Ch06Kieso and Weygandt 5e

7/25/2019 Ch06Kieso and Weygandt 5e

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CHAPTER 6

COST-VOLUME-PROFIT ANALYSIS: ADDITIONAL ISSUES

SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOMS TAXONOMY

Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT

True-Fa!e S"a"e#e$"!

1. 1 K 7. 3 K 13. 4 C 19. 5 C a25. 7 C2. 1 K 8. 3 AP 14. 4 C 20. 5 K a26. 7 K3. 2 K 9. 3 AP 15. 4 K a21. 6 K a27. 7 K4. 2 K 10. 3 K 16. 5 K a22. 6 K a28. 8 K5. 3 K 11. 3 K 17. 5 K a23. 6 K a29. 8 K6. 3 K 12. 4 K 18. 5 K a24. 7 AP a30. 8 K

Mu"%&e C'(%)e Que!"%($!

31. 1 K 50. 2 AP 69. 3 AP 88. 5 C

a

107. 7 AP32. 1 K 51. 2 K 70. 3 AP 89. 5 K a108. 7 K33. 1 K 52. 2 AP 71. 3 C 90. 5 K a109. 7 K34. 1 AP 53. 2 AP 72. 3 C 91. 5 K a110. 7 C35. 1 AP 54. 2 AP 73. 3 AP 92. 5 K a111. 7 K36. 1 AP 55. 2 K 74. 3 AP a93. 6 K a112. 7 K37. 1 AP 56. 2 K 75. 3 AP a94. 6 K a113. 7 K38. 1 K 57. 2 AP 76. 4 C a95. 6 K a114. 7 AP39. 1 K 58. 2 AP 77. 4 C a96. 6 K a115. 7 AP40. 1 AP 59. 2 AP 78. 4 K a97. 6 K a116. 7 AP41. 1 AP 60. 3 K 79. 4 AP a98. 6 K a117. 7 AP42. 1 AP 61. 3 C 80. 4 AP a99. 6 K a118. 7 C

43. 2 K 62. 3 AP 81. 5 Ka

100. 6 Ka

119. 7 C44. 2 AP 63. 3 AP 82. 5 C a101. 6 K a120. 7 C45. 2 AP 64. 3 AP 83. 5 C a102. 6 K a121. 8 K46. 2 AP 65. 3 AP 84. 5 K a103. 7 AP a122. 8 K47. 2 AP 66. 3 AP 85. 5 AP a104. 7 AP a123. 8 C48. 2 AP 67. 3 AP 86. 5 AP a105. 7 AP a124. 8 K49. 2 AP 68. 3 AP 87. 5 C a106. 7 AP a125. 8 K

Br%e* E+er)%!e!

126. 3 AP 128. 4 AP 130. 5 AP a132. 6 AP a134. 7 AP127. 3 AP 129. 4 AP a131. 6 AP a133. 7 AP

E+er)%!e!

135. 3 AP 138. 4 AN 141. 5 AP a144. 7 AP a147. 8 AP136. 3 AP 139. 4 AN a142. 6 K a145. 7 AP a148. 8 AP137. 3 AP 140. 5 AP a143. 6 AP a146. 7 AP

C(#&e"%($ S"a"e#e$"!

149. 1 K 152. 3 K 155. 5 K a158. 7 K150. 2 K 153. 4 K a156. 6 K a159. 7 K151. 3 K 154. 5 K a157. 6 K a160. 8 K

aThis topic is dealt with in an Appendi to the chapte!.


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Te!" Ba$, *(r ISV Ma$aer%a A))(u$"%$. F(ur"' E/%"%($

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

Item Type Item Type Item Type Item Type Item Type Item Type Item Type

S"u/0 O12e)"%3e 4

1. T" 32. #C 35. #C 38. #C 41. #C

2. T" 33. #C 36. #C 39. #C 42. #C31. #C 34. #C 37. #C 40. #C 149. C

S"u/0 O12e)"%3e 5

3. T" 44. #C 47. #C 50. #C 53. #C 56. #C 59. #C4. T" 45. #C 48. #C 51. #C 54. #C 57. #C 150. C

43. #C 46. #C 49. #C 52. #C 55. #C 58. #C

S"u/0 O12e)"%3e

5. T" 10. T" 63. #C 68. #C 73. #C 135. $6. T" 11. T" 64. #C 69. #C 74. #C 136. $7. T" 60. #C 65. #C 70. #C 75. #C 137. $8. T" 61. #C 66. #C 71. #C 126. %$ 151. C

9. T" 62. #C 67. #C 72. #C 127. %$ 152. CS"u/0 O12e)"%3e 7

12. T" 14. T" 76. #C 78. #C 80. #C 129. %$ 139. $13. T" 15. T" 77. #C 79. #C 128. %$ 138. $ 153. C

S"u/0 O12e)"%3e 8

16. T" 20. T" 84. #C 88. #C 92. #C 154. C17. T" 81. #C 85. #C 89. #C 130. %$ 155. C18. T" 82. #C 86. #C 90. #C 140. $19. T" 83. #C 87. #C 91. #C 141. $

S"u/0 O12e)"%3e 6a

21. T" 93. #C 96. #C 99. #C 102. #C 142. $ 157. C22. T" 94. #C 97. #C 100. #C 131. %$ 143. $23. T" 95. #C 98. #C 101. #C 132. %$ 156. C

S"u/0 O12e)"%3e 9a

24. T" 104. #C 109. #C 114. #C 119. #C 145. $25. T" 105. #C 110. #C 115. #C 120. #C 146. $26. T" 106. #C 111. #C 116. #C 133. %$ 158. C27. T" 107. #C 112. #C 117. #C 134. %$ 159. C

103. #C 108. #C 113. #C 118. #C 144. $

S"u/0 O12e)"%3e a

28. T" 30. T" 122. #C 124. #C 147. $ 160. C

29. T" 121. #C 123. #C 125. #C 148. $

Note& T" ' T!(e)"alse C ' Co*pletion $ ' $e!cise#C ' #(ltiple Choice %$ ' %!ie+ $e!cise

The chapte! also contains +o(! ,ho!t)Answe! $ssa- (estions.

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Cost)/ol(*e)P!o+it Anal-sis& Additional ss(es

CHAPTER STUDY OBJECTIVES

1. Describe the essential features of a cost-volume-profit income statement.The C/Pinco*e state*ent classi+ies costs and epenses as a!iale o! +ied and !epo!ts cont!i(tion*a!in in the od- o+ the state*ent.

2. Apply basic CVP concepts.Cont!i(tion *a!in is the a*o(nt o+ !een(e !e*ainin a+te!ded(ctin a!iale costs. t can e ep!essed as a pe! (nit a*o(nt o! as a !atio. The !ea)een point in (nits is +ied costs diided - cont!i(tion *a!in pe! (nit. The !ea)eenpoint in dolla!s is +ied cost diided - the cont!i(tion *a!in !atio. These +o!*(las can alsoe (sed to dete!*ine (nits o! sales dolla!s needed to achiee ta!et net inco*e si*pl- -addin ta!et net inco*e to +ied costs e+o!e diidin - the cont!i(tion *a!in. #a!in o+sa+et- indicates how *(ch sales can decline e+o!e the co*pan- is ope!atin at a loss. tcan e ep!essed in dolla! te!*s o! as a pe!centae.

3. Explain the term sales mix and its effects on break-even sales. ,ales *i is the !elatiep!opo!tion in which each p!od(ct is sold when a co*pan- sells *o!e than one p!od(ct. "o! aco*pan- with a s*all n(*e! o+ p!od(cts !ea)een sales in (nits is dete!*ined - (sinthe weihted)ae!ae (nit cont!i(tion *a!in o+ all the p!od(cts. + the co*pan- sells *an-

di++e!ent p!od(cts then calc(latin the !ea)een point (sin (nit in+o!*ation is notp!actical. nstead in a co*pan- with *an- p!od(cts !ea)een sales in dolla!s iscalc(lated (sin the weihted)ae!ae cont!i(tion *a!in !atio.

4 Determine sales mix when a company has limited resources. hen a co*pan- hasli*ited !eso(!ces it is necessa!- to +ind the cont!i(tion *a!in pe! (nit o+ li*ited !eso(!ce.This a*o(nt is then *(ltiplied - the (nits o+ li*ited !eso(!ce to dete!*ine which p!od(ct*ai*ies net inco*e.

5. nderstand how operatin! levera!e affects profitability. pe!atin lee!ae !e+e!s to thede!ee to which a co*pan-s net inco*e !eacts to a chane in sales. pe!atin lee!ae isdete!*ined - a co*pan-s !elatie (se o+ +ied e!s(s a!iale costs. Co*panies with hih+ied costs !elatie to a!iale costs hae hih ope!atin lee!ae. A co*pan- with hih

ope!atin lee!ae will epe!ience a sha!p inc!ease :dec!ease; in net inco*e with a ieninc!ease :dec!ease; in sales. The de!ee o+ ope!atin lee!ae can e *eas(!ed - diidincont!i(tion *a!in - net inco*e.

a6. Explain the difference between absorption costin! and variable costin!.


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TRUE-FALSE STATEMENTS

1. The C/P inco*e state*ent classi+ies costs as a!iale o! +ied and co*p(tes acont!i(tion *a!in.

2. n C/P anal-sis cost incl(des *an(+act(!in costs (t not sellin and ad*inist!atie

epenses.

