Ch. 5 SIMS Flashcards
What’s the formula for Contribution margin percentage?
CM% is 1 – VC% (variable costs percentage)
What is the formula for variable costs percentage?
Variable cost divided by total cost = Variable cost %
SIM #2 Incremental Make or Buy Analysis- Sales order quote goes where?
200 lamps at $195 each
This is the purchase price to buy. $0 goes in make column
SIM #2 Incremental Make or Buy Analysis- - where does rental income go?
In the buy column as a negative. Not in the make column.
Purchase price less rental revenue = total cost
SIM #3 Activity-Based Costing- Complete the rate schedule for cost pools (material ordering, equipment setup, and machine related).
What are the Cost Driver Amount?
Use the overhead drivers exhibit with exactly the question (given)
SIM #3 Activity-Based Costing- Complete the rate schedule for cost pools (material ordering, equipment setup, and machine related).
What is the Overhead Rate?
Multiply the Cost Assigned to Pool (given) x Cost Driver Amount (given) = Overhead Rate
SIM #3 Activity-Based Costing- Calculate the estimated cost by completing the ABC Cost Report. It says 100 units.
Material, labor, material ordering, equipment setup, machine related = total job cost
- Material and labor given in exhibit.
- Material ordering = cost assigned to pool $100K / cost driver 5,000 = $20 overhead rate x 60 purchase orders (exhibit overhead drivers) = $1,200
SIM#4 Keep or Drop a Product Line - What is the formula for gross margin?
*given income statement in SIM
Sales less COGS = Gross Margin
SIM#4 Keep or Drop a Product Line - How do you calculate “Other variable costs” when keep/drop?
Given: other variable costs of
$300 small pot sales will increase 25%
$400 large pot sales will decrease 15%
$300 x 25% = $75 + 300 = 375
$400 x 15% = 60 - 400 = 340
SIM#4 Keep or Drop a Product Line - How do you calculate “Direct fixed costs” when keep/drop?
Given: other variable costs of
$700 small pot sales will increase 25%
$500 large pot sales will decrease 15%
$700 small pot Direct fixed costs
$500 large pot Direct fixed costs
Direct fixed costs (DFC) specifically relate to the production of a particular product line (e.g., production foreman’s salary), and are a constant amount (i.e., do not vary with changes in volume).
SIM#4 Keep or Drop a Product Line - How do you calculate “Allocated fixed costs” when keep/drop?
Given:
$12,000 small pot sales will increase 25%= $15K
$20,000 large pot sales will decrease 15% = $17K
=$32K total sales
small $2.4K + medium $1.6K + $4K large = $8K total allocated fixed costs
get % based on sales then x total allocated fixed costs
- $15K small pots / $32K total = 47% x $8K = $3,760
- $17K large pots / $32K total = 53% x $8K = $4,240
SIM#4 Keep or Drop a Product Line - What’s the formula for Net income?
Gross margin
- variable costs
- fixed costs
= NI
SIM #5- Cost Allocation: Step Method- which department do you allocate first?
Given Maintenance costs $99K Data processing $56K Allocation Maintenance maint 0% maint 20% data Data 20% maint 0% data
Allocate department with largest cost first
Maintenance is larger than data, so it’s allocated first. Maintenance column $99K costs Allocation (99K) maintenance 0 data processing = 0 total costs Data processing column $56K costs \+ 19.8 maint is $99K x 20% (75.8) data = 0 total cost
SIM #6- Variances: Material
What is the material price variance formula?
(actual price - budget price) x actual material used = material price variance
SIM #6- Variances: Material
What is the material usage variance formula?
Material Usage Report 500 units produced, 9,500 quantity used Standard Costs and Activity 20 yards direct material @ $1.35 per yard Purchase Order 11,000 yards @ $1.38 per yard
(actual usage - budget usage) x budget price = material usage variance
500 units produced x 20 direct material standard = 10,000 usage yards
(9,500 yards - 10,000 yards) x $1.35 per yard = $675
SIM APR and EAR
How is Nominal annual percentage rate (APR) calculated?
the periodic interest rate times the number of periods per year.
SIM APR and EAR
What does EAR stand for?
effective annual rate.
SIM #7 Activity based costing-
ABC is used for what type of management?
