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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
Learning Curve Rate
*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
High-Low Method
* find the highest and lowest X value * calculate slope * use the highest or lowest value to find the y intercept
27
Tactical plans are also known as
single use plans (apply to specific circumstances during a specific time frame)
28
Two Things Budgets should Include
* management participation | * budget guidelines
29
Ideal Standards vs. Currently Attainable Standards
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
Authoritative vs. Participative Standards
Authoritative *set by management, quick, workers might not accept Participative *all individual, more likely to accept, time consuming
31
Another name for the master budget
static budget (one level of activity)
32
Master Budget Components
*operating budgets and financial budgets for a single level of sales volume
33
Flow of Master Budget
1. Sales budgets 2. production budgets 3. cash budgets
34
Production Budget Formula
Unit Sales Desired Ending Inventory = units to produce
35
Direct Materials to be Purchased Budget
Materials needed for production Desired Ending Inventory = materials to be purchased
36
Direct Materials Usage Budget in $
Beginning inventory at cost + purchases at cost = direct materials used
37
Direct Labor Budget
Budgeted production x hours x hourly wage
38
Selling and Administrative Expense Budget is dependent upon
sales volume and the sales budget
39
Cash Budgets and their Three Sections
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
Cash Budget Format
Beginning cash Cash collections from sales = computed ending cash = working capital loans to maintain cash requirements
41
When are the pro forma financial statements created?
last
42
Major limitations of a flexible budget
*highly dependent on the accurate identification of fixed and variable costs and the determination of the relevant range
43
Variances must also show ______ to be considered complete
FAVORABLE OR UNFAVORABLE
44
Controllable vs. Uncontrollable Variance
variable costs vs. fixed costs
45
Direct Materials Variance
APAQ - SPAQ (units purchased) (PRICE) | SPAQ - SPSQ (units used in production) (USAGE)
46
Direct Labor Variance
APAQ - SPAQ (RATE) | SPAQ - SPSQ (EFFICIENCY)
47
Net Overhead Variance
actual overhead vs. applied overhead (1 v 4)
48
Overhead Variance Numbers
1. Actual Overhead 2. Budget based on Actual Hours 3. Budget based on Standard Hours 4. Overhead Applied 1. Actual Overhead 2. Budgeted FOH + Actual worked x Standard VOH rate 3. Budgeted FOH + Standard allowed x VOH rate 4. Standard Total OH rate per DLH x Standard DLH allowed
49
Two-Way Variance
1 v 3 | 3 v 4
50
Three-Way Variance
1 v 2 (spending) 2 v 3 (efficiency) 3 v 4 (volume variance)
51
Key to Difference for Volume
STANDARD HOURS ALLOWED (number of units x standard rate) ***not the actual number of hours worked***
52
Sales Price Variance
(Actual SP - Budgeted SP) x quantity sold
53
Sales Volume Variance
(Actual Quantity - Budgeted Quantity) x CM
54
Market Share Variance
[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
Market Size Variance
the effect the size of the entire market for the product has on the contribution margin for the firm
56
Types of Responsibility Segments
Cost (lowest responsibility) Revenue Profit Investment (highest responsibility)
57
Financial Scorecards Design
A ccurate and T imely U nderstandable S pecific accountability by segment
58
Are common costs controllable?
No
59
Contribution Reporting for Managers
1. SP - VC = CM 2. CM - CFC = controllable margin CFC = controllable fixed costs
60
Balanced Scorecard
``` "FICA" F inancial I nternal business processes C ustomer satisfaction A dvancement of innovation and human resource development ```

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