3. hen a co*pan- is in its ea!l- staes o+ ope!ation its p!i*a!- oal is to ene!ate a ta!etnet inco*e.

4. The *a!in o+ sa+et- tells a co*pan- how +a! sales can d!op e+o!e it will e ope!atin ata loss.

5. ,ales *i is a *eas(!e o+ the pe!centae inc!ease in sales +!o* pe!iod to pe!iod.

6. ,ales *i is not i*po!tant to *anae!s when di++e!ent p!od(cts hae s(stantiall-di++e!ent cont!i(tion *a!ins.

7. The weihted)ae!ae cont!i(tion *a!in o+ all the p!od(cts is co*p(ted whendete!*inin the !ea)een sales +o! a *(lti)p!od(ct +i!*.

8. + Conan Co!po!ation sells two p!od(cts with a sales *i o+ 75= & 25= and the !espectiecont!i(tion *a!ins a!e >100 and >300 then weihted)ae!ae (nit cont!i(tion *a!inis >150.

9. + +ied costs a!e >100000 and weihted)ae!ae (nit cont!i(tion *a!in is >50 then the!ea)een point in (nits is 2000 (nits.

10. Net inco*e can e inc!eased o! dec!eased - chanin the sales *i.

11. The !ea)een point in dolla!s is a!iale costs diided - the weihted)ae!aecont!i(tion *a!in !atio.

12. hen a co*pan- has li*ited !eso(!ces *anae*ent *(st decide which p!od(cts to*ae and sell in o!de! to *ai*ie net inco*e.

13. hen a co*pan- has li*ited !eso(!ces to *an(+act(!e p!od(cts it sho(ld *an(+act(!ethose p!od(cts which hae the hihest cont!i(tion *a!in pe! (nit.

14. + a co*pan- has li*ited *achine ho(!s aailale +o! p!od(ction it is ene!all- *o!ep!o+itale to p!od(ce and sell the p!od(ct with the hihest cont!i(tion *a!in pe! *achine

ho(!.

15. Acco!din to the theo!- o+ const!aints a co*pan- *(st identi+- its const!aints and +indwa-s to !ed(ce o! eli*inate the*.

16. Cost st!(ct(!e !e+e!s to the !elatie p!opo!tion o+ +ied e!s(s a!iale costs that aco*pan- inc(!s.

17. pe!atin lee!ae !e+e!s to the etent to which a co*pan-s net inco*e !eacts to a ienchane in +ied costs.

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18. The de!ee o+ ope!atin lee!ae p!oides a *eas(!e o+ a co*pan-s ea!nins olatilit-.

19. + %!ien Co*pan- has a *a!in o+ sa+et- !atio o+ .60 it co(ld s(stain a 60 pe!centdecline in sales e+o!e it wo(ld e ope!atin at a loss.

20. A co*pan- with low ope!atin lee!ae will epe!ience a sha!p inc!ease in net inco*ewith a ien inc!ease in sales.

a21. /a!iale costin is the app!oach (sed +o! ete!nal !epo!tin (nde! ene!all- acceptedacco(ntin p!inciples.

a22. The di++e!ence etween aso!ption costin and a!iale costin is the t!eat*ent o+ +ied*an(+act(!in oe!head.

a23. ,ellin and ad*inist!atie costs a!e pe!iod costs (nde! oth aso!ption and a!ialecostin.

a24. #an(+act(!in cost pe! (nit will e hihe! (nde! a!iale costin than (nde! aso!ptioncostin.

a25. ,o*e +ied *an(+act(!in costs o+ the c(!!ent pe!iod a!e de+e!!ed to +(t(!e pe!iodsth!o(h endin inento!- (nde! a!iale costin.

a26. hen (nits p!od(ced eceed (nits sold inco*e (nde! aso!ption costin is hihe! thaninco*e (nde! a!iale costin.

a27. hen (nits sold eceed (nits p!od(ced inco*e (nde! aso!ption costin is hihe! thaninco*e (nde! a!iale costin.

a28. hen aso!ption costin is (sed +o! ete!nal !epo!tin a!iale costin can still e (sed

+o! inte!nal !epo!tin p(!poses.

a29. hen aso!ption costin is (sed *anae*ent *a- e te*pted to oe!p!od(ce in a ienpe!iod in o!de! to inc!ease net inco*e.

a30. The (se o+ aso!ption costin +acilitates cost)ol(*e)p!o+it anal-sis.

A$!;er! "( True-Fa!e S"a"e#e$"!

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.

1. T 6. " 11. " 16. T a21. " a26. T2. " 7. T 12. T 17. " a22. T a27. "3. " 8. T 13. " 18. T a23. T a28. T4. T 9. T 14. T 19. T a24. " a29. T5. " 10. T 15. T 20. " a25. " a30. "

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MULTIPLE CHOICE QUESTIONS

31. Cost)ol(*e)p!o+it anal-sis is the st(d- o+ the e++ects o+a. chanes in costs and ol(*e on a co*pan-s p!o+it.. cost ol(*e and p!o+it on the cash (det.c. cost ol(*e and p!o+it on a!io(s !atios.

d. chanes in costs and ol(*e on a co*pan-s p!o+itailit- !atios.

32. The C/P inco*e state*ent classi+ies costsa. as a!iale o! +ied and co*p(tes cont!i(tion *a!in.. - +(nction and co*p(tes a cont!i(tion *a!in.c. as a!iale o! +ied and co*p(tes !oss *a!in.d. - +(nction and co*p(tes a !oss *a!in.

33. Cont!i(tion *a!in is the a*o(nt o+ !een(e !e*ainin a+te! ded(ctina. cost o+ oods sold.. +ied costs.c. a!iale costs.

d. cont!a)!een(e.

34. %(e!h!les C/P inco*e state*ent incl(ded sales o+ 2000 (nits a sellin p!ice o+ >100a!iale epenses o+ >60 pe! (nit and +ied epenses o+ >44000. Cont!i(tion *a!in isa. >200000.. >120000.c. >80000.d. >36000.

35. %(e!h!les C/P inco*e state*ent incl(ded sales o+ 2000 (nits a sellin p!ice o+ >100a!iale epenses o+ >60 pe! (nit and +ied epenses o+ >44000. Net inco*e isa. >200000.

. >80000.c. >76000.d. >36000.

36. "o! ?-e Co*pan- at a sales leel o+ 5000 (nits sales is >75000 a!iale epensestotal >40000 and +ied epenses a!e >21000. hat is the cont!i(tion *a!in pe! (nit@a. >2.80. >7.00c. >8.00d. >15.00

37. + cont!i(tion *a!in is >200000 sales is >300000 and net inco*e is >30000 then

a!iale and +ied epenses a!e/a!iale "ied

a. >100000 >270000. >100000 >170000c. >170000 >100000d. >500000 >270000

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38. n a C/P inco*e state*ent cost o+ oods sold is ene!all-a. co*pletel- a a!iale cost.. co*pletel- a +ied cost.c. neithe! a a!iale cost no! a +ied cost.d. pa!tl- a a!iale cost and pa!tl- a +ied cost.

39. n a C/P inco*e state*ent a sellin epense is ene!all-a. co*pletel- a a!iale cost.. co*pletel- a +ied cost.c. neithe! a a!iale cost no! a +ied cost.d. pa!tl- a a!iale cost and pa!tl- a +ied cost.

40. /a(e Co*pan-s cost o+ oods sold is >350000 a!iale and >200000 +ied. Theco*pan-s sellin and ad*inist!atie epenses a!e >250000 a!iale and >300000 +ied.+ the co*pan-s sales is >1400000 what is its cont!i(tion *a!in@a. >300000. >800000c. >850000d. >900000

41. /a(e Co*pan-s cost o+ oods sold is >350000 a!iale and >200000 +ied. Theco*pan-s sellin and ad*inist!atie epenses a!e >250000 a!iale and >300000 +ied.+ the co*pan-s sales is >1400000 what is its net inco*e@a. >300000. >800000c. >850000d. >900000

42. a!lands C/P inco*e state*ent incl(ded sales o+ 3000 (nits a sellin p!ice o+ >100a!iale epenses o+ >60 pe! (nit and net inco*e o+ >50000. "ied epenses a!e

a. >70000.. >120000.c. >180000.d. >300000.

43. The cont!i(tion *a!in !atio isa. sales diided - cont!i(tion *a!in.. sales diided - +ied epenses.c. sales diided - a!iale epenses.d. cont!i(tion *a!in diided - sales.

44. "o! ?ans Co*pan- sales is >500000 a!iale epenses a!e >310000 and +ied

epenses a!e >140000. ?ans cont!i(tion *a!in !atio isa. 10=.. 28=.c. 38=.d. 62=.

