cost accounting part 2 Flashcards
What is the formula for Profit/Loss using Contribution Margin?
Profit/Loss = Sales - Variable Costs (VC) - Fixed Costs (FC).
What does the Contribution Margin (CM) represent in the formula?
CM represents the amount remaining from sales after variable costs are deducted.
What is the Contribution Margin Ratio (CM Ratio)?
CM Ratio = Contribution Margin (CM) / Sales, expressed as a percentage.
What is the equation for Sales (S) in relation to Variable Costs (VC), Fixed Costs (FC), and profit (p)?
Sx = VCx + FC + p (where x is the number of units).
What is Breakeven Analysis?
It determines the level of activity required to breakeven and cover fixed costs.
How is the Breakeven Point (BEP) in units calculated?
Breakeven Point (units) = Fixed Costs (FC) / Contribution Margin (CM per unit).
How is the Breakeven Point (BEP) in dollars calculated?
BEP($) = Fixed Costs (FC) / Contribution Margin (%), or BEP($) = BEP(units) * Sales price per unit.
What is the formula to achieve Desired Profit in units?
BEP to achieve Desired Profit (units) = (Fixed Costs (FC) + Desired Profit (DP)) / Contribution Margin (CM per unit).
What is the formula to achieve Desired Profit in dollars?
BEP to achieve Desired Profit ($) = (Fixed Costs (FC) + Desired Profit (DP)) / Contribution Margin (%) or = BEP to achieve Desired Profit (units) * Sales price per unit.
What is a weakness of Breakeven Analysis?
Non-linear relationships between sales revenues, variable costs, and volume are unlikely to be straight-line (linear).
How do stepped fixed costs affect Breakeven Analysis?
Stepped fixed costs vary at different activity levels, making analysis more complex.
Why is Breakeven Analysis challenging for multi-product businesses?
Multiple products complicate the division of fixed costs, making the analysis questionable.
What is a Value Chain?
A set of linked processes or activities from acquiring resources to providing and supporting products or services valued by customers.
What is the difference between Direct and Indirect Costs?
Direct costs can be traced to a specific cost object, while indirect costs cannot.
What are the three main categories of Product Costs?
Direct Materials, Direct Labor, and Manufacturing Overhead.
