BEC MCQ 2.1 Flashcards
Absorption cost
are not relevant when management must decide on accepting or rejecting one time only special orders where there is sufficient idle capacity . Absorption costing methods represent generally accepted accounting principles and are, therefore, for the benefit of external users.
The costs which are suitable for making management decide on one time special orders
Direct costs, variable costs, incremental costs
The Relevance of a particular cost to a decision not determined by
Riskness of the decision, number of decision variables, accuracy of the cost
The difference between variable costing and full absorption costing lies in the
treatment of fixed costs. full absorption costs treats this as product costs while variable costs treat this as period costs
Under absorption costing all product costs and no period expenses are put into product cost
Contribution margin
Net sales revenue less variable costs
Operating income
CM-Fixed Costs
When considering alternatives
such as discontinuation of product line management should consider relevant costs.
Brekeven in units
Fixed costs/contribution margin
Margin of safety
Cuurent sales and breakeven sales
Break even analysis assumes
that all variable costs and revenues are constant per unit basis and are linear over a relevant range. fixed cost in total are constant
to maximize profit at full capacity
CM margin must be maximised
minimum acceptable selling price
should include only the incremental costs associated with the order….33000 + 7750=$40750.
Contribution margin
does not change with volume
Learning curve
releated to the efficiency with which productive resources typically labour are employed and it suggests that productivity will increase over time.If the product have long production runs learning curve analysis is the best method for estimating the cost of competitive bid .The basic premise of the learning curve is that operating efficiency and/or production increases in repetiti\oe tasks as experience is gained. The rate of impro-.m.eent, measured by the learning cur.e, has a regular pattern that can be stated as follo’NS: As cumulati-.e. quantities double, a-..erage cost per unit decreases by a specified percent of the pre-ious cost.
multiple regression analysis
Is an expansion of simple regression analysis
Relevant range
range over which cost relationships are valid
Regression analysis
Regression analysis is a statistical method that fits a line to the data by the method of least squres.It can estimate the dependent cost varaiable based on independent variable. it is the most accurate way to find fixed and variable costs. It estimates the dependent variables.
Objective and constraint function are used in linear programming not regression analysis.
An independent variable is assumed not estimated in regression analysis and is based on activity rather costs
Coeffficient of determinationisa statistivcal messure used to evaluate regression analysis. Coefficient of variation r squred in a multiple regression equation is the percentage of variation in the dependent variable explained by the variation in independent variable
The engineering method
uses time and motion study to classify costs. It can be only used where there is observable relationships between inputs and outputs.
Account analysis method
is merely review of methods by someone knowledgeable of the activities of the firm. It is only good as the person making judgements
High low method
It only considers high and low point not all points like regression analysis
which costing would be least likely to encourage managers to reduce inventory
absorption costing because it can absorb some of managers job and increase profits
variable costing
variable costing places only variable cost into products and all fixed overheads is charged to COGS. Variable costing capitalize all fixed cost are expensed.
throughput costing
is an inventory costing method that places only variable direct material as inventoriable cost
Trend analysis
Projection of future trends based on past
Monte carlo simulation
Monte Carlo simulation is a computerized mathematical technique that allows people to account for risk in quantitative analysis and decision making. The technique is used by professionals in such widely disparate fields as finance, project management, energy, manufacturing, engineering, research and development, insurance, oil & gas, transportation, and the environment.
Dynamic programming
is breaking of big problems to smaller future problems
Expected value analysis
it is the anticipated value of a given investment. In statistics and probability analysis, the EV is calculated by multiplying each of the possible outcomes by the likelihood each outcome will occur, and summing all of those values.
Continous propablity simulation
Continuous probability simulation is a procedure that studies a problem by creating a model of the process and then, through trial and error solutions, attempts to impro..e the problem solution.
Units to be produced to achieve after tax profit
total fixed cost+ target after cost profit /contribution margin per unit
Cost volume profit
Selliing prices are to be unchanged
All costs can be divided into fixed and variable elements . Only total variable cost are diretly proportional to volume over the relevant range
Volume is the only relevant factor affecting cost
Delphi forecasting
rely mostly on judgement
Opportunity costs
Opportunity costs are costs that would have been saved or the profit that would have been earned if another decision alternative had been selected. Implicit costs are opportunity costs. Opportunity cost is zero. Opportunity cost are not recorded in accounting records. Opportunity cost is a potential benefit lost by selecting a particular course. Opportunity cost do not represent cash outlays.
Accounting profit
is the total revenue minus total explicit costs
Explicit costs
Are documented out of profits cost
selling price
costs/ratio of costs to sales
Assuming available capacity
the minimum cost per unit of a special order is equal to the variable cost per unit.
An increase in production level within the relevant range
will increase the total cost
Break even point in dollars
Total fixed costs/contribution margin ratio
