B2 Flashcards

1
Q

Is the contribution approach GAAP?

A

No; it only treats variable overhead as a product cost; fixed overhead is seen as a period expense

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2
Q

Contribution Approach Formula

A

Revenue

CM

Net Income

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3
Q

Is the absorption approach GAAP?

A

Yes

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4
Q

The only difference between absorption approach and contribution approach?

A
  • the treatment of fixed manufacturing overhead

* the difference will be in COGS

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5
Q

Quick way to calculate fixed manufacturing overhead left in inventory

A
  • find the fixed overhead rate per unit

* multiply it by the number of units still sitting in EI

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6
Q

Production Greater than Sales vs. Sales Greater than Production

A
P>S = absorption costing will show a higher profit 
P<S = absorption costing will show lower profit since fixed overhead from prior period is now being expensed in addition
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7
Q

Tendency for managers using the absorption costing

A

*stockpile inventory

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8
Q

Total sales dollars at the BEP

A

= (total fixed costs)/(CM ratio)

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9
Q

BEP in units

A

= (total fixed costs)/(CM per unit)

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10
Q

Amount of profit following the break-even point

A

= units sold multiplied by the contribution margin

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11
Q

Margin of Safety

A

excess sales over breakeven sales

  • expressed as a dollar or a percentage
  • *(Margin of Safety $)/(Total sales)
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12
Q

Target Cost =

A

Market Price - required profit

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13
Q

Implications of Target Costing

A
  1. compromised quality in order to achieve cost level

2. increased marketing and downstream costs

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14
Q

Relevant Costs

A
  • change as a result of selecting different alternatives

* incremental costs always change

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15
Q

Are opportunity costs relevant costs?

A

Yes

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16
Q

Are controllable costs relevant costs?

A

Yes

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17
Q

Are marginal costs relevant costs?

A

Yes

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18
Q

Special Order Decisions

A

*accept if rev > relevant costs

  • Excess capacity
  • *SP > VC
  • Full capacity
  • *SP > VC + opportunity cost
  • OPPORTUNITY COST = CONTRIBUTION MARGIN
  • (CM in $)/size of special order
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19
Q

Make vs. Buy

A

Relevant costs to make < cost to buy = make

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20
Q

Sell or Process Further

A

if incremental revenue > incremental cost = process further

  • joint costs are ignored
  • separable costs = relevant
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21
Q

Keep or Drop a Segment

A
  1. keep the segment if the lost contribution margin exceeds avoided fixed costs
  2. drop the segment if the lost contribution margin is less than avoided fixed costs

*CONSIDER THE NONFINANCIAL IMPACT!!!

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22
Q

Sensitivity Analysis

A

(delta TC)/(delta volume)

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23
Q

Linear Regression Formula

A

y = A + Bx

y = TC
A = FC
B = VC/unit
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24
Q

Coefficient of Correlation vs. Coefficient of Determination

A

Correlation: -1;0;1 (strength of linear relationship)
Determination: 0;1 (how much of a change in y can be explained by a change in x)

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25
Q

Learning Curve Rate

A

*a percentage expression of the decrease in average time as production double (% that still remains)

32 hours vs 40 hours = learning curve of 80%

26
Q

High-Low Method

A
  • find the highest and lowest X value
  • calculate slope
  • use the highest or lowest value to find the y intercept
27
Q

Tactical plans are also known as

A

single use plans (apply to specific circumstances during a specific time frame)

28
Q

Two Things Budgets should Include

A
  • management participation

* budget guidelines

29
Q

Ideal Standards vs. Currently Attainable Standards

A

Ideal

  • implied emphasis on continuous quality improvement
  • demotivation of employees

Attainable

  • use with flexible budgets
  • reasonable
  • best standard is the standard that leads to the accomplishment of strategic goals
30
Q

Authoritative vs. Participative Standards

A

Authoritative
*set by management, quick, workers might not accept
Participative
*all individual, more likely to accept, time consuming

31
Q

Another name for the master budget

A

static budget (one level of activity)

32
Q

Master Budget Components

A

*operating budgets and financial budgets for a single level of sales volume

33
Q

Flow of Master Budget

A
  1. Sales budgets
  2. production budgets
  3. cash budgets
34
Q

Production Budget Formula

A

Unit Sales
Desired Ending Inventory

= units to produce

35
Q

Direct Materials to be Purchased Budget

A

Materials needed for production
Desired Ending Inventory

= materials to be purchased

36
Q

Direct Materials Usage Budget in $

A

Beginning inventory at cost
+ purchases at cost

= direct materials used

37
Q

Direct Labor Budget

A

Budgeted production x hours x hourly wage

38
Q

Selling and Administrative Expense Budget is dependent upon

A

sales volume and the sales budget

39
Q

Cash Budgets and their Three Sections

A
  1. cash available (A/R and cash sales)
  2. cash disbursements (Cash purchases and A/P payments; cash operating expenses (NOT DEPRECIATION)
  3. financing
40
Q

Cash Budget Format

A

Beginning cash
Cash collections from sales

= computed ending cash

= working capital loans to maintain cash requirements

41
Q

When are the pro forma financial statements created?

A

last

42
Q

Major limitations of a flexible budget

A

*highly dependent on the accurate identification of fixed and variable costs and the determination of the relevant range

43
Q

Variances must also show ______ to be considered complete

A

FAVORABLE OR UNFAVORABLE

44
Q

Controllable vs. Uncontrollable Variance

A

variable costs vs. fixed costs

45
Q

Direct Materials Variance

A

APAQ - SPAQ (units purchased) (PRICE)

SPAQ - SPSQ (units used in production) (USAGE)

46
Q

Direct Labor Variance

A

APAQ - SPAQ (RATE)

SPAQ - SPSQ (EFFICIENCY)

47
Q

Net Overhead Variance

A

actual overhead vs. applied overhead (1 v 4)

48
Q

Overhead Variance Numbers

A
  1. Actual Overhead
  2. Budget based on Actual Hours
  3. Budget based on Standard Hours
  4. Overhead Applied
  5. Actual Overhead
  6. Budgeted FOH + Actual worked x Standard VOH rate
  7. Budgeted FOH + Standard allowed x VOH rate
  8. Standard Total OH rate per DLH x Standard DLH allowed
49
Q

Two-Way Variance

A

1 v 3

3 v 4

50
Q

Three-Way Variance

A

1 v 2 (spending)
2 v 3 (efficiency)
3 v 4 (volume variance)

51
Q

Key to Difference for Volume

A

STANDARD HOURS ALLOWED (number of units x standard rate)

not the actual number of hours worked

52
Q

Sales Price Variance

A

(Actual SP - Budgeted SP) x quantity sold

53
Q

Sales Volume Variance

A

(Actual Quantity - Budgeted Quantity) x CM

54
Q

Market Share Variance

A

[Actual Market Share - Budgeted Market Share] x actual industry units x budgeted contribution margin per unit

  • building or losing market share
  • want to maintain market share
55
Q

Market Size Variance

A

the effect the size of the entire market for the product has on the contribution margin for the firm

56
Q

Types of Responsibility Segments

A

Cost (lowest responsibility)
Revenue
Profit
Investment (highest responsibility)

57
Q

Financial Scorecards Design

A

A ccurate and
T imely
U nderstandable
S pecific accountability by segment

58
Q

Are common costs controllable?

A

No

59
Q

Contribution Reporting for Managers

A
  1. SP - VC = CM
  2. CM - CFC = controllable margin

CFC = controllable fixed costs

60
Q

Balanced Scorecard

A
"FICA"
F inancial
I nternal business processes
C ustomer satisfaction
A dvancement of innovation and human resource development