Chapter 6 Flashcards
How would the INCOME STATEMENT AND BALANCE SHEET of a merchandising company be different from a Service _Manufacturing Compan_y
- In a merchandising company’s income statement, the only difference would be in the computation of cost of goods sold.
- Beginning and ending finished goods would be replaced by beginning and ending merchandise inventory,
- and cost of goods manufactured would be replaced by purchases.
- In a merchandising company’s balance sheet, there would be one inventory account (merchandise inventory) instead of three.
Buchungssatz für
Work Completed in a Service Company
Cost of Completed Work
Work In Process
- Nicht erst in FINISHED GOODS INVENTORY
- Wenn die Arbeit Fertiggestellt, dann automatisch Performance obligation satisfied -> Revenue and Expense Recognition
Sales Mix
- is the relativ percentage in which a company sells its products
*
What is the effect on Net Income under HIGHER CONTRIBUTION MARGIN
- Net Income will be GREATER if units are sold with a HIGHER CONTRIBUTION MARGIN, rather than under a lower contribution Margin
- We should shift from low-margin sales to high-margin sales
Cost Structure
- Is the relative proportion of fixed verus variable costs that a comapny incurs
- May have a SIGNIFICANT effect on profitability
What is the effect on the Contribution Margin under Higher Variable Cost
and WHAT are the consequences
- Smaller Contribution Margin
Consequences:
- Smaller Operating Leverage
- The contribution to Net Income is smaller
- Hence Is not as sensitive to changes in sales
- LOWER Break-Even-Sales are required
What is riskier GREATER or SMALLER Break-Even-Sales
- Greater Break Even Sales is riskier, because the company needs to generate MORE SALES in order to reach Break Even
Operating Leverage
- Extend that net income reacts to a given change in sales
- HIGHER fixed Cost relative to variable cost cause a company to have HIGHER OPERATING LEVERAGE
What are the consequences of a HIGH OPERATING LEVERAGE
EARNING VOLATILTY RISK
- When Sales revenue are increasing, high operating leverage means that profit will increase rapidly
- ACHTUNG: When Sales revenue are declining, too much operating leverage can have devasting consequences
Degree of Operating Leverage
and Formula
- Provides a measure of a companys earnings volatility
Variable Costing
Period or Product Cost??
Fixed Manufactoring Overhead: ??
Fixed Admin/Selling Expense: ??
Fixed Manufactoring Overhead: PERIOD COST
Fixed Admin/Selling Expense: PERIOD COST
Absorption Costing
Period or Product Cost??
Fixed Manufactoring Overhead: ??
Fixed Admin/Selling Expense: ??
Fixed Manufactoring Overhead: PRODUCT COST
Fixed Admin/Selling Expense: PERIOD COST
What are Advantages of Variable Costing
- Net Income is unaffected by changes in production level
Absorption Costing will show a HIGHER NET INCOME than variable costing whenever Units Produced Exceeds Units sold !!!!
- Weil, Fixed Manufactoring Overhead unter Absoroption Costing nur anfallen wenn die Produkte Verkauft werden. Bei Variable Costing werden die Fixed Manu Overhead direkt als Aufwand verbucht und fallen somit aufjedenfall an.