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45. "o! Cont!e!as Co*pan- sales is >1000000 +ied epenses a!e >300000 and thecont!i(tion *a!in pe! (nit is >72. hat is the !ea)een point@a. >1388889 sales dolla!s. >416667 sales dolla!sc. 13889 (nitsd. 4167 (nits

46. "o! a!land Co*pan- sales is >1000000 +ied epenses a!e >300000 and thecont!i(tion *a!in !atio is 36=. hat is net inco*e@a. >60000. >108000c. >252000d. >360000

47. "o! a!land Co*pan- sales is >1000000 +ied epenses a!e >300000 and thecont!i(tion *a!in !atio is 36=. hat a!e the total a!iale epenses@a. >192000. >360000c. >640000d. >1000000

48. n 2008 #asset sold 3000 (nits at >500 each. /a!iale epenses we!e >350 pe! (nitand +ied epenses we!e >200000. hat was #assets 2008 net inco*e@a. >250000. >450000c. >1050000d. >1500000

49. n 2008 #asset sold 3000 (nits at >500 each. /a!iale epenses we!e >350 pe! (nitand +ied epenses we!e >200000. The sa*e sellin p!ice a!iale epenses and +ied

epenses a!e epected +o! 2009. hat is #assets !ea)een point in sales dolla!s +o!2009@a. >666667. >1333333c. >1500000d. >2142857

50. n 2008 #asset sold 3000 (nits at >500 each. /a!iale epenses we!e >350 pe! (nitand +ied epenses we!e >200000. The sa*e sellin p!ice a!iale epenses and +iedepenses a!e epected +o! 2009. hat is #assets !ea)een point in (nits +o! 2009@a. 1333. 3000

c. 4285d. 6667

51. The !e(i!ed sales in (nits to achiee a ta!et net inco*e isa. :sales B ta!et net inco*e; diided - cont!i(tion *a!in pe! (nit.. :sales B ta!et net inco*e; diided - cont!i(tion *a!in !atio.c. :+ied cost B ta!et net inco*e; diided - cont!i(tion *a!in pe! (nit.d. :+ied cost B ta!et net inco*e; diided - cont!i(tion *a!in !atio.

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52. "o! on Co*pan- sales is >1000000 +ied epenses a!e >300000 and the cont!i(tion*a!in !atio is 36=. hat is !e(i!ed sales in dolla!s to ea!n a ta!et net inco*e o+>200000@a. >555556. >833333c. >1388889d. >2777778

53. ens Co!po!ation !epo!ted sales o+ >2000000 last -ea! :100000 (nits at >20 each;when the !ea)een point was 80000 (nits. ens *a!in o+ sa+et- !atio isa. 20=.. 25=.c. 80=.d. 120=.

54. "o! %o- Co*pan- sales is >1000000 :5000 (nits; +ied epenses a!e >300000 andthe cont!i(tion *a!in pe! (nit is >80. hat is the *a!in o+ sa+et- in dolla!s@a. >50000. >250000c. >450000d. >700000

55. #a!in o+ sa+et- in dolla!s isa. epected sales diided - !ea)een sales.. epected sales less !ea)een sales.c. act(al sales less epected sales.d. epected sales less act(al sales.

56. The *a!in o+ sa+et- !atio isa. epected sales diided - !ea)een sales.

. epected sales less !ea)een sales.c. *a!in o+ sa+et- in dolla!s diided - epected sales.d. *a!in o+ sa+et- in dolla!s diided - !ea)een sales.

57. n 2008 #c?o(al sold 3000 (nits at >500 each. /a!iale epenses we!e >350 pe! (nitand +ied epenses we!e >195000. The sa*e a!iale epenses pe! (nit and +iedepenses a!e epected +o! 2009. + #c?o(al c(ts sellin p!ice - 4= what is#c?o(als !ea)een point in (nits +o! 2009@a. 1300. 1354c. 1440d. 1500

58. n 2008 Tho!nton sold 3000 (nits at >500 each. /a!iale epenses we!e >250 pe! (nitand +ied epenses we!e >150000. The sa*e sellin p!ice is epected +o! 2009. Tho!ntonis tentatiel- plannin to inest in e(ip*ent that wo(ld inc!ease +ied costs - 20= whiledec!easin a!iale costs pe! (nit - 20=. hat is Tho!ntons !ea)een point in (nits+o! 2009@a. 600. 720c. 750d. 900

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59. n 2008 Doan sold 1000 (nits at >500 each and ea!ned net inco*e o+ >40000./a!iale epenses we!e >300 pe! (nit and +ied epenses we!e >160000. The sa*esellin p!ice is epected +o! 2009. Doans a!iale cost pe! (nit will !ise - 10= in 2009d(e to inc!easin *ate!ial costs so the- a!e tentatiel- plannin to c(t +ied costs ->10000. Eow *an- (nits *(st Doan sell in 2009 to *aintain the sa*e inco*e leel as2008@a. 882. 1000c. 1056d. 1118

60. ,ales *iisa. the !elatie pe!centae in which a co*pan- sells its *(ltiple p!od(cts.. the t!end o+ sales oe! !ecent pe!iods.c. the *i o+ a!iale and +ied epenses in !elation to sales.d. a *eas(!e o+ lee!ae (sed - the co*pan-.

61. n a sales *i sit(ation at an- leel o+ (nits sold net inco*e will e hihe! i+a. *o!e hihe! cont!i(tion *a!in (nits a!e sold than lowe! cont!i(tion *a!in (nits.. *o!e lowe! cont!i(tion *a!in (nits a!e sold than hihe! cont!i(tion *a!in (nits.c. *o!e +ied epenses a!e inc(!!ed.d. weihted)ae!ae (nit cont!i(tion *a!in dec!eases.

62. Kone!o Co*pan- sells two t-pes o+ co*p(te! chips. The sales *i is 30= :F)Chip; and70= :F)Chip Pl(s;. F)Chip has a!iale costs pe! (nit o+ >30 and a sellin p!ice o+ >50.F)Chip Pl(s has a!iale costs pe! (nit o+ >35 and a sellin p!ice o+ >65. The weihted)ae!ae (nit cont!i(tion *a!in +o! Kone!o isa. >23.. >25.c. >27.

d. >50.

63. (chi Co*pan- sells 2000 (nits o+ P!od(ct A ann(all- and 3000 (nits o+ P!od(ct %ann(all-. The sales *i +o! P!od(ct A isa. 40=.. 60=.c. 67=.d. cannot dete!*ine +!o* in+o!*ation ien.

64. Kone!o Co*pan- sells two t-pes o+ co*p(te! chips. The sales *i is 30= :F)Chip; and70= :F)Chip Pl(s;. F)Chip has a!iale costs pe! (nit o+ >30 and a sellin p!ice o+ >50.F)Chip Pl(s has a!iale costs pe! (nit o+ >35 and a sellin p!ice o+ >65. Kone!os +ied

costs a!e >540000. Eow *an- (nits o+ F)Chip wo(ld e sold at the !ea)een point@a. 6000. 7043c. 10000d. 14000

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72. A shi+t +!o* hih)*a!in sales to low)*a!in salesa. *a- dec!ease net inco*e een tho(h the!e is an inc!ease in total (nits sold.. will alwa-s dec!ease net inco*e.c. will alwa-s inc!ease net inco*e.d. will alwa-s inc!ease (nits sold.

400000 >600000 >1000000/a!iale costs 280000 360000Cont!i(tion *a!in >120000 >240000Total +ied costs >300000

73. hat is the weihted)ae!ae cont!i(tion *a!in !atio@a. 34=

. 35=c. 36=d. 50=

74. hat is the !ea)een point in dolla!s@a. >108000. >833333c. >857143d. >882353

75. The sales *i pe!centaes +o! (illens Chicao and Cha!lotte ?iisions a!e 70= and30=. The cont!i(tion *a!in !atios a!e& Chicao :40=; and Cha!lotte :30=;. "ied costs

a!e >555000. hat is (illens !ea)een point in dolla!s@a. >194250. >1500000c. >1585714d. >1681818

76. A co*pan- can sell all the (nits it can p!od(ce o+ eithe! P!od(ct A o! P!od(ct % (t not oth.P!od(ct A has a (nit cont!i(tion *a!in o+ >16 and taes two *achine ho(!s to *ae andP!od(ct % has a (nit cont!i(tion *a!in o+ >30 and taes th!ee *achine ho(!s to *ae. +the!e a!e 1000 *achine ho(!s aailale to *an(+act(!e a p!od(ct inco*e will ea. >2000 *o!e i+ P!od(ct A is *ade.. >2000 less i+ P!od(ct % is *ade.

c. >2000 less i+ P!od(ct A is *ade.d. the sa*e i+ eithe! p!od(ct is *ade.

77. ?-e Co*pan- can sell all the (nits it can p!od(ce o+ eithe! Plain o! "anc- (t not oth.Plain has a (nit cont!i(tion *a!in o+ >96 and taes two *achine ho(!s to *ae and"anc- has a (nit cont!i(tion *a!in o+ >120 and taes th!ee *achine ho(!s to *ae.The!e a!e 2400 *achine ho(!s aailale to *an(+act(!e a p!od(ct. hat sho(ld ?-e do@a. #ae "anc- which c!eates >24 *o!e p!o+it pe! (nit than Plain does.. #ae Plain which c!eates >8 *o!e p!o+it pe! *achine ho(! than "anc- does.c. #ae Plain eca(se *o!e (nits can e *ade and sold than "anc-.d. The sa*e total p!o+its eist !ea!dless o+ which p!od(ct is *ade.