What does ABC use as the basis for cost allocation?
ABC can be simultaneously used as what type of method and process?
strategic management
ABC uses cost drivers as basis for cost allocation. A cost driver is any factor whose effects cause an increase in the total cost of a related cost object.
ABC does NOT use cost allocation as a basis for cost drivers. ABC systems use cost drivers as a basis for cost allocation
ABC can be simultaneously used as both a cost allocation method and as a integral part of a management process.
SIM #7 Activity based costing-
ABC uses what kind of 2 costs?
Both variable and fixed
SIM #7 Activity based costing-
Accounting for all physical units is part of what type of costing (not ABC)?
Process costing
SIM #7 Activity based costing-
Activity based MANAGEMENT is based upon what?
Activity-based COSTING
Management based on cost! Not other way around.
SIM #8 Responsibility Accounting
What is responsibility accounting?
What occurs in an environment of functional silos?
It divides and decentralizes a company into responsibility centers.
It compiles revenue, cost, and profit data according to the ability of an individual & it is based on assumption that every cost can be attributed to one individual in the company. Individual becomes responsible for controlling that cost.
Functional silos is where interdependencies are ignored and segment managers compete against each other in an effort to maximize their individual performance measures.
SIM #8 Responsibility Accounting
Discuss a profit center
What is the manager responsible for?
Reports & budgets are what?
How are they evaluated?
both controllable costs and controllable revenues
customized and prepared
Evaluated by means of contribution income statements in terms of
meeting revenue and cost objectives
SIM #9 Flexible Budget Report
How do you calculate a flexible budget for variable costs?
Is the variance favorable or unfavorable?
Static budget $51,000 based on 10,000 machine hours
Actual cost $62,500 based on 12,000 machine hours
static budget dollars / static budget hours = cost per hr
cost per hour x actual hours = flexible budget amount
actual dollars - flexible dollars = variance
$51,000 static budget / 10,000 static hours = $5.10
$5.10 x 12,000 actual hours = $61,200 flexible budget
$62,500 actual - $61,200 flexible = $1,300 unfavorable
SIM #9 Flexible Budget Report
How do you calculate a flexible budget for fixed costs?
The flexible budget for fixed cost is the same as what budget?
static budget
since fixed costs generally do not vary with changes in activity.
SIM 7
Activity-based costing (ABC) is one of the many analytical tools available for what?
What type of management?
For strategic management
ABC can be simultaneously used as both a cost allocation method and as an integral part of a management process.
SIM 7
Explain Activity based costing
Give pool example
As an allocation tool, resource costs are
first allocated to activities (e.g., design of pool, digging, pouring of concrete) and then
to products (e.g., pools) on the basis of the relative amount of the particular activity consumed to produce the product.
So larger, more complex pools would be allocated a greater portion of the design activity cost than smaller, simpler pools.
SIM#8
The first step in the forecasting process is the ?
sales forecast.
SIM#8
A sales forecast is the projection of ?
both volume and dollar value of sales for a future period.
SIM#8
A sales forecast is extremely important because ?
all of the other numbers on the financial forecast will be based in some manner on the sales number. If the sales forecast is too low, the company may not have enough production capacity to meet customer demands. If the sales forecast is too high, the organization may end up with excess inventory and/or excess capacity.
SIM#8
In order to perform the sales forecast, I will need ?
the sales information from the last five to ten years.
SIM#8
As part of the forecast, I will be considering items such as ?
predicted economic conditions, customer-anticipated product needs, recent industry trends, assumed expected marketing efforts, and what products will be sold (including if any new products will be introduced).
SIM#8
As you may be expanding internationally, we will need to consider ?
the appropriate projected exchange rates. Any information you can provide for me in these areas will be appreciated.
SIM #7 Which of the steps is used in ABC cost allocation?
- Identify the causal relationship between cost incurrence and activities
- Determine the underlying driver of overhead costs for activities
- Establish homogeneous cost pools related to individual drivers
- Develop a predetermined cost ratio for each activity cost pool
- Apply the accumulated costs in the cost pools to the cost objects on the basis of resources consumed as determined by the amount (units) of cost drivers used
- Accounting for all physical units is a part of process costing.
