Managerial Accounting Midterm Answers – Flashcards
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current ratio
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current assets / current liabilities
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quick acid test
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cash, a/r, marketable securities / current liabilities
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working capital
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current assets - current liabilities
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accounts receivable turnover
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sales / accounts receivable
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inventory turnover
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cgs / inventory
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debt to asset ratio
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total debt / total assets
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debt to equity ratio
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total debt / total equity
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# times interest earned
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earnings before interest and taxes (EBIT or net operating income) / interest expense
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plant assets to long term debt
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net plant, prop, and equip / total long term debt
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net margin / return on sales
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net income / sales
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return on assets
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net income / total assets
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return on equity
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net income / equity
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asset turnover
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sales / average total assets
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earnings per share EPS
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(net income - preferred dividends) / # shares common outstanding
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price to earnings
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market price of stock / EPS
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book value per share
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(total equity - par * #shares pref stock) / outstanding common shares
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dividend yield
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dividend 1 share / mkt price 1 share
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dividend payout ratio
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dividend per share / EPS
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gross margin %
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(sales - CGS) / sales
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average collection period
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365 / AR turnover
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average sale period
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365 / inv turnover
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direct labor costs
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wages paid to factory employees who work directly on the products being manufactured
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direct materials costs
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expenses paid for parts and materials that become part of finished products
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manufacturing overhead costs
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all costs other than materials and labor. can include depreciation, depletion, etc
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marketing and selling costs
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all expenses associated with marketing the finished products and getting the product to the customer
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administrative costs
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costs incurred for the general administration of the organization
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product costs
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all costs required to make a product (direct labor, direct materials, manufacturing overhead)
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period costs
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reported on the income statement as they are incurred (marketing and selling costs, administrative costs)
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direct versus indirect manufacturing
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direct labor and direct materials are directly having to do with the products indirect labor are wages paid to people who are involved in the production, but do not touch the product itself (ie managers salaries) indirect materials are low cost materials used to create the product that are hard to track the exact amount (ie glue, tape, screws)
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variable costs
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costs that change in direct proportion with activity level
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fixed costs
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costs that don't change with activity level
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mixed costs
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combination of fixed and variable costs
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contribution margin
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cm = sales - variable costs
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Indicate whether each would be a direct labor, direct materials, manufacturing overhead, selling, or administrative cost 1. The wages of employees who build sailboats. 2. The cost of advertising in the local newspapers. 3. The cost of an aluminum mast installed in a sailboat. 4. The wages of the assembly shop's supervisor. 5. Rent on the boathouse. 6. The wages of the company's bookkeeper . 7. Sales commissions paid to the company's salespeople. 8. Depreciation on power tools.
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1. Direct Labor 2. Selling 3. Direct Materials 4. Overhead 5. Overhead, Selling, Administrative 6. Administrative 7. Selling 8. Overhead
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Classify each cost listed as either a product or period cost. 1. The cost of the memory chips used in a radar set. 2. Factory equipment maintenance costs. 3. Training costs for new administrative employees. 4. Telephone expenses incurred by factory management. 5. The cost of air-conditioning executive offices. 6. Depreciation on the equipment in the fitness room used by factory workers.
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1. product 2. product 3. period 4. product 5. period 6. product
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Koffee Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,100 and the variable cost per cup of coffee served is $0.26. What is the a) fixed cost for producing 1900 cups? b) variable cost for producing 1900 cups? c) total cost for producing 1900 cups? d) average cost per cup of coffee served?
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a) $1,100 b) $494 c) $1,594 d) $0.839
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Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company's cost analyst has determined that if a truck is driven 120,000 miles during a year, the average operating cost is 11.6 cents per mile. If a truck is driven only 80,000 miles during a year, the average operating cost increases to 13.6 cents per mile. 1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation. 2. If a truck were driven 100,000 miles during a year, what total cost would you expect to be incurred?
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1. Variable Cost per Mile: $0.076 per unit Fixed Cost per Year: $4,800 2. $12,400
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Last month when Harrison Creations, Inc., sold 40,000 units, total sales were $300,000, total variable expenses were $240,000, and fixed expenses were $45,000. 1. What is the company's contribution margin (CM) ratio? 2. Estimate the change in the company's net operating income if it were to increase its total sales by $1,500.
