A-202: Accounting Flashcards

If two companies produce the same product and have the same total sales and same total expenses, operating leverage will be higher in the company with a higher proportion of fixed expenses in its cost structure.

At the break-even point, the total contribution margin and fixed expenses are equal.

All other things the same, a reduction in the variable expense per unit will decrease the break-even point.

Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and the fixed expense per unit is $5 at the current level of sales. The company's net operating income will increase by $10 if one more unit is sold.

One of the advantages of allocating common fixed costs to a product is that such allocations more accurately reflect the product's true profitability.

Consider the following statements: I. A division's net operating income, after deducting both traceable and allocated common fixed costs, is negative. II. The division's avoidable fixed costs exceed its contribution margin. III. The division's traceable fixed costs plus its allocated common corporate costs exceed its contribution margin. Which of the above statements is a valid reason for eliminating the division?

Hal currently works as the fry guy at Burger Haven but is thinking of quitting his job to attend college full time next semester. Which of the following would be considered an opportunity cost of attending college?

Fixed costs may or may not be sunk costs

The term joint cost is used to describe the costs incurred after the split-off point in a process involving joint products.

Segment margin is a better measure of the long-run profitability of a segment than contribution margin.

A national retail company has segmented its income statement by sales territories. If each sales territory statement is further segmented by individual stores, which of the following will most likely occur? the sum total of the individual stores' segment margins in each sales territory will be equal to the segment margin for the sales territory. some traceable fixed expenses in the sales territory segmented statement will become common fixed expenses in the individual store segmented statement. some common fixed expenses in the sales territory segmented statement will become traceable fixed expenses in the individual store segmented statement. the sum total of the sales territory segment margins will equal the total net operating income for the entire company.

Managers will often allocate common fixed expenses to business segments because: not allocating these costs will lead to bad decisions. this is required by law. they do not want the sum of the business segment margins to equal the net operating income for the company. they believe this practice will ensure that the company's common fixed expenses are covered.

Opportunity cost should be ignored in setting the transfer price.

A transfer price is the price charged when a company provides goods or services to an outside company.

In setting a transfer price, which of the following should not be considered? Production capacity of the selling division. Costs eliminated by internal transfers. Fixed production costs of the buying division. Product demand from outside customers.

When a division is operating at full capacity, the transfer price to other divisions should not include opportunity costs.

The selling division in a transfer pricing situation should want the transfer price to cover at least the variable cost per unit plus the lost contribution margin per unit on outside sales.

Garth Corporation sells a single product. If the selling price per unit and the variable expense per unit both increase by 10% and fixed expenses do not change, then what changes happen to contribution margin per unit, contribution margin per ratio, and the break-even point in units: