Sunk costs: costs already incurred‚ cannot be changed by any decision COST behavior‚ fixed vs. variable “in the long term‚ all costs are variable” VC: increase as number of units increases‚ based on level of activity FC: remain same over range of activity‚ “relevant range” over time this changes‚ committed or discretionary‚ the latter wont effect the production capacity. Step or “semi-variable” costs: change in response to
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Fixed cost is the difference between total cost and total variable cost. Answer Selected Answer: True Correct Answer: True Question 2 In general‚ an increase in price increases the break even point if all costs are held constant. Answer Selected Answer: False Correct Answer: False Question 3 Parameters are known‚ constant values that are usually coefficients of variables in equations. Answer Selected Answer: True
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Exercise 1 (Identifying Relevant Costs) Case 1 a. b. c. d. e. f. g. h. i. j. k. l. Item Relevant Sales revenue .................................. X Direct materials ............................... X Direct labor ..................................... X Variable manufacturing overhead .......................................... X Book value – Model E7000 machine ........................................... Disposal value – Model E7000 machine ........................................... Depreciation – Model
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Simulation * Discrete Probability Distribution * Confidence Intervals Calculations for a set of variables Mean Median 3.2 3.5 4.5 5.0 3.7 4.0 3.7 3.0 3.1 3.5 3.6 3.5 3.1 3.0 3.6 3.0 3.8 4.0 2.6 2.0 4.3 4.0 3.5 3.5 3.3 3.5 4.1 4.5 4.2 5.0 2.9 2.5 3.5 4.0 3.7 3.5 3.5 3.0 3.3 4.0 Calculating Descriptive Statistics Descriptive Statistics: Mean‚ Median Variable N N* Mean SE Mean StDev Minimum Q1 Median Q3 Maximum Mean 20 0 3.560 0.106
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(Kimmel‚ P.‚ Weygandt‚ J.‚ & Kieso‚ D. 2003) The analysis is used to maximize efficiency in a business. In order to be effective the CVP analysis has to make several assumptions. These assumptions are that the costs can be fitted into either fixed or variable categories. The next assumption is that changes that a business makes in its activities are the only thing that will affect costs. The business must assume that all units of a good or service are sold. The last two assumptions are that “behavior
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the amount of revenue per product that is available to "contribute" towards the fixed costs and the profit of the company. Since‚ for digital products‚ the variable costs are typically very small‚ or zero‚ most of the revenue earned from the sale of a product form the contribution margin. Assuming the contribution margin (unit price - unit variable cost) > 0‚ then the product is worth marketing‚ since the fixed costs are sunk. This also assumes the product does not cannibalize sales from another product
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000 textbooks are as follows: Direct Materials $94‚500 Direct Labour $45‚000 Variable Manufacturing Overhead $48‚000 Fixed Manufacturing Overhead $96‚000 * Fixed Selling and Administrative $42‚500 Variable Selling and Administrative $25‚000 * Total Fixed Manufacturing Overhead increases to $128‚000 for production levels over 7500 textbooks Required: 1) Determine total variable manufacturing costs to produce one textbook. 2) Determine total manufacturing costs to
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Chapter 18 Test Bank True/False Questions 1. Indirect compensation includes free meals‚ life insurance‚ and discounts on accommodations. (T) * It is a contract between employee and employer * Aim to attract and keep loyal employees * Includes: paid vacation; health benefits; life insurance; free meals; free living accommodation; use of recreational facilities operated by the employer; discounts on accommodations; use of a company vehicle; reimbursement for outside classes; child
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fixed cost and the variable cost of books while calculating the total cost. Finally‚ they overlooked the possible increase in the annual capacity of processed donations that would result from hiring additional employees. To correct these errors‚ I revised the cost schedules and the income statements for both before and after acquiring additional funds. I decided to use the contribution approach because I believe that it will be more relevant to separate the fixed cost and the variable cost‚ since they
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cost for a new project at $100‚000 and a variable cost of $5 per unit. Based on these calculations‚ the low-volume project would not be profitable. She shares her dismay with Nina Smythe‚ another manager. Nina strongly advises her to revise her estimates. She points out that several of the costs that had been classified as fixed costs could be considered variable‚ since they are mixed costs. When the data has been revised classifying those costs as variable costs‚ the project appears viable. Part
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