BEC 2.2 Flashcards
Contribution Approach
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
Contribution Margin Ratio
Contribution Margin / Revenue
Absorption Approach
GAAP
- segregate costs between product and period
Revenue Less: Cost of Goods Sold =Gross Margin Less: Operating Expenses = Net Income
Contribution Approach vs. Absorption Approach
- 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
Profit after break-even
For every unit sold after break-even multiply by the contribution margin to get profit after break-even
Number of units to sell to break-even
Total fixed costs / Contribution margin per unit
Contribution margin ratio
Contribution margin / Sales
- if for $$ or per unit use Cm per unit and sales price per unit
Break-even point in $$
Total fixed costs / Contribution margin ratio
OR
BE units x sales price per unit
Required Sales volume for target profit
Sales = Fixed cost + Profit / Contribution Margin ratio
Tax considerations
Earnings before tax x (1 - T) = Net income after tax
Margin of Safety
Total sales - Break-even in sales = Margin of safety(in dollars)
Margin of Safety percentage
Margin of safety( in dollars) / Total sales
Controllable vs. Uncontrollable costs
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
Special Orders
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
Opportunity costs
Cost of foregoing the next best alternative
- It is the Contribution Margin that would have been produced
Make vs. Buy
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
High-Low method
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
Production Budget
Sales budget drives all other budgets like production budget
Budgeted Sales
+ Desired Ending Inventory
- Begininning Inventory
= Budgeted Production
Direct Materials Used
Begininning Inventory
+ Purchases at cost
- Ending Inventory
= Direct materials used
Cost of Goods Sold
Cost of Goods Manufactured
+ Beginning finished goods inventory
- Ending finished goods inventory
= Cost of Good Sold
Cost of Goods Manufactured
Direct Materials Used(from formula if not given)
+ Direct Labor
+ Overhead Applied(fixed and variable)
= Cost of goods manufactured
Standard Quantity allowed
Actual output x the standard allowed per unit
Direct Materials Variance
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
Direct Labor Variance
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
ABA BSA
Actual, Budget Based upon Actual, Budget based upon standard(hours allowed), Applied
PG 47 - great example
favor the right side
PURE DADS
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
Standard Costing
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)
3 way variance
Spending, Efficiency, Volume
2 way variance
Two bv or not to bv
Calculating the difference in variance alanlysis
SAD
Standard minus actual = difference
Sales price variance
= [ Actual sales price / unit - Budgeted sales price / unit] x Actual sold units
Sales volume variance
= [Actual sold units - Budgeted sales units] x Standard contribution margin per unit
Types of responsibility segments(measures managers can be help accountable for)
CRPI
Cost
Revenue
Profit
Investment
Financial scorecards are “pointed AT US”
Accurate and Timely
Understandable and Specific accountability
Allocation of common costs
Not controllable - factory rent long term lease
Contribution reporting
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
Balanced scorecard
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
