


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Answers

6.False

!.False

$.True

9.False

&'.True

&$.b +$.'' I +&.' I +'.' J +&'.''

&9.c +$.'' I +&.' I +'.' I K+,'%''' / &''%'''L J +&,.'

,'.d

,&.a

,,.c

;!.d

;$.b

;9.c Drea()even units J K+;6'%''' I +4''%'''L/K+,' ) +, ) +,L

J 4!%'' units

4'.c

Drea()even units J K+9'%''' I +!'%'''L/K+,'' ) +4'L

J +&6'%'''/+&6' J &%''' units

6.c

Drea()even units J M+!6'%''' I K+;6'%'''/&,'%''' K ) &,'%'''LN

))))))))))))))))))))))))))))))))))))))))))))))

K+,' ) +, ) +,L

J K+!6'%''' I +; ) +;6'%'''L/+&6

+&6 J +4''%''' I +;

+&; J +4''%'''

J ;'%!69 units

!.dDrea()even dollars J M+!6'%''' I K+;6'%'''/&,'%''' K ) &''%'''LN

))))))))))))))))))))))))))))))))))))))))))))))

K+,' ) +, ) +,L

J K+!6'%''' I +; ) +;''%'''L/+&6

+&6 J +46'%''' I +;

+&; J +46'%'''

J ;%;$ units

9.c

Drea()even units J K+9'%''' I +!'%'''L I M+4' K ) &%;4'LN

)))))))))))))))))))))))))))))))))))))))))

K+,'' ) +4'L J K+&6'%''' I +4' +;%6''L/+&6'

+&6' J +&'6%4'' I +4'

J $$! units

6'.d

Drea()even units J K+9'%''' I +!'%'''L I M+4' K ) ,%,'LN

)))))))))))))))))))))))))))))))))))))))))

K+,'' ) +4'L

J K+&6'%''' I +4' ) +9'%'''L/+&6'

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+&6' J +!'%''' I +4'

J $4 units

4.a +,.' I +&.'' I +'.! I +&., J +.'

46.d =ual to -irect ?aterials J +,.'

4!.d

4$.a

49.a

69.a. bsorption #ariable

)))))))))) ))))))))

-irect manuacturing labor K+,4/4L + 6.'' + 6.''

-irect materials ,.'' ,.''

#ariable manuacturing overhead 4.'' 4.''

Fied manuacturing overhead K+&;,%'''/;'%'''L 4.4' '

)))))) ))))))

Total cost per unit +&6.4' +&,.''

JJJJJJ JJJJJJ

b. bsorption #ariable )))))))))) ))))))))

Deginning inventory + ' + '

Cost o good manuactured

;'%''' +&6.4' 49,%'''

;'%''' +&,.'' ;6'%'''

)))))))) ))))))))

Cost o goods available or sale +49,%''' +;6'%'''

Cost o goods sold

,$%''' +&6.4' 49%,''

,$%''' +&,.'' ;;6%'''

)))))))) ))))))))

nding inventory + ;,%$'' + ,4%'''

JJJJJJJJ JJJJJJJJ

c. bsorption costing income statement

:ales K,$%''' +,'L +6'%'''

Cost o goods sold K,$%''' +&6.4'L 49%,''

))))))))

Aross margin +&''%$''

8ess

#ariable selling and administrative +6%'''

Fied selling and administrative 4'%''' 96%'''

))))))) ))))))))

7perating income + 4%$''

JJJJJJJJ

#ariable costing income statement

:ales K,$%''' +,'L +6'%'''

#ariable C7A: K,$%''' +&,L +;;6%'''

#ariable selling epenses K,$%''' +,L 6%''' ;9,%'''

Contribution margin +&6$%'''

Fied costs

Chapter 8 Page 6


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?anuacturing +&;,%'''

?ar(eting 4'%''' &!,%'''

)))))))) ))))))))

7perating income +K 4%'''L

JJJJJJJJ

!'.Cost per site bsorption #ariable )))))))))) ))))))))

8and cost +&'%'''%'''/,'' sites +'%''' + '

Clearing costs %''' %'''

1mprovements $%''' $%'''

))))))) )))))))

Total +6;%''' +&;%'''

JJJJJJJ JJJJJJJ

bsorption Costing 1ncome :tatements &9& &9,

:ales +$%'''%''' +4$%'''%'''

Cost o goods sold' +6;%''' ;%&'%'''

;'' +6;%''' &$%9''%'''

)))))))))) )))))))))))

Aross margin +4%$'%''' +,9%&''%'''

#ariable mar(eting ) $''%''' ) 4%$''%'''

Fied administrative ) $'%''' ) $'%'''

)))))))))) )))))))))))

7perating income +;%,''%''' +,;%4'%'''

JJJJJJJJJJ JJJJJJJJJJJ

#ariable Costing 1ncome :tatements &9& &9,

:ales + $%'''%''' +4$%'''%'''

#ariable epenses

Cost o operations

' +&;%''' ) 6'%'''

;'' +&;%''' ) ;%9''%'''

:elling epenses ) $''%''' ) 4%$''%'''

))))))))))) )))))))))))

Contribution margin + 6%'%''' +;9%;''%'''

Fied epenses

8and )&'%'''%''' )&'%'''%'''

dministrative ) $'%''' ) $'%'''

))))))))))) )))))))))))

7perating income +K4%;''%'''L +,$%4'%'''

JJJJJJJJJJJ JJJJJJJJJJJ

!&.a. Drea()even units J K+94'%''' I +;,'%'''L/K+&'' ) +4' ) +,'L

J +&%,6'%'''/+4'

J ;&%''

b. Drea()even units KL J K+94'%''' I +;,'%''' I K+,;.' K ) 4'%'''LL

Chapter 8 Page 7


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))))))))))))))))))))))))))))))))))))))))))))

+&'' ) +4' ) +,'

J K+&%,6'%''' I +,;.' ) +94'%'''L/+4'

+4' J +;,'%''' I +,;.'

+&6.' J +;,'%'''

J &9%;94 unitsc. Drea()even units KL J K+94'%''' I +;,'%''' I K+, K ) ;!%6''LL

)))))))))))))))))))))))))))))))))))))))))

+&'' ) +4' ) +,'

J K+&%,6'%''' I +, ) +94'%'''L/+4'

+4' J +;,'%''' I +,

+& J +;,'%'''

J ,&%;;4 units

!,.The operating income diference is caused by the %''' units in inventory being assigneded manuacturing costs. The ed manuacturing cost assigned to the inventory is carriedinto the net month. The ed costs per unit were +&' per unit K+4''%'''/4'%'''L% thereore%+&''%''' K&'%''' +&'L were carried into February.

#ariable costing helps avoid conusion by relating variations in epenses to sales rather than toinventory uctuations. 5nder variable costing% the total ed amount K+4''%'''L would beepensed in @anuary and none carried orward into February. Thereore% @anuaryBs incomewould be +&''%''' less than reported and FebruaryBs +&''%''' more than reported.

!;.ast -ivision had the higher income during the rst three years because productioneceeded salesO this stored some o the ed manuacturing costs each year in the endinginventory balances. 2est had the higher income during the last two years because saleseceeded production. -uring these years% ast incurred all o the yearBs ed manuacturingcosts plus those costs that were in inventory rom the prior years.

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