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78. hat is the e- +acto! in dete!*inin sales *i i+ a co*pan- has li*ited !eso(!ces@a. Cont!i(tion *a!in pe! (nit o+ li*ited !eso(!ce. The a*o(nt o+ +ied costs pe! (nitc. Total cont!i(tion *a!ind. The cost o+ li*ited !eso(!ces

79. e!*aines /ittles can p!od(ce and sell onl- one o+ the +ollowin two p!od(cts&

en Cont!i(tionEo(!s Je(i!ed #a!in Pe! 3%!ead stics 0.3 >4

The co*pan- has oen capacit- o+ 600 ho(!s. Eow *(ch will cont!i(tion *a!in e i+ itp!od(ces onl- the *ost p!o+itale p!od(ct@a. >6000. >8000c. >9000d. >12000

80. ,)Pods cont!i(tion *a!in is >10 pe! (nit +o! P!od(ct A and >12 +o! P!od(ct %. P!od(ctA !e(i!es 2 *achine ho(!s and P!od(ct % !e(i!es 4 *achine ho(!s. Eow *(ch is thecont!i(tion *a!in pe! (nit o+ li*ited !eso(!ce +o! each p!od(ct@

A %a. >5.00 >3.00. >5.00 >3.33c. >4.00 >3.00d. >4.00 >3.33

81. Cost st!(ct(!ea. !e+e!s to the !elatie p!opo!tion o+ +ied e!s(s a!iale costs that a co*pan- inc(!s.

. ene!all- has little i*pact on p!o+itailit-.c. cannot e sini+icantl- chaned - co*panies.d. !e+e!s to the !elatie p!opo!tion o+ ope!atin e!s(s nonope!atin costs that a co*pan-

inc(!s.

82. (tso(!cin p!od(ction willa. !ed(ce +ied costs and inc!ease a!iale costs.. !ed(ce a!iale costs and inc!ease +ied costs.c. hae no e++ect on the !elatie p!opo!tion o+ +ied and a!iale costs.d. *ae the co*pan- *o!e s(sceptile to econo*ic swins.

83. Jed(cin !eliance on h(*an wo!e!s and instead inestin heail- in co*p(te!s and

online technolo- willa. !ed(ce +ied costs and inc!ease a!iale costs.. !ed(ce a!iale costs and inc!ease +ied costs.c. hae no e++ect on the !elatie p!opo!tion o+ +ied and a!iale costs.d. *ae the co*pan- less s(sceptile to econo*ic swins.

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84. Cost st!(ct(!e !e+e!s to the !elatie p!opo!tion o+a. sellin epenses e!s(s ad*inist!atie epenses.. sellin and ad*inist!atie epenses e!s(s cost o+ oods sold.c. cont!i(tion *a!in e!s(s sales.d. none o+ the aoe.


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90. A cost st!(ct(!e which !elies *o!e heail- on +ied costs *aes the co*pan-a. *o!e sensitie to chanes in sales !een(e.. less sensitie to chanes in sales !een(e.c. eithe! *o!e o! less sensitie to chanes in sales !een(e dependin on othe! +acto!s.d. hae a lowe! !ea)een point.

91. A co*pan- with a hihe! cont!i(tion *a!in !atio isa. *o!e sensitie to chanes in sales !een(e.. less sensitie to chanes in sales !een(e.c. eithe! *o!e o! less sensitie to chanes in sales !een(e dependin on othe! +acto!s.d. liel- to hae a lowe! !eaeen point.

92. The de!ee o+ ope!atin lee!aea. does not p!oide a !eliale *eas(!e o+ a co*pan-s ea!nins olatilit-.. cannot e (sed to co*pa!e co*panies.c. is co*p(ted - diidin total cont!i(tion *a!in - net inco*e.d. *eas(!es how *(ch o+ each sales dolla! is aailale to coe! +ied epenses.

a93. nl- di!ect *ate!ials di!ect lao! and a!iale *an(+act(!in oe!head costs a!econside!ed p!od(ct costs when (sina. +(ll costin.. aso!ption costin.c. a!iale costin.d. p!od(ct costin.

a94. hen a co*pan- assins the costs o+ di!ect *ate!ials di!ect lao! and oth a!iale and+ied *an(+act(!in oe!head to p!od(cts that co*pan- is (sina. ope!ations costin.. aso!ption costin.c. a!iale costin.

d. p!od(ct costin.

a95. Co*panies !econie +ied *an(+act(!in oe!head costs as pe!iod costs :epenses;when inc(!!ed when (sina. +(ll costin.. aso!ption costin.c. p!od(ct costin.d. a!iale costin.

a96.


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a97. 10di!ect lao! >6 and a!iale oe!head >2. "ied costs a!e& >480000 *an(+act(!in oe!headand >60000 sellin and ad*inist!atie epenses.

a103. The pe! (nit *an(+act(!in cost (nde! aso!ption costin isa. >16.. >18.c. >26.d. >27.

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a104. The pe! (nit *an(+act(!in cost (nde! a!iale costin isa. >16.. >18.c. >26.d. >27.

a105. Cost o+ oods sold (nde! aso!ption costin isa. >900000.. >1080000.c. >1300000.d. >1560000.

a106. $ndin inento!- (nde! a!iale costin isa. >180000.. >260000.c. >400000.d. >900000.

a107. 20000. >80000c. >100000d. >480000

a108. Net inco*e (nde! aso!ption costin is !oss p!o+it lessa. cost o+ oods sold.. +ied *an(+act(!in oe!head and +ied sellin and ad*inist!atie epenses.c. +ied *an(+act(!in oe!head and a!iale *an(+act(!in oe!head.d. a!iale sellin and ad*inist!atie epenses and +ied sellin and ad*inist!atie

epenses.

a109. Net inco*e (nde! a!iale costin is cont!i(tion *a!in lessa. cost o+ oods sold.. +ied *an(+act(!in oe!head and +ied sellin and ad*inist!atie epenses.c. +ied *an(+act(!in oe!head and a!iale *an(+act(!in oe!head.d. a!iale sellin and ad*inist!atie epenses and +ied sellin and ad*inist!atie

epenses.

a110. The *an(+act(!in cost pe! (nit +o! aso!ption costin isa. (s(all- (t not alwa-s hihe! than *an(+act(!in cost pe! (nit +o! a!iale costin.. (s(all- (t not alwa-s lowe! than *an(+act(!in cost pe! (nit +o! a!iale costin.c. alwa-s hihe! than *an(+act(!in cost pe! (nit +o! a!iale costin.

d. alwa-s lowe! than *an(+act(!in cost pe! (nit +o! a!iale costin.a111. The one p!i*a!- di++e!ence etween a!iale and aso!ption costin is that (nde!

a. a!iale costin co*panies cha!e the +ied *an(+act(!in oe!head as an epensein the c(!!ent pe!iod.

. aso!ption costin co*panies cha!e the +ied *an(+act(!in oe!head as anepense in the c(!!ent pe!iod.

c. a!iale costin co*panies cha!e the a!iale *an(+act(!in oe!head as anepense in the c(!!ent pe!iod.

d. aso!ption costin co*panies cha!e the a!iale *an(+act(!in oe!head as anepense in the c(!!ent pe!iod.

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a112. Net inco*e (nde! aso!ption costin is hihe! than net inco*e (nde! a!iale costina. when (nits p!od(ced eceed (nits sold.. when (nits p!od(ced e(al (nits sold.c. when (nits p!od(ced a!e less than (nits sold.d. !ea!dless o+ the !elationship etween (nits p!od(ced and (nits sold.

a113. ,o*e +ied *an(+act(!in oe!head costs o+ the c(!!ent pe!iod a!e de+e!!ed to +(t(!epe!iods (nde!a. aso!ption costin.. a!iale costin.c. oth aso!ption and a!iale costin.d. neithe! aso!ption no! a!iale costin.

11000 pe! (nit. /a!iale costs pe! (nit a!e& *an(+act(!in>6000 and sellin and ad*inist!atie >125. "ied costs a!e& >30000 *an(+act(!in oe!headand >40000 sellin and ad*inist!atie. The!e was no einnin inento!- at 1L1L07. P!od(ctionwas 20 (nits pe! -ea! in 2007G2009. ,ales was 20 (nits in 2007 16 (nits in 2008 and 24 (nits in2009.

a114. nco*e (nde! aso!ption costin +o! 2008 isa. >8000.. >14000.c. >16000.d. >22000.

a115. nco*e (nde! aso!ption costin +o! 2009 isa. >33000.. >39000

c. >41000d. >47000.

a116. nco*e (nde! a!iale costin +o! 2008 isa. >8000.. >14000c. >16000d. >22000.

a117. nco*e (nde! a!iale costin +o! 2009 isa. >33000.. >39000.

c. >41000.d. >47000.

a118. "o! the th!ee -ea!s 2007G2009a. aso!ption costin inco*e eceeds a!iale costin inco*e - >6000.. aso!ption costin inco*e e(als a!iale costin inco*e.c. a!iale costin inco*e eceeds aso!ption costin inco*e - >6000.d. aso!ption costin inco*e *a- e !eate! than e(al to o! less than a!iale costin

inco*e dependin on the sit(ation.

