Accounting 2 Test 2 Flashcards
Break-Even Point
Level of sales at which profit is zero.
Contribution Margin Ratio (CM Ratio)
Ratio computed by dividing contribution margin by dollar sales.
Degree of Operating Leverage
Measure, at a given level of sales, of how a percentage change in sales will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income.
Incremental Analysis
Analytical approach that focuses only on those costs and revenues that change as a result of a decision.
Margin of Safety
Excess of budgeted or actual dollar sales over the break-even dollar sales.
Operating Leverage
Measure of how sensitive net operating income is to a given percentage change in dollar sales.
Sales Mix
Relative proportions in which a company’s products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.
Target Profit Analysis
Estimating what sales volume is needed to achieve a specific target profit.
Variable Expense Ratio
Ratio computed by dividing variable expenses by dollar sales.
Action Analysis Report
Report showing what costs have been assigned to a cost object, such as a product or customer, and how difficult it would be to adjust the cost if there is a change in activity.
Activity
Event that causes consumption of overhead resources in an organization.
Activity-based Costing (ABC)
Costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs.
Activity-based Management
Management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects.
Activity Cost Pool
“Bucket” in which costs are accumulated that relate to a single activity measure in an activity-based costing system.
Activity Measure
Allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool.
Batch-level Activities
Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch.
Benchmarking
Systematic approach to identifying the activities with the greatest potential for improvement.
Customer-level Activities
Activities that are carried out to support customers, but that are not related to any specific product.
Duration Driver
Measure of the amount of time required to perform an activity.
First-Stage Allocation
Process by which overhead costs are assigned to activity cost pools in an activity based costing system.
Organization-Sustaining Activities
Activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.
Product-Level Activities
Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run.
Second-Stage Allocation
Process by which activity rates are used to apply costs to products and customers in activity-based costing.
Transaction Driver
Simple count of the number of times an activity occurs.
Unit-Level Activities
Activities that are performed each time a unit is produced.
Contribution Income Statement
Helpful to managers in judging the impact on profits of changes in selling price, cost, or volume. Emphasis is on cost behavior.
Contribution Margin
Amount remaining from sales revenue after variable expenses have been deducted. Used first to cover fixed expenses. Remaining amount contributes to net operating income.
Budget
Detailed plan for the future that is usually expressed in formal quantitative terms.
Cash Budget
Detailed plan showing how cash resources will be acquired and used over a specific time period.
Continuous Budget
12-month budget that rolls forward one month as the current month is completed. aka Perpetual Budget
Control
Process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change.
Direct Labor Budget
Detailed plan that shows the direct labor hours required to fulfill the production budget.
Direct Materials Budget
Detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.
Ending Finished Goods Inventory Budget
Budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet.
Manufacturing Overhead Budget
Detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period.
Master Budget
Number of separate but interdependent budgets that formally lay out the company’s sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet.
Merchandise Purchases Budget
Detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period.
Planning
Developing goals and preparing budgets to achieve those goals.
Production Budget
Detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs.
Responsibility Accounting
System of accountability in which managers are held responsible for those items of revenue and cost - and only those items - over which they can exert significant control. The managers are held responsible for differences between budgeted and actual results.
Sales Budget
Detailed schedule showing expected sales expressed in both dollars and units
Self-Imposed Budget
Method of preparing budgets in which managers prepare their own budgets. Those budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement. aka Participative Budget
Selling and Administrative Expense Budget
Detailed schedule of planned expenses that willb e incurred in areas other than manufacturing during a budget period.
