B2 - Planning Techniques - Forecasting and Projection Flashcards
What is another name for cost-volume-profit analysis?
Breakeven analysis
What is the formula for contribution approach (direct costing/variable costing)?
Revenue - Variable costs = Contribution margin - Fixed costs = Net income
How is the contribution margin ratio calculated?
Contribution margin / revenue
What is the formula for absorption approach (GAAP)?
Revenue - Cost of goods sold = Gross profit margin - Operating expenses = Net income
What is the only difference between variable costing and absorption costing?
The treatment of fixed manufacturing overhead (under variable it is a period cost and under absorption it is a product cost)
If sales are greater than production, which costing approach (variable or absorption) will have the lower income?
Absorption costing (GAAP); units produced last period are sold this period, thus increasing COGS for the current period
T/F: If there is an increase in ending inventory from one period to the next, absorption net income will be higher than variable net income
True; if ending inventory increases, the cost is being deferred to the subsequent periods (through inventory/COGS)
How are breakeven units calculated?
Total fixed costs / contribution margin per unit
How are breakeven sales dollars calculated?
Total fixed costs / contribution margin ratio
How is contribution margin per unit calculated?
Sales price (per unit) - variable cost (per unit)
How is contribution margin ratio calculated?
Contribution margin / sales price
How is a target profit calculated for sales dollars?
Total fixed costs + target profit / contribution margin ratio
How is margin of safety calculated?
Total sales - breakeven sales
How is margin of safety percentage calculated?
Margin of safety / total sales
How is target cost calculated?
Market price (as set by cost leader) - required profit
What are marginal costs and what do they include?
Marginal costs are the costs (all variable and avoidable fixed) that are associated with producing one more unit
T/F: When operating at full capacity, only the variable cost is considered in determining whether or not to accept a special order
False; the variable cost and the opportunity cost (amount of contribution margin forgone / units of special order) is considered when operating at full capacity
What is the definition of multiple regressions?
Having more than one variable
What is the most accurate way to classify costs of an object as either fixed or variable?
The regression analysis method
T/F: In making decisions about which products to emphasize, managers should select products with the lowest contribution margin per unit of the constraining resource
False; they should select the products with the highest contribution margin per unit of the constraining resource
What is the Delphi method and what does it do?
The Delphi method is a systematic, interactive forecasting method which relies on a panel of experts and requires significant judgment
