Costs said another way it is the amount of sales

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costs. Said another way, it is the amount of sales dollars available to cover (or contribute to) fixed costs. Once fixed costs are covered, the next dollar of sales results in the company having profit. So, if the contribution margin--the return per unit of sales after deducting variable costs--equals fixed costs you break even. Therefore, we can formulate the following equation: Break-Even Sales Units = Total Fixed Costs / Contribution Margin Per Unit Or stated another way, Total Fixed Costs = Break-even Sales units x Contribution margin per unit FC = 6 x 24,000 = $144,000 D Fixed costs per unit at break even unit level = 144,000/24,000 = $6. Thus, contribution margin = fixed Costs. Question 8 1 out of 1 points Which, if any, of the following cost flow assumptions is NOT affected by the inventory control method employed, i.e. periodic or perpetual? Answer Selected Answer: FIFO Correct Answer: FIFO
Response Feedback: Under a periodic inventory system, all goods purchased during the period are assumed to be available for the first sale, regardless of the date of purchase. This is because under a periodic inventory system, we assign costs to ending inventory and cost of goods sold at the end of the period, not before each sale like in a perpetual inventory system. Under the perpetual inventory system, only the cost of goods available to you (Opening inventory + inventory purchased before the sale) can be allocated to that sale. Nevertheless, the end result under perpetual FIFO is the same as under periodic FIFO, because the first costs are the same whether you move the cost out of inventory with each sale (perpetual) or whether you wait until the year is over (periodic). The same does not apply for perpetual/periodic LIFO. In a perpetual system adopting LIFO, the latest units purchased before each sale are allocated to cost of goods sold. The perpetual method is constrained by the physical stock of goods before each sale. In contrast, under a periodic LIFO system, costs are allocated to COGS commencing with the most recent purchases (purchases that occurred at the end of period) and working backwards to the earlier purchases (start of period), irrespective of whether individual sale transactions to which we are assigning the COGS predate individual inventory purchase transactions. Stated otherwise, when a purchase is made after a sale, the LIFO periodic method will apply the cost from this purchase to the previous sale, which wouldn’t happen in a perpetual system, because you can only alloc ate the cost of goods available to you that you possess before each sale. To recap, when using a perpetual inventory system, you cannot allocate the cost of future purchases of inventory to a sale at the beginning of the period because you haven’t yet purchased that future inventory: it is not on your books. Therefore, unlike Perpetual FIFO and Periodic FIFO, Perpetual LIFO and Periodic LIFO produce two different results.

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