ACCG100 Lecture Notes - Lecture 10: Fixed Cost, Contribution Margin

64 views2 pages

maroonbutterfly970

1 Sep 2018

School

Macquarie University

Department

Accounting and Corporate Governance

Course

ACCG100

Professor

All

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Costs that vary directly and proportionately with changes in activity level: eg materials used to produce goods, cost per unit is constant; total cost increases with volume increase. Impact on sales volume and profit of increased costs. Sales level needed to make a profit. Costs and revenues are linear within the relevant range. All costs are identifiable as variable or fixed. Costs are affected only by changes in activity level. Sales mix is constant if there is more than one product (not accg100) Cm = amount of revenue remaining after deducting variable costs. Can be expressed as a total amount or on a per unit basis cm/unit = unit selling price unit variable costs. Cm is used to understand how much of a margin you have to use in offset against fixed costs. Can be expressed as a ratio : cm/unit. This indicates the proportion of each sales dollar available to cover fixed costs and earn a profit.

Related Questions

Cost-volume-profit (CVP)

posted Nov 28, 2016, 4:07 AM

Cost-volume-profit (CVP) analysis is a key step in manydecisions. CVP analysis involves specifying a model of therelations among the prices of products, the volume or level ofactivity, unit variable costs, total fixed costs, and the salesmix. This model is used to predict the impact on profits of changesin those parameters. Explain how changes in activity affectcontribution margin and net operating income.

sapphireprairie-dog466

If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would:

a. increase.

b. remain the same.

c. decrease.

d. increase or decrease, depending upon the percentage increase in wage rates.

Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit, and fixed costs are $75,000. The contribution margin ratio and the unit contribution margin are:

a. 53% and $7 per unit.

b. 47% and $11 per unit.

c. 52% and $11 per unit.

d. 47% and $8 per unit.

If sales are $500,000, variable costs are 75% of sales, and operating income is $40,000, what is the operating leverage?

a. 0

b. 1.3

c. 3.1

d. 1.25

Which of the following describes the behavior of the fixed cost per unit?

a. Increases with increasing production

b. Remains constant with changes in production