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1. CM ratio: 20% 2. change in net operating income: $300
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Selling price: $75 per unit Variable exp: $45 per unit CM: $30 per unit Fixed expenses are $75,000 per month and the company is selling 3,000 units per month The marketing manager believes that an $8,000 increase in the monthly advertising budget would increase monthly sales by $15,000. Calculate the increase or decrease in net operating income.
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Net operating income decreases by $2,000
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Selling price: $75 per unit Variable exp: $45 per unit CM: $30 per unit Fixed expenses are $75,000 per month and the company is selling 3,000 units per month Management is considering using higher-quality components that would increase the variable cost by $3 per unit. The marketing manager believes that the higher-quality product would increase sales by 15% per month. Calculate the change in total contribution margin.
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Total contribution margin increases by $3,150
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Liman Corporation has a single product whose selling price is $140 and whose variable expense is $60 per unit. The company's monthly fixed expense is $40,000. 1. Determine the unit sales that are required to earn a target profit of $,6000. 2. Determine the dollar sales that are required to earn a target profit of $8,000.
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1. 575 units 2. $84,000
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Maxson Products distributes a single product, a woven basket whose selling price is $8 and whose variable cost is $6 per unit. The company's monthly fixed expense is $5,500. 1. Compute for the company's break-even point in unit sales using the equation method. 2. Compute for the company's break-even point in sales dollars using the equation method and the CM ratio.
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1. 2,750 2. CM ratio 0.25, Break-even point in $ sales: $22,000
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Selling price: $25 per unit Variable expenses: $15 per unit Fixed expenses: $8,500 per month Unit sales: 1,000 units per month 1. Compute the company's margin of safety. 2. Compute the company's margin of safety as a percentage of its sales.
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1. $3,750 2. 15%
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What are the components of this equation? Y = aX + b
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Y = total mixed costs a = total fixed costs X = level of activity b = variable costs per unit of activity
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What is the CM Ratio formula
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CM / Sales or (Sales - Total Variable Costs) / Sales
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units sold 10,000 selling price per unit $15 variable exp PU $2 variable adm exp PU $1 total fixed selling exp $20,000 total fixed admin exp $15000 merch inventory, beg $12,000 merch inventory, end $22,000 merch purchases $90,000 calculate the net operating income
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$5,000
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sales (8000 units) $208,000 variable expenses $144,000 contribution margin $64,000 fixed expenses $56,000 net operating income $8,000 1. find the net operating income if the sales volume is increased by 50 units 2. find the net operating income if the sales volume is decreased by 50 units 3. find the net operating income if the sales volume is 7,000 units
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1. $8,400 2. $7,600 3. $0
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what is the formula for: unit sales to break even
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unit sales to break even = fixed expenses / unit CM
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what is the formula for: dollar sales to break even
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dollar sales to break even = fixed expenses / CM ratio
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sales: $30,000 variable expenses: $22,800 fixed expenses: $6,800 net operating income: $400 calculate the break even point in sales dollars
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$28,333
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sales: $30,000 variable expenses: $23,400 fixed expenses: $6,800 net operating loss: ($200) calculate the break even point in sales dollars
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$30,909
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sales: $30,000 variable expenses: $20,400 fixed expenses: $8,600 net operating income: $1,000 calculate the break even point in sales dollars
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$26,875
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what is the formula for: margin of safety
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total sales - break even sales
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what is the formula for: calculating target profit quantity
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target profit = unit CM * Q - fixed expenses (you are solving for Q)
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what is the formula for: calculating target profit in dollar sales
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target profit in dollars = (target profit + fixed expenses) / CM ratio
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Company ABC sales: 30,000 total variable expenses: 23,400 total fixed expenses: 8,600 1. What is the net operating income or net operating loss? 2. What amount of dollar sales must the company maintain, assuming they want to maintain their current net income or net loss?
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1. net operating loss of $200 2. $38,181
