COST ACCOUNTING

ACCT301

Assignment 2

1. Name the definitions given below:
______________ 1. Technique that examines changes in profits in response to changes in sales volumes, costs, and prices.

______________ 2. Percent by which the selling price (or revenue) per unit exceeds the variable cost per unit, or contribution margin as a percent of revenue.

______________ 3. Diagram of the relationship between total revenues and total costs; illustrates how an organization's profits are expected to change under different volumes of activity.

______________ 4. Index of the extent to which the cost function is made up of fixed costs.

______________ 5. Total revenue minus total variable costs.

______________ 6. Proportion of different products or services that an organization sells.

______________ 7. Excess of an organization's expected future sales (in either revenue or units) above the breakeven point.

______________ 8. The level of activity where equal cost or profit occurs across multiple alternatives.

______________ 9. Selling price per unit minus variable cost per unit.

______________ 10. Level of operating activity at which revenues cover all fixed and variable costs and there is no profit.

______________ 11. Margin of safety as a percentage of actual or estimated sales (units or revenues).

______________ 12. A systematic tendency for people to be overly optimistic about the outcomes of their plans and projects.

2. Berhannan's Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,500.

A. What is the contribution margin per phone?

B. What is the breakeven point in phones?.

C. How many phones must be sold to earn a targeted profit of $7,500?

3. Fill in the blanks:

Part

Sales Fixed Costs Variable Costs Total Costs Contribution Margin % Operating Income

A. $3,000 $1,300 $1,200 $2,500 60% ?

B. $4,000 ? $1,200 $4,000 70% $0

C. $6,000 $900 $4,500 $5,400 ? $600

D. $600 $1,000 $1,600 75% $2,400

4. Total fixed costs are $25,000 per year. The variable cost per unit is $10.00 per unit up to 5,000 units per year and $7.50 per unit thereafter

a. Develop a cost function for this cost.

b. What could cause the change in variable costs shown above? Explain

c. List three assumptions that are made when developing these types of cost functions and give one reason that each assumption might not hold

5. Explain the various Cost estimation methods.