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a119. hen p!od(ction eceeds salesa. so*e +ied *an(+act(!in oe!head costs a!e de+e!!ed (ntil a +(t(!e pe!iod (nde!

aso!ption costin.. so*e +ied *an(+act(!in oe!head costs a!e de+e!!ed (ntil a +(t(!e pe!iod (nde!

a!iale costin.c. a!iale and +ied *an(+act(!in oe!head costs a!e de+e!!ed (ntil a +(t(!e pe!iod

(nde! aso!ption costin.. a!iale and +ied *an(+act(!in oe!head costs a!e de+e!!ed (ntil a +(t(!e pe!iod

(nde! a!iale costin.

a120. hen p!od(ction eceeds salesa. endin inento!- (nde! a!iale costin will eceed endin inento!- (nde! aso!ption

costin.. endin inento!- (nde! aso!ption costin will eceed endin inento!- (nde! a!iale

costin.c. endin inento!- (nde! aso!ption costin will e e(al to endin inento!- (nde!

a!iale costin.d. endin inento!- (nde! aso!ption costin *a- eceed e e(al to o! e less than

endin inento!- (nde! a!iale costin.

a121. #anae*ent *a- e te*pted to oe!p!od(ce when (sina. a!iale costin in o!de! to inc!ease net inco*e.. a!iale costin in o!de! to dec!ease net inco*e.c. aso!ption costin in o!de! to inc!ease net inco*e.d. aso!ption costin in o!de! to dec!ease net inco*e.

a122. + a diision *anae!s co*pensation is ased (pon the diisions net inco*e the*anae! *a- decide to *eet the net inco*e ta!ets - inc!easin p!od(ction when (sina. a!iale costin in o!de! to inc!ease net inco*e.. a!iale costin in o!de! to dec!ease net inco*e.

c. aso!ption costin in o!de! to inc!ease net inco*e.d. aso!ption costin in o!de! to dec!ease net inco*e.

a123. $pected sales +o! net -ea! +o! the E(tale ?iision is 150000 (nits. %ill Cos-*anae! o+ the E(tale ?iision is (nde! p!ess(!e to i*p!oe the pe!+o!*ance o+ the?iision. As he plans +o! net -ea! he has to decide whethe! to p!od(ce 150000 (nits o!180000 (nits. The E(tale ?iision will hae hihe! net inco*e i+ %ill Cos- decides top!od(cea. 180000 (nits i+ inco*e is *eas(!ed (nde! aso!ption costin.. 180000 (nits i+ inco*e is *eas(!ed (nde! a!iale costin.c. 150000 (nits i+ inco*e is *eas(!ed (nde! aso!ption costin.d. 150000 (nits i+ inco*e is *eas(!ed (nde! a!iale costin.

a124. hich o+ the +ollowin is a potential adantae o+ a!iale costin !elatie to aso!ptioncostin@a. Net inco*e is a++ected - chanes in p!od(ction leels.. The (se o+ a!iale costin is consistent with cost)ol(*e)p!o+it anal-sis.c. Net inco*e co*p(ted (nde! a!iale costin is not closel- tied to chanes in sales

leels.d. #o!e than one o+ the aoe.

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a125. Co*panies that (se M(st)in)ti*e p!ocessin techni(es willa. hae !eate! di++e!ences etween aso!ption and a!iale costin net inco*e.. hae s*alle! di++e!ences etween aso!ption and a!iale costin net inco*e.c. not e ale to (se aso!ption costin.d. not e ale to (se a!iale costin.

A$!;er! "( Mu"%&e C'(%)e Que!"%($!

I"e# A$!> I"e# A$!> I"e# A$!> I"e# A$!> I"e# A$!> I"e# A$!> I"e# A$!>

31. a 45. d 59. d 73. c 87. d a101. a a115. c32. a 46. a 60. a 74. 88. c a102. c a116. a33. c 47. c 61. a 75. 89. a103. c a117. d34. c 48. a 62. c 76. c 90. a a104. a118. 35. d 49. a 63. a 77. 91. a a105. c a119. a36. 50. a 64. a 78. a 92. c a106. a a120. 37. 51. c 65. a 79. c a93. c a107. a121. c

38. d 52. c 66. c 80. a a94. a108. d a122. c39. d 53. a 67. a 81. a a95. d a109. a123. a40. 54. 68. d 82. a a96. a110. c a124. 41. a 55. 69. d 83. a97. a a111. a a125. 42. a 56. c 70. 84. d a98. a a112. a43. d 57. d 71. a 85. d a99. a a113. a44. c 58. a 72. a 86. a100. d a114.

BRIEF EXERCISES

BE 456

Ealdi Co!po!ation sells th!ee di++e!ent sets o+ spo!tswea!. ,lee sells +o! >30 and has a!ialecosts o+ >18H ,*ooth sells +o! >50 and has a!iale costs o+ >30H Potent sells +o! >90 and hasa!iale costs o+ >45. The sales *i o+ the th!ee sets is& ,lee 50=H ,*ooth 30=H and Potent20=.

I$!"ru)"%($!hat is the weihted)ae!ae (nit cont!i(tion *a!in@

S(u"%($ 456 :6G8 *in.;

,lee& 50= :>30 G >18; ' > 6,*ooth& 30= :>50 G >30; ' 6Potent& 20= :>90 G >45; ' 9eihted)ae!ae (nit cont!i(tion *a!in >21

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BE 459

a!!ett Co!po!ation sells two p!od(ct lines. The sales *i o+ the p!od(ct lines is& ,tanda!d 60=Hand ?el(e 40=. The cont!i(tion *a!in !atio o+ each line is& ,tanda!d 35=H and ?el(e 45=.a!!etts +ied costs a!e >1950000.

I$!"ru)"%($!hat is the dolla! a*o(nt o+ ?el(e sales at the !ea)een point@

S(u"%($ 459 :6G8 *in.;

,tanda!d& 60= 35= ' 21=?el(e& 40= 45= ' 18=eihted)ae!ae cont!i(tion *a!in !atio 39=

>1950000 O 39= ' >5000000 !ea)een point in dolla!s

?olla! a*o(nt o+ ?el(e sales at the !ea)een point& >5000000 40= ' >2000000.

BE 45

Ca!pente! Co*pan- p!oided the +ollowin in+o!*ation conce!nin two p!od(cts&

P!od(ct 12 P!od(ct 43Cont!i(tion *a!in pe! (nit >20 >15#achine ho(!s !e(i!ed +o! one (nit 2.5 ho(!s 1.5 ho(!s

I$!"ru)"%($!Co*p(te the cont!i(tion *a!in pe! (nit o+ li*ited !eso(!ce +o! each p!od(ct. hich p!od(ctsho(ld Ca!pente! tell its sales pe!sonnel to p(shQ to c(sto*e!s@

S(u"%($ 45 :3G5 *in.;

P!od(ct 12& >20 O 2.5 ho(!s ' >8P!od(ct 43& >15 O 1.5 ho(!s ' >10,ales pe!sonnel sho(ld p(sh P!od(ct 43.

BE 4526000 > 6000Ra!ds o+ leathe! pe! (nit 1.25 0.25P!o+it pe! (nit >13.00 >2.00Cont!i(tion *a!in pe! (nit >18.00 >3.75

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BE 45< :cont.;

Ass(*e that Ace is ale to o!de! an additional 2000 -a!ds o+ leathe! and wishes to *ai*ie itsinco*e. + the additional (nits it p!od(ces at least 400 o+ each p!od(ct a!e necessa!- +o! sales.

I$!"ru)"%($!

Eow *an- (nits o+ each *(st e p!od(ced@

S(u"%($ 45< :5G7 *in.;

"ootalls %aseallsCont!i(tion *a!in pe! -a!d >18 O 1.25 ' >14.40 >3.75 O .25 ' >15

P!od(ce *o!e asealls since C# pe! const!aint is *o!e.

#ini*(* +o! +ootalls& 400 1.25 -d. ' 500 -d.#ate!ial !e*ainin +o! asealls& 2000 G 500 ' 1500 -d.S o+ asealls& 1500 O .25 ' 6000 asealls

BE 4=

No!ton Co!po!ation is conside!in (-in new e(ip*ent +o! its +acto!-. The new e(ip*ent will!ed(ce a!iale lao! costs (t inc!ease dep!eciation epense. Cont!i(tion *a!in is epected toinc!ease +!o* >250000 to >300000. Net inco*e is epected to !e*ain the sa*e at >100000.

I$!"ru)"%($!Co*p(te the de!ee o+ ope!atin lee!ae e+o!e and a+te! the p(!chase o+ the new e(ip*entand inte!p!et -o(! !es(lts.

