ACCTG 404 Flashcards
Break-Even Point
sales where profit is zero
Contribution Approach
Income statement
that separates costs into variable and fixed
first deducting all variable expenses from sales to obtain the contribution margin
Contribution Margin
portion of sales revenue not consumed by variable expenses, thus being fixed expenses
Cost-Volume-Profit (CVP) Graph
Shows relationship between an organizations revenues, costs, and profits on the one hand and its sales volume on the other hand
Degree of Operating Leverage
Measure of how a % change in sales volume will affect profits
Margin of Safety
Actual dollar sales or excess of budget / break-even dollar sales
Incremental Analysis
Focusing on costs and revenues that change as a result of a decision
Operating Leverage
Measure of how sensitive net operating income is to a change in unit sales
Sales Mix
Sales mix is sales of each product as a % of total sales
More high margin sales than low margin sales increase profits
Target Profit Analysis
Estimating level of sales needed to achieve a desired target profit
Absorption costing
Costing method that includes all manufacturing costs (direct materials, direct labor, variable and fixed manufacturing overhead) in unit product costs
Common Fixed Cost
Fixed cost supporting more than one business segment, but not traceable
Segment
Any part or activity of an organization about which managers seek cost, revenue, or profit data
Segment Margin
Segments contribution margin less its traceable fixed costs
Represents margin available after a segment has covered all of its own traceable costs
Traceable Fixed Cost
Fixed cost incurred because of the existence of a particular business segment that would be eliminated if the segment were eliminated
Easily traceable
Variable Costing
Costing method that includes only variable manufacturing costs (direct materials, direct labor, variable manufacturing overhead) in unit product costs
Not easily traceable
Activity Cost Pool
Accumulates cost related to a single activity measure in an activity-based costing system
Activity Measure
Allocation based in an activity-based costing system
Ideally is a measure of the amount of activity that drives the costs in an activity cost pool
Activity-Based Costing (ABC)
Based on activities that provides managers with cost information for strategic and other decisions potentially affecting capacity and therefore fixed and variable costs
Activity Based Management (ABM)
Management approach focusing on managing activities as a way of eliminating waste and reducing delays and defects
Batch-Level Activities
Activities performed each time a batch of goods is handled or processed, regardless of how many units are in the batch
Amount of resources consumed depends on the number of batches run rather than the number of units in the batch
Benchmarking
identifying activities with the greatest potential for improvement
Duration Driver
Measure of the time required to perform an activity
First-Stage Allocation
overhead costs 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 are related to specific products that must be performed regardless of how many units are produced and sold or batches run
Second-Stage Allocation
Using activity rates to apply costs to products and customers in activity based costing
Transaction Driver
Count of the number of times an activity occurs
Unit-Level Activities
Activities performed each time a unit is produced
Budget
Plan for future expressed in quantitative terms
Cash Budget
Schedule estimating how cash will be acquired and used over a specific time period
Control
Process of gathering feedback to ensure a plan is being properly executed or modified as circumstances change
Direct Labor Budget
Plan showing the direct labor-hours required to fulfill the production budget
Direct Materials Budget
Plan showing the amount of raw materials that must be purchased to fulfill the production budget and provide adequate inventories
Ending Finished Goods Inventory Budget
Budget showing the dollar amount of unsold finished goods inventory appearing on the ending balance sheet
Manufacturing Overhead Budget
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 quantifying the company’s sales, production, and financial goals and culminating in a cash budget, budgeted income statement, and budgeted balance sheet
Merchandise Purchases Budget
Plan used by merchandising company showing the amount of goods to be purchased from supplies during the period
Participative Budget
Planning
Process of establishing goals and specifying how to achieve them
Production Budget
Plan showing the number of units that must be produced during a period to satisfy both sales and inventory needs
Sales Budget
Schedule showing expected sales in dollars and units
Self-Imposed Budget
Method of preparing budgets in which managers prepare their own budgets
Budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement
Selling and Administrative Expense Budget
Schedule of planned nonmanufacturing expenses
Activity Variance
Difference between the amount of revenue or expense in the flexible budget and the planning budget
Caused by the difference in actual and planned activities
Flexible Budget
Budget showing what management costs and revenues should have been, given the actual level of activity
Management by Exception
Management system that compares actual results to a budget so significant deviations can be flagged as exceptions
Planning Budget
Budget created before the period begins that is valid only for the planned level of activity
Revenue Variance
Difference between the actual amount of revenue and what is should have been, given the actual level of activity
A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity
Spending Variance
Difference between the actual amount of a cost and how much it should have been, given the activity level
A favorable (unfavorable) spending variance occurs because the cost is lower (higher) than expected, given the activity level
