B2

Question 1

What is absorption approach

Answer 1

it is US GAAP and does not segregate fixed and variable costs.

Question 2

What is contribution approach

Answer 2

it is NOT gaap uses variable costing (also called direct costing.

Question 3

What is Unit Contribution Margin equation

Answer 3

Sale Price per unit less Variable cost per unit

Question 4

What is the Contribution Margin Ratio equation

Answer 4

=contribution margin divided by Revenue

also (Sales less Variable Cost) divided by sales

Question 5

Is absorption approach a product cost or a period cost?

Answer 5

Product cost. all fixed factory overhead is treated as a product cost and is included in inventory values

Question 6

Is contribution approach (variable costing) a Product Cost or a Period Cost?

Answer 6

Period Cost. all fixed factory overhead is treated as a period cost and is expensed in the period incurred even if not sold

Question 7

what is the equation for the Break even in units

Answer 7

=Total fixed costs divided by Contribution margin per unit

Question 8

what is the equation for the break even point in dollars

Answer 8

=unit price X breakeven point in units

also = Total fixed costs divided by Contribution Margin Ratio

Question 9

what is the equation for the sales in units

Answer 9

=(Fixed cost + pretax profit) divided by Contribution Margin per unit

Question 10

What is the equation for the sales in dollars

Answer 10

= Variable costs + Fixed Costs + Pretax Profit

Question 11

What is the equation for Contribution Margin Ratio including pretax profit?

Answer 11

Sales = (Fixed Cost + Pretax profit) divided by Contribution margin ratio

Question 12

What is the selling price per unit

Answer 12

=(fixed costs + Variable costs + Pretax profit) divided by number of units sold

Question 13

What is the Margin of Safety in dollars

Answer 13

=Total sales in dollars less Breakeven sales in dollars

Question 14

What is the margin of Safety %

Answer 14

= Margin of safety in dollars divided by Total Sales

Question 15

What is the equation for Target Cost?

Answer 15

=Market Price less required profit

Question 16

Breakeven analysis assumes that over the relevant range:

a. Unit revenues are nonlinear
b. Unit variable costs are unchanged
c. Total costs are unchanged
d. Total fixed costs are nonlinear

Answer 16

b. Unit variable costs are unchanged.
the following are incorrect because they are linear a & d
c is incorrect because total costs are based on the number of units

Question 17

For special order decisions, Presumed excess capacity, why would we accept?

Answer 17

Accept if price is > Variable cost per unit

Question 18

For special order decisions, Presumed Full capacity, why would we accept?

Answer 18

Accept if price > Variable cost per unit + opportunity cost per unit

Question 19

The equation Y =a+bX what do the variables stand for?

Answer 19

Y = the dependent variable. Total cost 
X = the independent variable. Total Units
a = the Y axis intercept, it is the total fixed costs
b = The slope of the regression line. (Δ Y over Δ X)