S(u"%($ 4= :4G6 *in.;

Cont!i(tion *a!in O Net nco*e ' ?e!ee o+ ope!atin lee!ae%e+o!e& >250000 O >100000 ' 2.5

A+te! >300000 O >100000 ' 3.0

A+te! the new e(ip*ent is p(!chased No!tons ea!nins wo(ld o (p :o! down; - 1.2 ti*es :3 O2.5; as *(ch as it wo(ld hae e+o!e the p(!chase with an e(al inc!ease :o! dec!ease; in sales.

aBE 44

E(sie Co*pan- p!od(ces +ootalls. t inc(!!ed the +ollowin costs this -ea!&

?i!ect *ate!ials >25000?i!ect lao! 31000"ied *an(+act(!in oe!head 22000/a!iale *an(+act(!in oe!head 38000"ied sellin and ad*inist!atie epenses 23000/a!iale sellin and ad*inist!atie epenses 14000

I$!"ru)"%($!hat a!e the total p!od(ct costs +o! the co*pan- (nde! a!iale costin@

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aS(u"%($ 44 :3G5 *in.;

?i!ect *ate!ials >25000?i!ect lao! 31000/a!iale *an(+act(!in oe!head 38000Total p!od(ct costs (nde! a!iale costin >94000

aBE 45

E(sie Co*pan- p!od(ces +ootalls. t inc(!!ed the +ollowin costs this -ea!&

?i!ect *ate!ials >25000?i!ect lao! 31000"ied *an(+act(!in oe!head 22000/a!iale *an(+act(!in oe!head 38000"ied sellin and ad*inist!atie epenses 23000/a!iale sellin and ad*inist!atie epenses 14000

I$!"ru)"%($!hat a!e the total p!od(ct costs +o! the co*pan- (nde! aso!ption costin@

aS(u"%($ 45 :3G5 *in.;

?i!ect *ate!ials > 25000?i!ect lao! 31000"ied *an(+act(!in oe!head 22000/a!iale *an(+act(!in oe!head 38000Total p!od(ct costs (nde! aso!ption costin >116000

aBE 4

?(!in 2008 Nowa Co!po!ation p!od(ced 60000 (nits and sold 55000 +o! >10 pe! (nit./a!iale *an(+act(!in costs we!e >4 pe! (nit. Ann(al +ied *an(+act(!in oe!head was>120000 :>2 pe! (nit;. /a!iale sellin and ad*inist!atie costs we!e >1 pe! (nit sold and +iedsellin and ad*inist!atie costs we!e >30000.

I$!"ru)"%($!P!epa!e a a!iale costin inco*e state*ent.

aS(u"%($ 4 :5G7 *in.;

,ales :55000 >10; >550000/a!iale cost o+ oods sold :55000 >4; >220000/a!iale sellin and ad*inist!atie epenses :55000 >1; 55000 275000Cont!i(tion *a!in 275000"ied *an(+act(!in oe!head 120000"ied sellin and ad*inist!atie epenses 30000 150000Net inco*e >125000

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aBE 47

?(!in 2008 Nowa Co!po!ation p!od(ced 60000 (nits and sold 55000 +o! >10 pe! (nit./a!iale *an(+act(!in costs we!e >4 pe! (nit. Ann(al +ied *an(+act(!in oe!head was>120000 :>2 pe! (nit;. /a!iale sellin and ad*inist!atie costs we!e >1 pe! (nit sold and +iedsellin and ad*inist!atie costs we!e >30000.

I$!"ru)"%($!P!epa!e an aso!ption costin inco*e state*ent.

aS(u"%($ 47 :5G7 *in.;

,ales :55000 >10; >550000Cost o+ oods sold :55000 >6; 330000!oss *a!in 220000/a!iale sellin and ad*inist!atie epenses :55000 >1; >55000"ied sellin and ad*inist!atie epenses 30000 85000Net inco*e >135000

EXERCISES

E+> 48

T!ail Kin *an(+act(!es *o(ntain ies. t has +ied costs o+ >5360000. T!ail Kins sales *iand cont!i(tion *a!in pe! (nit is shown as +ollows&

,ales #i Cont!i(tion #a!in?est!o-e! 20= >120

/o-ae! 55= > 60Jeel 25= > 40

I$!"ru)"%($!Co*p(te the n(*e! o+ each t-pe o+ ie that the co*pan- wo(ld need to sell in o!de! to !eaeen (nde! this p!od(ct *i.

S(u"%($ 48 :8G12 *in.;

eihted)Ae!ae,ales #i Cont!i(tion #a!in Cont!i(tion #a!in

?est!o-e! 20= >120 >24

/o-ae! 55= > 60 >33Jeel 25= > 40 >10

>67Total !ea)een sales ' >5360000 O >67 ' 80000 ies

,ales #i?est!o-e! 20= 80000 ' 16000 ies/o-ae! 55= 80000 ' 44000 iesJeel 25= 80000 ' 20000 ies

6 - 57


25/37


E+> 46

Acco(nt)Ale Co*pan- p!oides p!i*a!il- two lines o+ se!ice& acco(ntin and ta. Acco(ntin)!elated se!ices !ep!esent 60= o+ its !een(e and p!oide a cont!i(tion *a!in !atio o+ 30=. Tase!ices !ep!esent 40= o+ its !een(e and p!oide a 45= cont!i(tion *a!in !atio. Theco*pan-s +ied costs a!e >9000000.

I$!"ru)"%($!:a; Calc(late the !een(e +!o* each t-pe o+ se!ice that the co*pan- *(st achiee to !ea

een.:; The co*pan- has a desi!ed net inco*e o+ >1800000. hat a*o(nt o+ !een(e wo(ld

Acco(nt)Ale ea!n +!o* ta se!ices i+ it achiees this oal with the c(!!ent sales *i@

S(u"%($ 46 :10G15 *in.;

:a; Cont!i(tion eihted)Ae!ae,ales #i #a!in Jatio Cont!i(tion #a!in Jatio

Acco(ntin 60= 30= 18=Ta 40= 45= 18=

36=Total !ea)een sales ' >9000000 O .36 ' >25000000

,ales #iAcco(ntin 60= >25000000 ' >15000000Ta 40= >25000000 ' >10000000

:; ,ales to achiee ta!et net inco*e ' :>9000000 B >1800000; O .36 ' >30000000

,ales #iTa 40= >30000000 ' >12000000

E+> 49

#ad Cit- "lash Co*pan- sells co*p(te!s and ideo a*e s-ste*s. The (siness is diided intotwo diisions alon p!od(ct lines. /a!iale costin inco*e state*ents +o! the c(!!ent -ea! a!ep!esented elow&

Co*p(te!s / ,-ste*s Total,ales >700000 >300000 >1000000/a!iale costs 420000 210000 630000Cont!i(tion *a!in >280000 > 90000 370000"ied costs 259000Net inco*e > 111000

I$!"ru)"%($!:a; ?ete!*ine the sales *i and cont!i(tion *a!in !atio +o! each diision.:; Calc(late the co*pan-s weihted)ae!ae cont!i(tion *a!in !atio.:c; Calc(late the co*pan-s !ea)een point in dolla!s.:d; ?ete!*ine the sales leel in dolla!s +o! each diision at the !ea)een point.

6 - 58


26/37


S(u"%($ 49 :15G20 *in.;

:a; ,ales *i&Co*p(te!s& >700000 O :>700000 B >300000; ' 70=/ ,-ste*s >300000 O :>700000 B >300000; ' 30=

Cont!i(tion *a!in !atio&

Co*p(te!s& >280000 O >700000 ' 40=/ ,-ste*s& > 90000 O >300000 ' 30=

:; eihted)ae!ae cont!i(tion *a!in !atio ' :70= 40=; B :30= 30=; ' 37=

:c; %!ea)een point in dolla!s ' >259000 O .37 ' >700000

:d; ,ales dolla!s at !ea)een point&Co*p(te!s& >700000 .70 ' >490000/ ,-ste*s& >700000 .30 ' >210000

E+> 4#oie Eo(se Co*pan- has 4000 *achine ho(!s aailale to p!od(ce eithe! P!od(ct 22 o!P!od(ct 44. The cost acco(ntin depa!t*ent deeloped the +ollowin (nit in+o!*ation +o! eachp!od(ct&

P!od(ct 22 P!od(ct 44,ales p!ice >20 >40?i!ect *ate!ials 5 8?i!ect lao! 3 2/a!iale *an(+act(!in oe!head 4 5"ied *an(+act(!in oe!head 3 5#achine ti*e !e(i!ed 15 *in(tes 60 *in(tes

I$!"ru)"%($!#anae*ent wants to now which p!od(ct to p!od(ce in o!de! to *ai*ie the co*pan-sinco*e. Tain into conside!ation the const!aints (nde! which the co*pan- ope!ates p!epa!e a!epo!t to show which p!od(ct sho(ld e p!od(ced and sold.

S(u"%($ 4 :10G12 *in.;

Cont!i(tion *a!in pe! (nit P!od(ct 22 P!od(ct 44,ales p!ice >20 >40/a!iale costs

?i!ect *ate!ial >5 >8

?i!ect lao! 3 2/a!iale oe!head 4 12 5 15Cont!i(tion *a!in > 8 >25

#achine ho(!s !e(i!ed& 1L4 h! 1 h!

Cont!i(tion *a!in pe! (nit o+ li*ited !eso(!ce&:>8 O .25; > 32:>25 O 1; > 25

#achine ho(!s aailale 4000 4000Cont!i(tion *a!in >128000 >100000The co*pan- sho(ld p!od(ce and sell P!od(ct 22.

6 - 56


27/37


E+> 450 >75/a!iale costs >24 >30#achine ho(!s 2 3

I$!"ru)"%($!:a; Co*p(te the cont!i(tion *a!in pe! (nit o+ li*ited !eso(!ce +o! each p!od(ct.:; + 1000 additional *achine ho(!s a!e aailale which p!od(ct sho(ld e *an(+act(!ed@

S(u"%($ 4< :6G8 *in.;

:a; P!od(ct,tanda!d ?el(e

Cont!i(tion *a!in pe! (nit >26 >45#achine ho(!s !e(i!ed O 2 O 3Cont!i(tion *a!in pe! (nit o+ li*ited !eso(!ce >13 >15

:; The ?el(e p!od(ct sho(ld e *an(+act(!ed eca(se it !es(lts in the hihest cont!i(tion*a!in pe! *achine ho(!& >15 1000 ' >15000.

