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Questions and Answers
The CVP income statement classifies costs:
The CVP income statement classifies costs:
- as variable or fixed and computes contribution margin (correct)
- as variable or fixed and computes gross profit
- by function and computes a gross profit
- by function and computes a contribution margin
Contribution margin is the amount of revenue remaining after deducting:
Contribution margin is the amount of revenue remaining after deducting:
- fixed costs
- contra-revenue
- cost of goods sold
- variable costs (correct)
Concord's CVP income statement included sales of 3500 units, a unit selling price of $300, unit variable cost of $180, and fixed expenses of $110,000. Net income is:
Concord's CVP income statement included sales of 3500 units, a unit selling price of $300, unit variable cost of $180, and fixed expenses of $110,000. Net income is:
- $420,000
- $310,000 (correct)
- $520,000
- $1,050,000
The contribution margin ratio is:
The contribution margin ratio is:
Sales mix is:
Sales mix is:
What is the key factor in determining sales mix if a company has limited resources?
What is the key factor in determining sales mix if a company has limited resources?
The margin of safety ratio:
The margin of safety ratio:
The degree of operating leverage:
The degree of operating leverage:
Which cost is NOT charged to product under variable costing?
Which cost is NOT charged to product under variable costing?
Net income under variable costing is contribution margin less:
Net income under variable costing is contribution margin less:
Net income under absorption costing is higher than net income under variable costing:
Net income under absorption costing is higher than net income under variable costing:
Only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs when using:
Only direct materials, direct labor, and variable manufacturing overhead costs are considered product costs when using:
Companies recognize fixed manufacturing overhead costs as period costs when incurred when using:
Companies recognize fixed manufacturing overhead costs as period costs when incurred when using:
Bramble Corp. sells 5720 units of Product A and 7280 units of Product B annually. The sales mix for Product A is:
Bramble Corp. sells 5720 units of Product A and 7280 units of Product B annually. The sales mix for Product A is:
Concord Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 80% for Sporting Goods and 20% for Sports Gear, as determined by total sales dollars. The contribution margin ratio for Sporting Goods is 25%, while for Sports Gear it is 60%. The weighted-average contribution margin ratio is:
Concord Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 80% for Sporting Goods and 20% for Sports Gear, as determined by total sales dollars. The contribution margin ratio for Sporting Goods is 25%, while for Sports Gear it is 60%. The weighted-average contribution margin ratio is:
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Study Notes
CVP Income Statement
- Classifies costs as variable or fixed, calculating contribution margin.
Contribution Margin
- Represents revenue left after deducting variable costs.
Net Income Calculation
- Given 3,500 units sold at $300 unit price and $180 unit variable cost, net income is $310,000.
- Formula used: (Unit Selling Price - Unit Variable Cost) x Units Sold - Fixed Expenses.
Contribution Margin Ratio
- Calculated by dividing contribution margin by total sales dollars.
Sales Mix
- Defined as the relative percentage of a company's total product sales.
Key Factor in Sales Mix
- The contribution margin per unit of limited resource is critical when resources are restricted.
Margin of Safety Ratio
- Indicates the percentage decline in sales a company can withstand before incurring losses.
Degree of Operating Leverage
- Computed by dividing total contribution margin by net income, assessing earnings volatility.
Variable Costing
- Does not include fixed manufacturing overhead in product costs.
Net Income under Variable vs. Absorption Costing
- Variable costing includes contribution margin less fixed manufacturing overhead and fixed selling/admin expenses.
- Absorption costing yields higher net income than variable costing when production exceeds sales.
Product Costs in Variable Costing
- Only direct materials, direct labor, and variable manufacturing overhead are considered product costs.
Fixed Manufacturing Overhead Costs
- Recognized as period costs under variable costing.
Sales Mix Example
- Bramble Corp. sells 5,720 units of Product A and 7,280 of Product B; Product A’s sales mix is 44% calculated by dividing its units sold by total units sold.
Weighted-Average Contribution Margin Ratio
- For Concord Corporation with a sales mix of 80% sporting goods (25% contribution margin) and 20% sports gear (60% contribution margin), the weighted-average contribution margin ratio is 32%.
- Formula: (Sales Mix x Contribution Margin for each product).
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