BEC 2.2

Question 1

Contribution Approach

Answer 1

Not GAAP

Revenue
Less: Variable Costs
= Contribution Margin
Less: Fixed Costs
= Net Income

Variable Costs = DM + DL + Variable Mfg. O/H + Var. SG & A

Fixed Costs = Fixed Mfg. O/H + Fixed SG & A

Question 2

Contribution Margin Ratio

Answer 2

Contribution Margin / Revenue

Question 3

Absorption Approach

Answer 3

GAAP
- segregate costs between product and period

Revenue
Less: Cost of Goods Sold
=Gross Margin
Less: Operating Expenses
= Net Income

Question 4

Contribution Approach vs. Absorption Approach

Answer 4

• The difference between the two is the treatment of FIXED Factory Overhead. SG &A are period costs under both and are treated the same and expensed in its entirety.
• Under Absorption approach only way FIXED factory overhead is expensed is by the per unit when the items are sold and therefore included under cost of goods sold.
• Under Contribution Approach 100% of the fixed factory overhead is expensed immediately

Question 5

Profit after break-even

Answer 5

For every unit sold after break-even multiply by the contribution margin to get profit after break-even

Question 6

Number of units to sell to break-even

Answer 6

Total fixed costs / Contribution margin per unit

Question 7

Contribution margin ratio

Answer 7

Contribution margin / Sales

- if for $$ or per unit use Cm per unit and sales price per unit

Question 8

Break-even point in $$

Answer 8

Total fixed costs / Contribution margin ratio

OR

BE units x sales price per unit

Question 9

Required Sales volume for target profit

Answer 9

Sales = Fixed cost + Profit / Contribution Margin ratio

Question 10

Tax considerations

Answer 10

Earnings before tax x (1 - T) = Net income after tax

Question 11

Margin of Safety

Answer 11

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

Question 12

Margin of Safety percentage

Answer 12

Margin of safety( in dollars) / Total sales

Question 13

Controllable vs. Uncontrollable costs

Answer 13

Controllable costs are authorized at THIS level of management and are relevant because they can be change, uncontrollable costs are authorized by a higher level of management and cannot change and are therefore irrelevant

Question 14

Special Orders

Answer 14

Excess capacity- accept order if Selling price exceeds relevant costs(variable costs)

Full capacity - accept order if sales price exceeds relevant costs(variable costs) + opportunity costs

*Opportunity cost per unit = CM in $$(forgo) / Size of special order

Question 15

Opportunity costs

Answer 15

Cost of foregoing the next best alternative

• It is the Contribution Margin that would have been produced

Question 16

Make vs. Buy

Answer 16

If the relevant costs to make including opportunity costs are less than the outside purchase price than make it

-fixed costs should be ignored here since they are uncontrollable/unavoidable

Question 17

High-Low method

Answer 17

For flexible budgeting

• take the highest and lowest amounts
• subtract the differences
• take the dependent variable / independent variable
• then plug in VC x volume to find fixed costs

Question 18

Production Budget

Answer 18

Sales budget drives all other budgets like production budget

Budgeted Sales
+ Desired Ending Inventory
- Begininning Inventory
= Budgeted Production

Question 19

Direct Materials Used

Answer 19

Begininning Inventory
+ Purchases at cost
- Ending Inventory
= Direct materials used

Question 20

Cost of Goods Sold

Answer 20

Cost of Goods Manufactured
+ Beginning finished goods inventory
- Ending finished goods inventory
= Cost of Good Sold

Question 21

Cost of Goods Manufactured

Answer 21

Direct Materials Used(from formula if not given)
+ Direct Labor
+ Overhead Applied(fixed and variable)
= Cost of goods manufactured

Question 22

Standard Quantity allowed

Answer 22

Actual output x the standard allowed per unit

Question 23

Direct Materials Variance

Answer 23

Price Variance:
Actual quantity purchased x Actual Price
vs.
Actual quantity purchased x Standard Price

Usage Variance:
Actual Quantity used x Standard Price
vs.
Standard quantity allowed x Standard price

Question 24

Direct Labor Variance

Answer 24

Rate Variance:
Actual hours x Actual price
vs.
Actual hours x Standard rate

Efficiency Variance:
Actual hours x Standard rate
vs.
Standard hours allowed x Standard rate

Question 25

ABA BSA

Answer 25

Actual, Budget Based upon Actual, Budget based upon standard(hours allowed), Applied

PG 47 - great example

favor the right side

Question 26

PURE DADS

Answer 26

Price variance( for DM)
Usage(quantity) variance(for DM)
Rate variance(for DL)
Efficiency variance(for DL)

Difference x Actual
Difference x Standard

P D x A
U D x S
R D x A
E D x S

Question 27

Standard Costing

Answer 27

Step 1: Calculated overhead rate = Budgeted overhead costs / Estimated cost driver

Step 2: Applied overhead = Standard cost driver for actual level of activity x Overhead rate(from step 1)

Question 28

3 way variance

Answer 28

Spending, Efficiency, Volume

Question 29

2 way variance

Answer 29

Two bv or not to bv

Question 30

Calculating the difference in variance alanlysis

Answer 30

SAD

Standard minus actual = difference

Question 31

Sales price variance

Answer 31

= [ Actual sales price / unit - Budgeted sales price / unit] x Actual sold units

Question 32

Sales volume variance

Answer 32

= [Actual sold units - Budgeted sales units] x Standard contribution margin per unit

Question 33

Types of responsibility segments(measures managers can be help accountable for)

Answer 33

CRPI

Cost
Revenue
Profit
Investment

Question 34

Financial scorecards are “pointed AT US”

Answer 34

Accurate and Timely

Understandable and Specific accountability

Question 35

Allocation of common costs

Answer 35

Not controllable - factory rent long term lease

Question 36

Contribution reporting

Answer 36

Shows you variable/ controllable costs vs. uncontrollable costs

Step 1: Calculate contribution margin = Selling price - variable costs

Step 2: Controllable margin = Contribution margin - Controllable fixed costs

Question 37

Balanced scorecard

Answer 37

FICA - gathers information on multiple dimensions of the business

Financial
Internal business processes
Customer satisfaction
Advancement of innovation and HR issues - retention of key employees