Becker BEC 2

Question 1

Contribution Margin Ratio

Answer 1

Contribution Margin Ratio = Contribution Margin / Revenue

Question 2

Contribution Margin Per Unit

Answer 2

Contribution Margin Per Unit = (Sales per unit) - (Variable Costs per unit)

Question 3

The ONLY Difference Between Absorption Costing and Variable (Direct) Costing

Answer 3

Under Absorption Costing, Fixed O/H is a PRODUCT cost
Under Variable (Direct) Costing, Fixed O/H is a PERIOD cost

Question 4

Relevant Range

Answer 4

Relevant Range is the range over which TOTAL Fixed Costs stay fixed and Variable Costs PER UNIT does not change.

Question 5

Breakeven Point (in Units)

Answer 5

Breakeven Point (in Units) = Total Fixed Costs / Contribution Margin (per Unit)

Question 6

Breakeven Point (in Dollars)

Answer 6

Breakeven Point (in Dollars) = Unit Price x Breakeven Point (in Units)

• OR -

Breakeven Point (in Dollars) = Total Fixed Costs / Contribution Margin Ratio

Question 7

Sales (Units) Needed to Obtain a Desired Profit (formula)

Answer 7

Sales (units) = (Fixed Costs + Pretax Profit) / Contribution Margin (per unit)

Question 8

Sales (Dollars) Needed to Obtain a Desired Profit (formula)

Answer 8

Sales (dollars) = Variable Costs + Fixed Costs + Pretax Profit

• OR -

Sales (dollars) = Fixed Costs + Pretax Profit / Contribution Margin Ratio

Question 9

After the Breakeven Poin has been achieved, each additional unit sold will increase net income by ____.

Answer 9

After the Breakeven Point has been achieved, each additional unit sold will increase net income by THE AMOUNT OF THE CONTRIBUTION MARGIN PER UNIT.

Question 10

Sales Price Per Unit (formula)

Answer 10

Sales Price Per Unit = (Fixed Costs + Variable Costs + Pretax Profit) / Number of Units Sold

Question 11

Margin of Safety (definition)

Answer 11

Margin of Safety is the excess of sales over breakeven sales

Margin of Safety (in dollars) = Total Sales (in $) - Breakeven Sales (in $)

Question 12

Target Cost (formula)

Answer 12

Target Cost = Market Price - Required Profit

Question 13

Opportunity Costs

Answer 13

Opportunity Cost is the cost of foregoing the next best alternative when making a decision.

Implicit Costs are opportunity costs.

Question 14

Learning Curve (definition)

Answer 14

Learning Curve analysis is based on the premise that as workers become more familiar with a specific task, the per-unit labor hours will decline as experience is gained and production becomes more efficient.

Question 15

Sensitivity Analysis (“What If” Analysis)

Answer 15

Sensitivity Analysis is the process of experimenting with different parameters and assumptions regarding a model and cataloging the range of results to view the possible consequences of a decision.

It is a risk management tool that is used to test the effect of specific variables on overall profitability. Which variables are most sensitive to change and therefore have the biggest impact on the bottom line?

Question 16

Linear Regression

Answer 16

Linear Regression is a method for studying the relationship between two or more variables.

One use of linear regression is to predict the value of a dependent variable (e.g. total cost (y)] corresponding to given values of the independent variables [e.g., fixed costs (a), variable cost per unit (B), and production expressed in units (x)].

Question 17

Simple Linear Regression (formula)

Answer 17

Simple Linear Regression formula

y = a + Bx

Question 18

Coefficient of Correlation (r)

Answer 18

The Coefficient of Correlation measures the strength of the linear relationship between the independent variable (x) and the dependent variable (y).

The coefficient of the correlation is “r.”

Question 19

Coefficient of Determination (R-squared)

Answer 19

The Coefficient of Determination is the proportion of the total variation in the dependent variable (y) explained by the independent variable (x).

Its value lies between zero and one. The higher the coefficient of determination, the greater the proportion of the total variation in y that is explained by the variation in x.

e.g. An r-squared of 0.81 means that 81% of the change in total cost during a period can be attributed to change in volume.

Question 20

Current Attainable Standards (definition)

Answer 20

Current Attainable Standards represent costs that result from work performed by employees with appropriate training and experience but without extraordinary effort. Provisions are made for normal spoilage and downtime.

Question 21

Authoritative Standards are set by ____.

Answer 21

Authoritative Standards are set exclusively by management.

Efficient, but possibly less effective than Participative Standards

Question 22

Participative Standards are set by ____.

Answer 22

Participative Standards are set by both managers and the individuals who are held accountable to those standards.

(Less efficient than Authoritative Standards, but possibly more effective)

Question 23

Master Budgets (alternative terminology)

Answer 23

Master Budgets
Static Budgets
Annual Business Plans
Profit Planning
Targeting Budgets

Question 24

Flexible Budget (definition)

Answer 24

Flexible Budget is a financial plan prepared in a manner that allows for adjustments for changes in production or sales and accurately reflects expected costs for the adjusted output.

A Flexible Budgets are used in conjunction with a Master Budget.

Question 25

What is the basic difference between a master budget and a flexible budget?

Answer 25

A master budget is based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range.

Question 26

Controllable Fixed Costs (definition)

Answer 26

Controllable Fixed Costs are costs that managers can influence in less than one year

• Advertising
• Sales Promotions

Question 27

In Joint-product costing and analysis, what costs are relevant when deciding the point at which a product should be sold to maximize profits?

Answer 27

Separable costs after the split-off point.

Question 28

What is the opportunity cost of making a component part where there is no alternative use for the factory?

Answer 28

Zero.

Question 29

Regression Analysis can be used to ____.

Answer 29

Regression Analysis can be used to separate costs into fixed and variable components by means of least squares.

Question 30

Intercept Value (definition)

Answer 30

The Intercept Value is the point at which the behavior of the independent variable (e.g. production) stated in terms of the dependent variable (e.g. costs) intercepts the y axis.

Question 31

Which method of forecasting relies mostly on judgment?

Answer 31

The Delphi Method of forecasting involves the use of multiple teams in geographically remote locations. Information is shared and gathered in a central point and compiled and then redistributed for comment. The method id highly interpersonal and requires significant judgment.

Question 32

Critical Success Factors (definition)

Answer 32

Critical Success Factors: financial and non-financial features of an organization that contribute to its success in achieving strategy and are normally classified as:

1) Financial solvency and return
2) Internal business processes
3) Customer Satisfaction
4) Human resource innovation

Question 33

Master Budget (definition)

Answer 33

Master Budget (or “Annual Business Plan”): documents specific short-term operating performance goals for a period, normally one year or less

Question 34

Cost of Goods Sold (calculation)

Answer 34

Cost of Goods Manufactured
+ Beginning Finished Goods Inventory
- (Ending Finished Goods Inventory)
= Cost of Goods Sold