E+> 47=

The +ollowin C/P inco*e state*ents a!e aailale +o! Anti(e Co*pan- and Conte*po!a!-Co*pan-.

Anti(e Co*pan- Conte*po!a!- Co*pan-,ales !een(e >700000 >700000/a!iale costs 350000 140000Cont!i(tion *a!in 350000 560000"ied costs 150000 360000Net inco*e >200000 >200000

I$!"ru)"%($!:a; Co*p(te the de!ee o+ ope!atin lee!ae +o! each co*pan-.:; Ass(*e that sales !een(e dec!eases - 20=. P!epa!e a C/P inco*e state*ent +o! each

co*pan-.

S(u"%($ 47= :15G20 *in.;

:a; Cont!i(tion #a!in O Net nco*e ' ?e!ee o+ pe!atin Dee!aeAnti(e >350000 O >200000 ' 1.75Conte*po!a!- >560000 O >200000 ' 2.80

6 - 59


28/37


S(u"%($ 47= :cont.;

:; Anti(e Co*pan- Conte*po!a!- Co*pan-,ales !een(e >560000 >560000/a!iale costs 280000 112000Cont!i(tion *a!in 280000 448000

"ied costs 150000 360000Net inco*e >130000 > 88000

>700000 .8:>350000 O >700000; >560000:>140000 O >700000; >560000

E+> 474

An inest*ent ane! is anal-in two co*panies that specialie in the p!od(ction and sale o+o(!*et capp(ccino and chai *ies. "i!eside Co*pan- (ses a lao!)intensie app!oach and,ti!!in #o*ents Co*pan- (ses a *echanied s-ste*. /a!iale costin inco*e state*ents +o!the two co*panies a!e shown elow&

"i!eside ,ti!!in #o*ents,ales >1000000 >1000000/a!iale costs 650000 300000Cont!i(tion *a!in 350000 700000"ied costs 150000 500000Net nco*e > 200000 > 200000

The inest*ent ane! is inte!ested in ac(i!in one o+ these co*panies. Eowee! she isconce!ned ao(t the i*pact that each co*pan-s cost st!(ct(!e *iht hae on its p!o+itailit-.

I$!"ru)"%($!:a; Calc(late each co*pan-s de!ee o+ ope!atin lee!ae.:; ?ete!*ine the e++ect on each co*pan-s net inco*e i+ sales dec!ease - 10= and i+ sales

inc!ease - 20=. ?o not p!epa!e inco*e state*ents.

S(u"%($ 474 :8G10 *in.;

:a; Cont!i(tion #a!in O Net nco*e ' ?e!ee o+ pe!atin Dee!ae"i!eside >350000 O >200000 ' 1.75,t. #o*ents >700000 O >200000 ' 3.50

:; ?e!ee o+ = Chane in

= Chane in ,ales pe!atin Dee!ae ' Net nco*e"i!eside :10=; 1.75 ' :17.5=;,t. #o*ents :10=; 3.50 ' :35.0=;

"i!eside 20= 1.75 ' 35.0=,t. #o*ents 20= 3.50 ' 70.0=

6 - 5


29/37


aE+> 475

ndicate with a chec *a! whethe! each o+ the +ollowin wo(ld e a p!od(ct cost o! a pe!iod cost(nde! an aso!ption o! a a!iale s-ste* +o! Ca!son Co*pan-.

Aso!ption /a!ialeP!od(ct Pe!iod P!od(ct Pe!iod

a. ?i!ect *ate!ials

. ?i!ect lao!

c. "acto!- (tilities

d. "acto!- !ent

e. ndi!ect lao!

+. "acto!- s(pe!iso! sala!ies

. "acto!- *aintenance :a!iale;

h. "acto!- dep!eciation

i. ,ales sala!ies

M. ,ales co**issions

aS(u"%($ 475 :10G15 *in.;

Aso!ption /a!ialeP!od(ct Pe!iod P!od(ct Pe!iod

a. ?i!ect *ate!ials . ?i!ect lao!

c. "acto!- (tilities

d. "acto!- !ent

e. ndi!ect lao!

+. "acto!- s(pe!iso! sala!ies

. "acto!- *aintenance :a!iale; h. "acto!- dep!eciation i. ,ales sala!ies

M. ,ales co**issions

aE+> 47

"!esh Ai! P!od(cts Co*pan- *an(+act(!es and sells a a!iet- o+ ca*pin p!od(cts. Jecentl- the

co*pan- opened a new plant to *an(+act(!e a del(e po!tale cooin (nit. Cost and sales data+o! the +i!st *onth o+ ope!ations a!e shown elow&

#an(+act(!in Costs"ied e!head >120000/a!iale oe!head >3 pe! (nit?i!ect lao! >12 pe! (nit?i!ect *ate!ial >30 pe! (nit

%einnin inento!- 0 (nits


30/37


aE+> 47 :cont.;

,ellin and Ad*inist!atie Costs"ied >200000/a!iale >4 pe! (nit sold

The po!tale cooin (nit sells +o! >110. #anae*ent is inte!ested in the openin *onths !es(ltsand has ased +o! an inco*e state*ent.

I$!"ru)"%($!Ass(*e the co*pan- (ses aso!ption costin. Calc(late the p!od(ction cost pe! (nit and p!epa!ean inco*e state*ent +o! the *onth o+ (ne 2008.

aS(u"%($ 47 ?@45 #%$>

Pe! 30?i!ect lao! 12/a!iale oe!head 3"ied oe!head :>120000 O 12000; 10

Total cost >55

"!esh Ai! P!od(cts Co*pan-nco*e ,tate*ent :Aso!ption Costin;

"o! the #onth $ndin (ne 30 2008

,ales :11000 >110; >1210000Dess& Cost o+ oods sold :11000 >55; 605000!oss p!o+it 605000Dess& ,ellin and ad*inist!atie costs

/a!iale :11000 >4; > 44000"ied 200000 244000Net inco*e > 361000

aE+> 477

#o*ent(* %ies Co*pan- *an(+act(!es a asic !oad ic-cle. P!od(ction and sales data +o! the*ost !ecent -ea! a!e as +ollows :no einnin inento!-;&

/a!iale p!od(ction costs >90 pe! ie"ied p!od(ction costs >500000/a!iale sellin and ad*inist!atie costs >22 pe! ie

"ied sellin and ad*inist!atie costs >520000,ellin p!ice >200 pe! ieP!od(ction 20000 ies,ales 18000 ies

I$!"ru)"%($!:a; P!epa!e a !ie+ inco*e state*ent (sin aso!ption costin.:; Co*p(te the a*o(nt to e !epo!ted +o! inento!- in the -ea!)end aso!ption costin alance

sheet.

6 - =


31/37


aS(u"%($ 477 :8G12 *in.;

:a; ,ales :18000 >200; >3600000Dess& Cost o+ oods sold :18000 >115; 2070000!oss p!o+it 1530000Dess& sellin and ad*inist!atie costs

U:18000 >22; B >520000V 916000Net inco*e > 614000

/a!iale p!od(ction costs > 90 pe! ie"ied p!od(ction costs :>500000 O 20000; 25 pe! ie

Total cost o+ oods sold pe! (nit >115 pe! ie

:; :20000 G 18000; >115 ' >230000

aE+> 478

#o*ent(* %ies Co*pan- *an(+act(!es a asic !oad ic-cle. P!od(ction and sales data +o! the*ost !ecent -ea! a!e as +ollows :no einnin inento!-;&

/a!iale p!od(ction costs >90 pe! ie"ied p!od(ction costs >500000/a!iale sellin and ad*inist!atie costs >22 pe! ie"ied sellin and ad*inist!atie costs >520000,ellin p!ice >200 pe! ieP!od(ction 20000 ies,ales 18000 ies

I$!"ru)"%($!:a; P!epa!e a !ie+ inco*e state*ent (sin a!iale costin.

