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BEC > Decision Making > Flashcards

Decision Making Flashcards

1
Q

Total cost =

A

Fixed + Variable (x, cost driver)

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2
Q

Direct Materials include..

A

Physically included in final product (Freight in, Insurance in transit, storage, import duties, purch/rec department costs)

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3
Q

Manufacturing Overhead

A

All other costs not DM, DL
Indirect materials
Indirect labor (payroll taxes, benefits for man EE’s, rent/depreciation of factory assets, lubricants, shop supplies, utilities to keep factory open)

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4
Q

Prime costs

A

DM and DL

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5
Q

Conversion costs

A

DL and Man OH

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6
Q

Products costs

A

Manufacturing costs - DM, DL, Man OH (Prime and Conversion costs). Normal spoilage

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7
Q

Period costs

A

Non-manufacturing costs - SG&A, Marketing costs, Freight out, Re-handling costs, Abnormal spoilage, expenses in period

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8
Q

3 different cost systems

A

Actual (DM, DL, Man OH are all actual)
Standard (All costs based on standards)
Normal (DM, DL based on actual, Man OH on standards)

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9
Q

Pre-determined OH rate

A

Est OH costs / Est DL $/hrs

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10
Q

Dollars over non-dollars equals..

Dollars over dollars equals..

A

Dollars

Percentage

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11
Q

JE to apply OH

A

Debit WIP

Credit Factory OH applied

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12
Q

JE for actual OH

A

Debit Factory OH control

Credit Cash/Liability for materials

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13
Q

JE for under/over applied

A

Debit Factory OH applied
Credit Factory OH control
Offset to CGS (Debit is underappied, Credit overapplied)

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14
Q

Raw Materials calculation

A 
Beg RM
\+ Purchases
= Available for use
- End RM
= Direct Materials used (to WIP)
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15
Q

CGM (WIP) calculation

A 
Beg WIP
\+ Costs added to production (DM,DL, applied OH)
= Available to FG
- End WIP 
= CGM (to FG)
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16
Q

Finished Goods/CGS calculation

A 
Beg FG
\+ CGM (from WIP)
= FG Available
- End FG 
= CGS
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17
Q

Absorption/Full costing/GAAP I/S:

A 
Sales
- Var CGS
- Fixed CGS
= Gross margin
- Var SG&A
- Fixed SG&A
= Operating income
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18
Q

Variable/Direct/Prime/CM/Internal I/S:

A 
Sales
- Var CGS
- Var SG&A
= CM
- Fixed Man Costs
- Fixed SG&A
= Operating income
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19
Q

CM

A 
Sales
- Var costs
= CM
- Fixed costs
= Operating profit
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20
Q

Margin of Safety

A

Total sales - Break Even sales = MOS

* $MOS/Total sales = % MOS

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21
Q

If either actual volume is lower than expected or actual fixed costs are greater than expected…
If actual volume is greater than expected amount or if actual fixed overhead is lower than the expected amount…

A
  1. The amount of overhead applied will be lower than the actual amount and fixed overhead will be underapplied.
  2. The amount of overhead applied, which is actual volume times the predetermined rate, will exceed the actual amount and fixed overhead will be overapplied
22
Q

The break even point is reached when…

A

The contribution margin from each unit equals unit fixed costs

23
Q

List some variable costs

A

DM, DL, Delivery charges, Commission

24
Q

Special Order characteristics

A
  • Special order selling price minus relevant variable man costs/unit= unit CM x units= inc in income
  • Full capacity, can only choose one (price>VC/unit + opportunity cost [or CM of alternative use])
  • Excess capacity, they can do both so accept if
    price > VC/unit
  • Fixed costs ignored unless special order will increase FC
24
Q

Make or Buy Decision characteristics

A
  • When calculating cost to manufacture, include amount of fixed that will be eliminated if buy
  • Compare imcremental costs, but minus any operating profits (opportunity costs) from being able to utilize the factory
  • OC of using facility for another purpose (man diff product, lease, sell, etc) is subtracted from cost of purchasing from outside supplier, or added to the cost of production
25
Q

Break Even in Sales Dollars

A

Fixed + Profit (Loss)

/ CM ratio (CM/sales price)

26
Q

Retain or Eliminate Decisions…

A
  • Understand that allocated costs do not disappear when a division or product line is discontinued (CEO salary doesn’t decrease when product line stops)
  • If CM of line>fixed that would be eliminated, then DON’T eliminate the line
  • Remember: when calculating the eliminate, don’t include avoidable FC of line, but include unavoidable FC
27
Q

Break Even in Units

A

Fixed + Profit (Loss)
/ Unit CM
** Figure out CM first with info given and go back and apply to projected profit using sales amount given

28
Q

Sales =

A

Variable exp
+ Fixed exp
+ Net income

29
Q

Unit CM =

A

Unite sales price

- Unit variable costs

30
Q

CM ratio

A

Unit CM / Unit sales price
or..
Total CM / Total sales

31
Q

Diff in income between absorption and variable costing

A

Equal to fixed man OH per unit x inc/dec in units of inventory

32
Q

If EI > BI, absorption will be…

A

HIgher income

33
Q

If production > sales, then profit is..

A

Greater under absorption costing

34
Q

Fixed cost per month=2,500
Unit selling price=100
Variable cost % of sales= 60%
What annual sales must have to break even in dollars?

A

CM ratio = 40% and annualized fixed costs are 30,000

30,000/40%= 75,000

35
Q

Fixed costs =

A

CM per Unit x Break even in Units

36
Q

How to figure out Absorption vs. Variable costing income differences without the sales data…

A

Try to figure out what percentage of units were added to ending inventory (produced 100, sold 80 so 20 was added to EI) and then take that portion of the fixed MO

37
Q

Variable costs include…

A

DM + DL + Variable OH

38
Q

Incremental revenue =

A

Final sales value minus Sales at split off

39
Q

Total composite units sold equals…

A 
Total CM (fixed costs + profit needed)
/ Composite CM
= Total composite units
x actual units sold (4 units sold of A for every one of B sold means actual units is 5)
= Actual units sold
40
Q

High-low method

A

Find highest and lowest activity. Take difference in cost (high-low) divided by diff in activity (high-low) to get variable cost per.
Fixed= Total cost (in a given month) - (VC per unit x units)

41
Q

Cost-volume-profit assumes that both…

A

Selling price and variable cost per unit do not change with volume changes, so variable costs are the same % of sales revenue at either point of graph; Fixed costs are greater % of revenues at the lower point on graph

42
Q

The independent variable is the..

A

cost driver (DL hours, machine hours, etc)

43
Q

standard costs are determined by dividing…

A

budgeted costs by normal volume

44
Q

Step Variable Costs

A

Relatively fixed over small range of output but are variable over large range of output

45
Q

Incremental Cost

A

The difference in total cost between the two alternatives (don’t let fixed costs fool you)

46
Q

Short term cost analysis

A
  1. Use relevant costs only
  2. Ignore sunk costs (fixed MO, etc)
  3. Opportunity cost is a must
47
Q

2 common approaches to product pricing

A
  1. CM approach- based on relevant VC plus add’t FC necessary for increased production
  2. Cost-plus pricing- takes cost and adds predetermined markup
    = % markup on selling (GP%)
    / 1 - % markup on selling
48
Q

Weighted CM =

Composite CM=

A

CM x Sales mix ratio

Total weighted CM of all products

49
Q 
Composite units (#units from each product) =
Break even composite units for each=
Break even composite dollars=
A

Fixed costs/Composite CM
Composite units x sales mix ratio for each product
Break even composite units for each x selling price for each

BEC (7 decks)

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