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201-Wk11-Exam Review-S'11 (STUD)

201-Wk11-Exam Review-S'11 (STUD) - Mgmt 201 Managerial...

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page 1 Mgmt. 201 – Managerial Accounting – Week 11 Review for Exam II Professor Thoman page 2 Topics for the exam 1. CVP models (all 3 of them) Margin of safety, operating leverage, learning curve 2. Absorption costing and variable costing 3. Decision making (finding the incremental cash benefits and costs) Joint products

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page 3 Cost-volume-profit (CVP) model – The basics In units: Single product NI = (CM per unit)(Total units sold) - F NI = (P – V)X - F Multiple products NI = (Weighted average CM per unit)(Total units sold) - F In sales: Single or multiple products NI = (CM Ratio)(Sales) – F CM per unit = P – V CM Ratio = (P ! V) P = Contribution Margin Sales Weighted average CM per unit = CM/unit for good 1 " # \$ \$ % & Percentage of total units sold that are good 1 " # \$ \$ \$ % & + CM/unit for good 2 " # \$ \$ % & Percentage of total units sold that are good 2 " # \$ \$ \$ % & page 4 What is the Total Contribution Margin? Identify it in each of the above models. What is the meaning of: CM per unit? CM ratio Weighted average CM per unit How/why are these concepts useful?
page 5 Cost-volume-profit (CVP) model Paterno Company manufactures and sells a single product. Price and cost data regarding Paterno’s product and operations are as follows: Selling price per unit \$50.00 Variable costs per unit: Direct material \$ 22.00 Direct labor 10.00 Manufacturing overhead 5.00 Selling expenses 2.60 Total variable costs per unit \$39.60 Annual fixed costs: Manufacturing overhead \$ 384,000.00 Selling and administrative expenses 552,000.00 Total fixed costs \$936,000.00 1. What is Paterno Company’s break-even point in units? 2. How much sales revenue would Paterno Company have to generate in order to earn a profit of \$520,000 before taxes? 3. Assume Paterno Company’s direct materials costs increase by 8% per unit and fixed selling and administrative costs increase by 10%. Due to excellent cost controls and management labor cooperation, direct labor and manufacturing overhead are not expected to change. What selling price per unit of product must it charge in order to maintain the same contribution margin ratio? page 6 4. Your English professor has read over this problem and does not understand what the contribution margin ratio is or why a company would care if the contribution margin ratio were to decline. Please explain the meaning of the contribution margin ratio and why a company might change its price to keep the contribution margin ratio constant. Use language your English professor could understand.

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page 7 Absorption, variable and throughput costing – The basics Absorption costing Variable costing Throughput costing Product costs (Expense these items only when the products are sold— COGS) DM, DL, VOH, FOH DM, DL, VOH DM Period costs All S&A costs All FOH costs All S&A costs All DL costs All VOH costs All FOH costs All S&A costs All costs spent during the period must either show up as an asset on the Balance Sheet (e.g.,
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