BEC 2 Planning Techniques Forecasting

Question 1

Contribution approach

Answer 1

Revenue
Less: Variable costs
Contribution margin
Less: Fixed costs
Net income

Question 2

Contribution margin ratio formula

Answer 2

Contribution margin ratio = Contribution margin / Revenue

Question 3

Absorption formula

Answer 3

Revenue 
Less: Cost of goods sold
Gross margin
Less: Operating expense
Net income

Question 4

Contribution and absorption approach difference

Answer 4

Treatment of fixed overhead
Absorption approach - fixed overhead is a product cost
Contribution approach - fixed overhead is a period cost

Question 5

Absorption costing net income and variable costing net income

Answer 5

The difference depends on the change in inventory level during the period
No change in inventory: absorption income = variable income
Increase in inventory: absorption income > variable income
Decrease in inventory: absorption income < Variable income

Question 6

Break even points in units

Answer 6

Total fixed costs / Contribution margin per unit

Question 7

Break-even point formula in dollars

Answer 7

Total fixed costs / Contribution margin ratio

Question 8

Margin of safety formula

Answer 8

Total sales - Break even sales = Margin of safety in dollars

Question 9

Opportunity costs evaluated in considering an opportunity when the firm is operating at capacity

Answer 9

Opportunity cost at full capacity is defined as the net benefit given up from the best alternative use of the capacity

Question 10

Special order decision

Answer 10

Special orders require a firm to decide if a specially priced order should be accepted or rejected.
When there is excess capacity, a special order should be accepted if the selling price per unit is greater than the variable cost per unit.
If the company is operating at full capacity, the opportunity cost of producing the special order should be included in the analysis.

Question 11

A make or buy decisions

Answer 11

the decision to make or buy a component is similar to the special order decision. Managers should consider only relevant costs and select the lowest-cost alternative.

Question 12

A sell or process further decision

Answer 12

A sell or process further decision is made by comparing the incremental cost and the incremental revenue generated after the split off point.

• If the incremental revenue exceeds the incremental cost, the organization should process further
• If the incremental cost exceeds the incremental revenue, the organization should sell at the split off point

Question 13

A keep or drop decision

Answer 13

When deciding if to keep or drop a segment, a firm should compare the fixed costs that can be avoided if the segment is dropped to the contribution margin that will be lost if the segment is dropped.
The segment should be kept if the lost contribution margin exceeds avoided fixed costs and dropped if the lost contribution margin is less than avoided fixed costs

Question 14

Linear regression

Answer 14

Linear regression is a method for studying the relationship between two or more variables. Linear regression is used to predict the value of a dependent variable corresponding to given values of the independent variables.
Simple regression involves only one independent variable
Multiple regression involves more than one independent variable.