:; Co*p(te the a*o(nt to e !epo!ted +o! inento!- in the -ea!)end a!iale costin alancesheet.

aS(u"%($ 478 :8G12 *in.;

:a; ,ales :18000 >200; >3600000Dess& /a!iale costs

/a!iale cost o+ oods sold :18000 >90; >1620000/a!iale sellin and ad*in. costs :18000 >22; 396000 2016000

Cont!i(tion *a!in 1584000Dess& "ied costs

"ied p!od(ction costs 500000

"ied sellin and ad*inist!atie costs 520000 1020000Net inco*e > 564000

:; :20000 G 18000; >90 ' >180000

6 - 4


32/37


aE+> 476

?olan Co*pan- p!od(ces spo!tin e(ip*ent. n 2008 the +i!st -ea! o+ ope!ations ?olanp!od(ced 25000 (nits and sold 22000 (nits. n 2009 the p!od(ction and sales !es(lts we!eeactl- !ee!sed. n each -ea! sellin p!ice was >100 a!iale *an(+act(!in costs we!e >40 pe!(nit a!iale sellin epenses we!e >8 pe! (nit +ied *an(+act(!in costs we!e >540000 and

+ied ad*inist!atie epenses we!e >200000.I$!"ru)"%($!:a; Co*p(te the net inco*e (nde! a!iale costin +o! each -ea!.:; Co*p(te the net inco*e (nde! aso!ption costin +o! each -ea!.:c; Jeconcile the di++e!ences each -ea! in inco*e +!o* ope!ations (nde! the two costin

app!oaches.

aS(u"%($ 476 :20G25 *in.;

:a; 2008& U22000 :>100 G >40 G >8;V G :>540000 B >200000;V ' >4040002009& U25000 :>100 G >40 G >8;V G :>540000 B >200000;V ' >560000

:; 2008& U22000 :>100 G >40 G >21.60;V G :>200000 B :>22000 >8;V ' >4688002009& WU25000 >100; G U3000 :>40 B >21.60;V G U22000 :>40 B >24.55;VX G U>200000

B :25000 >8;V ' >495200

:c; The a!iale costin and the aso!ption costin inco*e can e !eco!ded as +ollows&

2008 a!iale costin inco*e >404000"ied *an(+act(!in costs de+e!!ed at 12L31L08

(nde! aso!ption costin :3000 >21.60; 648002008 aso!ption costin inco*e >468800

2009 a!iale costin inco*e >560000

"ied *an(+act(!in costs epensed in 2009(nde! aso!ption costin :3000 >21.60; :64800;2009 aso!ption costin inco*e >495200

aE+> 479

#cCa!tne- P(*ps is a diision o+ 20 pe! (nit. eo!e Ea!!ison diision *anae! is conside!in p!od(cin eithe!30000 o! 50000 (nits d(!in the pe!iod. the! in+o!*ation is p!esented in the sched(le elow&

?iision n+o!*ation G 2008%einnin inento!- 0$pected sales in (nits 30000,ellin p!ice pe! (nit >20/a!iale *an(+act(!in cost pe! (nit >7"ied *an(+act(!in oe!head costs :total; >300000"ied *an(+act(!in oe!head costs pe! (nit

%ased on 30000 (nits :>300000 O 30000; >10%ased on 50000 (nits :>300000 O 50000; >6

#an(+act(!in cost pe! (nit%ased on 30000 (nits :>7 a!iale B >10 +ied; >17%ased on 50000 (nits :>7 a!iale B >6 +ied; >13

,ellin and ad*inist!atie epenses :all +ied; >25000

6 - 5


33/37


aE+> 479 :cont.;

I$!"ru)"%($!:a; P!epa!e and aso!ption costin inco*e state*ent with one col(*n showin the !es(lts i+

30000 (nits a!e p!od(ced and one col(*n showin the !es(lts i+ 50000 (nits a!e p!od(ced.:; h- is inco*e di++e!ent +o! the two p!od(ction leels when sales is 30000 (nits eithe! wa-@

aS(u"%($ 479 :15G20 *in.;

:a; #cCa!tne- P(*ps ?iisionnco*e ,tate*ent :Aso!ption Costin;

"o! the Rea! $nded 2008

30000 P!od(ced 50000 P!od(ced,ales :30000 (nits >20; >600000 >600000Cost o+ oods sold 510000 :30000 >17; 390000 :30000 >13;!oss p!o+it 90000 210000

"ied sellin and ad*in. epenses 25000 25000Net inco*e > 65000 >185000

:; Net inco*e is >120000 hihe! when 50000 (nits a!e p!od(ced eca(se (nde! aso!ptioncostin >120000 o+ +ied *an(+act(!in costs :20000 >6; a!e de+e!!ed to the net -ea!.

aE+> 47

#cCa!tne- P(*ps is a diision o+ 20 pe! (nit. eo!e Ea!!ison diision *anae! is conside!in p!od(cin eithe!30000 o! 50000 (nits d(!in the pe!iod. the! in+o!*ation is p!esented in the sched(le elow&

?iision n+o!*ation G 2008%einnin inento!- 0$pected sales in (nits 30000,ellin p!ice pe! (nit >20/a!iale *an(+act(!in cost pe! (nit >7"ied *an(+act(!in oe!head costs :total; >300000"ied *an(+act(!in oe!head costs pe! (nit

%ased on 30000 (nits :>300000 O 30000; >10%ased on 50000 (nits :>300000 O 50000; >6

#an(+act(!in cost pe! (nit%ased on 30000 (nits :>7 a!iale B >10 +ied; >17

%ased on 50000 (nits :>7 a!iale B >6 +ied; >13,ellin and ad*inist!atie epenses :all +ied; >25000

I$!"ru)"%($!P!epa!e a a!iale costin inco*e state*ent with one col(*n showin the !es(lts i+ 30000 (nitsa!e p!od(ced and one col(*n showin the !es(lts i+ 50000 (nits a!e p!od(ced.

6 -


34/37


aS(u"%($ 47 :15G20 *in.;

#cCa!tne- P(*ps ?iisionnco*e ,tate*ent :/a!iale Costin;

"o! the Rea! $nded 2008

30000 P!od(ced 50000 P!od(ced,ales :30000 (nits >20; >600000 >600000/a!iale cost o+ oods sold :30000 >7; 210000 210000Cont!i(tion *a!in 390000 390000"ied *an(+act(!in oe!head 300000 300000"ied sellin and ad*inist!atie epenses 25000 25000Net inco*e > 65000 > 65000

6 - 7


35/37


COMPLETION STATEMENTS

149. The inco*e state*ent classi+ies cost as a!iale o! +ied and co*p(tes

a cont!i(tion *a!in.

150. tells a co*pan- how +a! sales can d!op e+o!e it will e ope!atin ata loss.

151. is the !elatie pe!centae in which a co*pan- sells its *(ltiple

p!od(cts.

152. hen *o!e than one p!od(ct is sold the !ea)een point can e dete!*ined - diidin

+ied epenses - .

153. hen a co*pan- has *anae*ent *(st decide which p!od(cts to

*ae and sell in o!de! to *ai*ie net inco*e.

154. !e+e!s to the !elatie p!opo!tion o+ +ied e!s(s a!iale costs thata co*pan- inc(!s.

155. The p!oides a *eas(!e o+ a co*pan-s ea!nins olatilit-

and can e (sed to co*pa!e co*panies.

a156.


36/37


SHORT-ANSER ESSAY QUESTIONS

S-A E 464

A C/P inco*e state*ent is +!e(entl- p!epa!ed +o! inte!nal (se - *anae*ent. ?esc!ie the+eat(!es o+ the C/P inco*e state*ent that *ae it *o!e (se+(l +o! *anae*ent decision)*ain

than the t!aditional inco*e state*ent that is p!epa!ed +o! ete!nal (se!s.

S(u"%($ 464

,ee!al +eat(!es o+ the C/P inco*e state*ent *ae it *o!e (se+(l +o! inte!nal decision)*ain.The C/P inco*e state*ent classi+ies costs as eithe! +ied o! a!iale !athe! than - +(nction.%ein ale to identi+- the ehaio! o+ costs in this *anne! can aid *anae*ent in cont!ollinthose costs.

Also the C/P inco*e state*ent shows the cont!i(tion *a!in !athe! than a !oss p!o+it. Thishelps *anae*ent estalish the etent to which thei! sales a!e ale to coe! thei! +ied costsand to anal-e the i*pact on net inco*e o+ chanes in sales o! costs.

S-A E 465

aco And!ews p!esident o+ /ideo Adent(!e has hea!d ao(t ope!atin lee!ae and ass -o(to eplain this te!*. hat is ope!atin lee!ae@ Eow does a co*pan- inc!ease its ope!atinlee!ae@

S(u"%($ 465

pe!atin lee!ae !e+e!s to the chane in net inco*e that a co*pan- epe!iences when the!e isa chane in net sales !een(e. Co*panies that hae hihe! +ied costs !elatie to a!iale costs

hae hihe! ope!atin lee!ae. n that case the co*pan-s p!o+its will inc!ease !apidl- whensales !een(e inc!eases (t dec!ease !apidl- when sales !een(e dec!eases. A co*pan- caninc!ease its ope!atin lee!ae - inc!easin its !eliance on +ied costs with a co!!espondindec!ease in a!iale costs.

aS-A E 46

?e+ine a!iale costin and aso!ption costin. hat a!e so*e o+ the ene+its to a *anae! +!o*(sin a!iale costin instead o+ aso!ption costin +o! inte!nal decision *ain@

aS(u"%($ 46

/a!iale costin is a s-ste* +o! dete!*inin p!od(ct costs that is (sed p!i*a!il- +o! *ain*anae!ial decisions. This s-ste* dete!*ines p!od(ct costs - conside!in onl- di!ect *ate!ialsdi!ect lao! and a!iale *an(+act(!in oe!head. n cont!ast aso!ption costin is (sed -so*e *anae!s and also +o! ete!nal !epo!tin.


37/37


s(ited +o! cost)ol(*e)p!o+it anal-sis a!iale costin p!od(ces inco*e state*ents that a!eclose! to net cash +lows than aso!ption costin and the *ethod ties in with standa!d costin and+leile (detin *o!e e++ectiel-.

aS-A E 467

Eow do di++e!ences in p!od(ction and sales leels a++ect inco*e (nde! aso!ption and a!ialecostin@.

aS(u"%($ 467

+ p!od(ction e(als sales in an- ien pe!iod the net inco*es (nde! oth aso!ption anda!iale costin will e e(al.

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