ACG2071 Final Exam (Text 1 Recap)

1. Which of the following is true if the sales activity increases

i. Total variable costs decreases
ii. Fixed costs per unit increases
iii. Total fixed costs stays the same
iv. Variable cost per unit stays the same
a. i only
b. iii only
c. i and ii
d. iii and iv
e. All of the above
f. None of the

4 Common Cost Behavior Patterns: Variable Costs, Fixed Costs, Step Costs and Mixed Costs

Fixed Cost
Fixed in total
Vary per unit
Cost does not increase or
decrease as you produce
more unit and the activity
level changes.
Think of it as a Total

Variable Cost
Varies in total
Constant per unit
Cost does increase or
decrease as you produce
more unit and the activity
level changes
Think of it as a Per Unit

Step Costs: stays the same in a small activity range, but changes once youre outside of
that range.
Example:

Mixed Cost: it a cost with both fixed and variable components.

Example:

ACG2071 Final Exam (Text 1 Recap)

2. UPS uses the high-low method to analyze their shipping costs. The data for the first six days of the week for the
cost incurred by UPS is presented below:
Day
Shipping Costs
Pounds
Monday
$100
10
Tuesday
$120
7
Wednesday
$130
23
Thursday
$90
21
Friday
$140
15
Saturday
$115
20
If UPS
a)
b)
c)
d)

is anticipating the shipping of 25 pounds in Sunday, what are the estimated costs for Sunday?
$131
$120
$125
$135

Cost Mix Function (Equation)

Total Cost

= +

VC
Per Unit

Total FC

Activity Level
(#of units)

*Note: Once you find your cost function, you can estimate/predict future costs at different activity levels.

ACG2071 Final Exam (Text 1 Recap)

Sales
Direct Materials
Direct Labor

$50,000
$10,320
$2,640

Variable Costs:
Factory Overhead
Selling Expenses
Administrative Expenses

$ 9,280
$3,520
$ 1,840

Fixed Costs:
Factory Overhead
Selling Expenses
Administrative Expenses

GAAP format vs. Contribution margin format)

$4,960
$1,680
$3,440

There were no beginning or ending inventories.

3. What is gross margin?

Gross Margin or Gross Profit = Sales - Cost of Goods Sold

Cost of Goods Sold = Direct Material + Direct labor + All Overhead

Contribution Margin = Sales Variable Cost

4. What is contribution margin?

Variable Cost = Direct Material + Direct labor + Other Variable

5. What is operation income using the....

A. GAAP format?

B. Contribution Margin format?

3

ACG2071 Final Exam (Text 1 Recap)

6. Which of the following will cause the break-even point to decrease?
i. Increase in contribute margin per unit
ii. Decrease in variable expense per unit
iii. Increase in fixed expense
a. i only
b. i and ii
c. ii and iii
d. All of the above will cause the break-even point to decrease
e. None of the above will cause the break-even point to decrease

Sales Price per Unit...

then Break Even Point
Variable Cost per Unit.....
then Break Even point
Contributing Margin per Unit
then Break Even Point
Fixed Cost Total........ then Break Even Point
.

ACG2071 Final Exam (Text 1 Recap)

Sales ($52 per unit)
Less: Cost of goods sold ($33 per unit)
Gross margin
Less operating expenses:
Salaries
Advertising
Shipping ($4 per unit)
Operating Income

$5,980
3,795
2,185
$730
420
460

1,610
$575

7. What is breakeven point?

8. What is the break even sales volume?

( ) ( ) =
( % ) =

ACG2071 Final Exam (Text 1 Recap)

9. Edny's Math Class has sales of $100,000 last year and variable expenses of $20,000 at a sell price of $100.

If the total fixed expense were $50,000, what is the total sales (in dollars and units) necessary to earn a
profit of 40,000 this year?
A. 112,500
B. $40,000
C. $112,500
D. 40,000
E. 400
F. 1125
G. none of the above

( ) ( ) =
( % ) =

ACG2071 Final Exam (Text 1 Recap)

10. Last year Bob Auto Repairs, INC had sales of $280,000 Income of $21,000 and Rent Expense is $175,000.

What is the contributing margin ratio?

Contribution Margin Ratio =

ACG2071 Final Exam (Text 1 Recap)

A local Papa Johns has an annual capacity of 80,000 pizzas per year. Currently, the
company is making and selling 78,000 pizzas a year. The normal sales price is $10 per
large pizzas, variable costs are $5 per pizzas, and total fixed expenses are $200,000.
Edny's Math Class, LLC has offered to buy 5,000 pizzas at $8.50 per pizzas. Papa Johns
will incur a shipping cost of $100 to deliver all those pizzas if they accept this order
11.
12.
13.
14.

By how much will Papa Johns income change if the company accepts this order?
Should they do it? Why?
What is the opportunity cost of not accepting the offer?
What is the opportunity cost of accepting the offer?

