Accounting 202: Management Accounting! Quiz

Calculations:
Sales $ 300,000
Less: Variable expense $ 175,000
Contribution Margin 125,000

On a contribution margin income statement, all variable costs are listed above the contribution margin line. This is because the contribution margin represents the amount of revenue remaining after deducting variable costs. By listing variable costs above the contribution margin line, it allows for a clear separation between the costs directly associated with generating revenue (variable costs) and the contribution margin itself. This presentation helps in analyzing the profitability and efficiency of the company's operations.

Managers use account analysis to classify costs as variable, fixed, or mixed. This method involves examining each cost account and determining whether the cost varies with changes in production levels (variable), remains constant regardless of production levels (fixed), or has elements of both (mixed). It requires analyzing historical data, considering the nature of the cost, and using professional judgment to make the classification. This method is subjective and relies on the manager's expertise and understanding of the business operations.

Satellite TV is classified as a mixed cost because it consists of both fixed and variable components. The fixed cost is the $30.00 per month charge, which remains constant regardless of the number of pay-per-view movies watched. The variable cost is the $3.99 charge for pay-per-view movies, which varies based on the number of movies purchased. Therefore, the total cost of Satellite TV is a combination of these fixed and variable costs, making it a mixed cost.

The intercept coefficient represents the fixed cost component in a regression equation. It is the value of the y-intercept, which indicates the expected value of the dependent variable when all independent variables are set to zero. In other words, it represents the fixed cost or the constant term in the regression equation.

The annual straight line depreciation expense on a company's building is considered a fixed cost. This is because it is a predictable and consistent expense that does not vary with changes in production or sales levels. Fixed costs are expenses that remain constant over a certain period of time, regardless of the company's level of activity. In the case of depreciation, it is spread out evenly over the useful life of the building, resulting in a fixed annual expense.

The local phone service that charges a flat fee for unlimited local calls is considered a fixed cost. This is because the cost remains constant regardless of the level of activity or usage. Whether there are few or many local calls made, the flat fee remains the same. Fixed costs do not vary with changes in production or sales volume.

6,000 x 54 = 324,000
Variable costs y = vx Mixed costs y = vx + f

The high-low method is a technique used to estimate fixed and variable costs in a mixed cost function. In order to accurately determine these costs, data points with the highest volume and the lowest volume should be selected. By choosing the highest volume data point, we ensure that we capture the maximum variation in costs, while selecting the lowest volume data point helps to account for any fixed costs that may be present. This combination allows for a more accurate estimation of the fixed and variable costs in the high-low method.

Step costs cannot be accurately represented by a single straight line because they do not vary continuously with the level of activity. Instead, step costs remain constant within a certain range of activity and then abruptly increase or decrease when the activity level crosses a certain threshold. This means that the cost does not change in a linear manner and cannot be accurately represented by a single straight line.

The contribution margin represents the amount of revenue that is available to cover fixed expenses and contribute to profit after deducting variable expenses. It is calculated by subtracting the variable expenses from the sales. This is because variable expenses directly vary with the level of production or sales, and by deducting them from sales, we can determine the amount that is left to cover fixed expenses and contribute to the company's profitability.

On a traditional income statement, sales revenue less cost of goods sold equals gross profit. Gross profit represents the amount of money left after subtracting the direct costs associated with producing the goods or services sold. It indicates the profitability of the company's core operations and does not take into account other expenses such as operating expenses or taxes.

Total fixed costs remain the same as production levels change within the relevant range because fixed costs do not vary with the level of production. Fixed costs are expenses that do not change regardless of the production volume, such as rent, insurance, and salaries. These costs are incurred regardless of whether the company produces more or less. Therefore, the statement that total fixed costs remain the same as production levels change within the relevant range is true.

Variable costs are costs that change in direct proportion to the level of production or output. This means that the cost per unit remains constant, but the total cost varies depending on the level of output. For example, if a company produces 100 units and the variable cost per unit is $5, the total variable cost would be $500. However, if the company produces 200 units, the total variable cost would be $1000. Therefore, the statement "They are fixed per unit and vary in total" accurately describes variable costs.

Committed fixed costs are expenses that a company must incur regardless of its level of production or sales. These costs are typically long-term in nature and cannot be easily changed or eliminated by management. Examples of committed fixed costs include rent, insurance premiums, and salaries of permanent employees. Unlike discretionary fixed costs, which can be adjusted or eliminated at management's discretion, committed fixed costs are not under the control of management. Therefore, the correct answer is committed fixed costs.

Depreciation is considered a committed fixed cost because it is a non-cash expense that occurs over time and is necessary for the operation of a business. It represents the gradual decrease in the value of an asset, such as equipment or buildings, due to wear and tear or obsolescence. Unlike variable costs, which fluctuate with production levels, depreciation remains constant regardless of the level of production. Therefore, it is considered a committed fixed cost that a business must incur to maintain its operations.

Traditional income statements organize costs by function. This means that costs are categorized based on the different functions or activities within a business, such as production, marketing, or administration. By organizing costs in this way, it becomes easier to analyze and understand where the expenses are occurring and how they relate to the different areas of the business. This can help management make informed decisions and identify areas where costs can be reduced or optimized.

Renting a car and paying a daily rate plus a charge per mile driven is an example of a mixed cost. This is because the cost includes both a fixed component (the $15 per day) and a variable component (the $.03 per mile). The fixed cost portion remains constant regardless of the number of miles driven, while the variable cost portion increases as the number of miles driven increases.

On a contribution margin income statement, fixed costs are listed below the contribution margin line. This is because the contribution margin represents the amount of revenue remaining after deducting variable costs. Fixed costs are not directly related to the level of production or sales, so they are not included in the contribution margin calculation. By listing fixed costs below the contribution margin line, the statement shows the total contribution margin before deducting fixed costs to arrive at the net income.

Straight-line depreciation expense is considered a fixed cost because it remains constant regardless of the level of production or sales. This cost is associated with the wear and tear or obsolescence of long-term assets, such as buildings or equipment, and is spread out evenly over the asset's useful life. Unlike variable costs, which fluctuate with changes in production or sales volume, straight-line depreciation expense remains the same and is considered a necessary cost for maintaining and replacing assets over time.

When predicting costs at other volumes using a cost equation derived from either the high-low method or regression analysis, managers should consider outliers, general inflation, and seasonality. Outliers are data points that deviate significantly from the rest of the data, and they can have a significant impact on cost predictions. General inflation refers to the overall increase in prices over time, which can affect the cost of resources and materials. Seasonality refers to recurring patterns or fluctuations in costs that are influenced by factors such as holidays, weather, or demand. Considering all of these factors is important for accurate cost predictions.

Manufacturing overhead is usually considered a mixed cost because it consists of both fixed and variable components. Fixed costs are those that do not change with the level of production, such as rent or depreciation on factory equipment. Variable costs, on the other hand, fluctuate with the level of production, such as direct labor or raw materials. Manufacturing overhead includes expenses like factory utilities, maintenance, and indirect labor, which can have both fixed and variable elements. For example, the cost of utilities may be relatively fixed, while the cost of indirect labor may vary based on production levels. Therefore, manufacturing overhead is typically categorized as a mixed cost.

Variable costs per unit refer to costs that change in direct proportion to the level of production. In this case, the statement that variable costs per unit will remain the same as production levels change within the relevant range is true. This means that regardless of the increase or decrease in production, the variable cost per unit will remain constant. This is because variable costs are incurred on a per-unit basis and do not change with the overall level of production.

Total variable costs are costs that vary with the level of production. As production decreases within the relevant range, the total variable costs will also decrease. This is because when production decreases, there is less need for resources and inputs, resulting in lower costs. Therefore, the statement that "They will decrease as production decreases within the relevant range" is true.

Managers should consider both the relevant range of the cost and the type of cost behavior when predicting costs at different volumes. The relevant range of the cost refers to the range of activity levels within which the cost behavior remains consistent. Understanding the relevant range helps managers make accurate predictions about costs. Additionally, the type of cost behavior, such as fixed costs or variable costs, can greatly impact cost predictions. By considering both factors, managers can make more informed decisions and better plan for different volume levels.

A discretionary fixed cost refers to an expense that a company can control and choose to incur or not. Property taxes and insurance are mandatory fixed costs that a company must pay. Depreciation is a non-cash expense that reflects the decrease in value of an asset over time. Employees wages are considered variable costs as they can fluctuate based on the level of production or sales. Advertising, on the other hand, is a discretionary fixed cost as a company can decide how much to spend on advertising activities based on its budget and marketing strategy.

Utilities cost in this scenario is classified as a step cost. This is because the cost increases or decreases in steps as the usage of kilowatt hours crosses certain thresholds. For the first 200 kilowatt hours, the cost is $40, for the next 200 kilowatt hours (201-400), the cost is $85, and for the next 200 kilowatt hours (401-600), the cost is $135 + or -. The cost does not change within each step, but jumps to a different level when a new threshold is reached.

Fixed costs per unit will increase as production decreases because fixed costs are spread over a smaller number of units. When production decreases, the fixed costs are still incurred but are allocated to fewer units, resulting in higher fixed costs per unit.