Exam 2: Ch 18-19

Question 1

Variable cost

Answer 1

Change with total volume, variable cost per unit stays the same
Diagonal line

Question 2

Fixed cost

Answer 2

Don’t change with total volume, fixed cost per unit decreases as volume increases
Horizontal line

Question 3

CVP (cost-volume-profit) analysis and what it’s for

Answer 3

Used to predict how changes in costs and sales levels affect profit

Question 4

Step wise cost

Answer 4

Stair pattern, fixed within relevant range of operations

Question 5

Cost estimation methods

Answer 5

Scatter diagram, high low, regression

Question 6

CM Income Statement

Answer 6

Sales
-variable
=CM
- fixed costs
=income

Question 7

Mixed cost

Answer 7

Fixed part- >0 when volume =0;
Variable part- increase when volume increases

Question 8

CM Income Statement method at break even

Answer 8

1. Set income to 0
2. Set CM=fixed costs
3. Find # units by CM/CMpu
4. Multiply/add

Question 9

Variable costing

Answer 9

Fixed OH goes to period expenses

Question 10

Absorption costing

Answer 10

Everything in product costs (COGS), required for external financial reporting under GAAP but causes overproduction leading to poor managerial decisions

Question 11

Income effects

Answer 11

Production>Sales=Absorption>Variable
Production<Sales=Absorption<Variable

Question 12

Incentive problem

Answer 12

Avoided when using variable costing as managers can’t just increase income by producing more without the sales to go with it

Question 13

Variable costing Income Statement

Answer 13

Sales-
Variable COGS and selling/GA
=CM
-fixed OH and selling/GA
=income

Question 14

Determine selling price

Answer 14

1. Absorption cost per unit
2. Target selling price/unit=1*1.TM

Question 15

When should managers accept special orders

Answer 15

If price of special exceeds variable cost