Use this formula for special order problems if you have the capacity to do it:

=
At Special Price

Sales Variable Costs

Effect on the
Operating Income
if they accept the
special order
Accept if 0
Reject if < 0

Use this formula for special order problems if you don't have the capacity to do it:

At Special Price

At Normal Price of overage units

Sales Variable Costs

Sales Variable Costs

ACG2071 Final Exam (Text 1 Recap)

The Teddy Bear Sweat Shop manufactures 1,000 teddy bears from their factory in China.
They could also purchase their bears for $12 each from a slave working camp in North
Korea. The Teddy Bear Sweat Shop cost to manufacture each teddy bear are as follows:
Direct materials
Direct Child labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total

$2
3
4
8
$17

75% of fixed overhead is unavoidable and is allocated based on direct child labor.
The facilities that are used to manufacture the part have no alternative uses. If Teddy
Bear Sweat Shop decides to outsource to production of toys than they could lease the
manufacturing facilities to another company for $5,000 per year
15. Should Teddy Bear Sweat Shop continue to manufacture the teddy bears in China?

Make
Direct Material

Buy__
Price

Direct Labor
Other Variable Cost
Avoidable Fix Cost
Opportunity Cost

*** Note: Do whatever is cheaper ***

ACG2071 Final Exam (Text 1 Recap)

A Methane Lab is considering the risk/reward of three illegal products. Per unit sales
and cost information are as follows:
Crack
Meth
Heroin
Sales price
$3.00
$5.00
$16.00
Variable costs
$1.20
$3.40
$10.00
Fixed costs
$0.50
$1.00
$3.50
Labor hours per units
1.2 hours
0.5 hours
5 hours
Monthly demands in units

500

600

240

The company has only 1,800 excess direct labor hours

16. What is the sequence should orders for the three products be filled to maximize the
companys total contribution margin?
17. How many of each product should Methane Lab produce and sell to maximize its profits?
18. How many of each product should Methane Lab produce and sell to maximize its profits if
the Monthly demands in units were instead virtually unlimited demand for each product?

10

ACG2071 Final Exam (Text 1 Recap)

Product
Step 1: Find the Contribution Margin
Per Units
Step 2: Find the Contribution Margin
Per Constraint

*** Go with the one that makes you the most money
per constraint ***

Step 3: Total Constraint per product

Price
( )



(Tells you the order
to allocate it)
Total Constraint

For each product by multiplying

Step 4: Units to produce per product
For each product by dividing

11

ACG2071 Final Exam (Text 1 Recap)

Big Daddy Pimping creates and sells Freaky and Kinky sexual services. Last quarters
operating profits, by product, and for the company as a whole, were as follows:
Freaky
Kinky
Total
Sales revenue
$11,000
$6,6000
$17,600
Variable expenses
(4,400)
(3,000)
(7,400)
Contribution margin
6,600
3,600
10,200
Fixed expenses:
(2,750)
(4,200)
(6,950)
Bitches Salaries
700
780
1480
Share of Rent and Utilities
1000
2000
3000
Baby sitting allowances
300
500
800
Online XXX Advertising
100
400
500
Depreciation of Breast Implants
650
520
1170
Operating income
$3,850
$(600)
$3,250
19. What is the impact operation income if the Kinky services are discontinued?
20. Should they discontinued the Kinky services? Hell Yes or Fuck No
21. If the Kinky services were discontinued, what would total operating income be for the
company as a whole?

Segment Margin

Positive # = Operating Income will decrease by # if discontinued

Negative # = Operating Income will increase by # if discontinued

*** Note: In Determining if you drop or keep not isnt based on a negative/positive
operating income, instead its a comparison between the before and after ***

*** Tip: Direct fixed costs would be those costs that specifically relate to the production of your
manufactured goods. Some examples would be machine rental expense or shift manager's salary. ***
12

ACG2071 Final Exam (Text 1 Recap)

Additional Revenue - Additional Cost

Positive = Process it further
Zero or Negative = Sell as is
Cow Manure Fertilizer, Inc makes three products from cow manure fertilizer. Joint
processing costs up to the split-off point total $350K a year. Each product may be sold at
the split-off point or processed further. Data concerning these products appear below:
Hamburger Seasoning
$ 20,000
Sales value at split-off point
$26,300
Cost of further processing.
Sales value after further processing. $ 50,200

Perfume

UF Shirts

$28,000

$48,000

$24,500

$50,800

$48,600

$98,800

22. Which product should be processed after split-off to maximize the companys profits?
i. Hamburger Seasoning, Perfume, and UF Shirts
ii. Hamburger Seasoning and Perfume only
iii. Hamburger Seasoning and UF Shirts only
iv. Perfume and UF Shirts only
v. UF Shirts only
vi. Perfume only
vii. Hamburger Seasoning only

23. What is the net monetary advantage or disadvantage for Cow Manure Fertilizer, Inc of
processing Perfume beyond the split off point?
13