Exam 1 Flashcards
Cost of Goods Sold =
product cost x units sold/units made
Ending Inventory =
units made - units sold
relevant range
total fixed costs don’t change for a range of activity, aqnd then jumps to a new higher cost for the next higher range of activity
range of activity over which the definitions of fixed costs and variable costs are valid
Supplies used in the plant managers’ office would be categorized as
GSA or product, asset or expense
product
asset
cost allocation
process of dividing a total cost into parts and assigning the parts to relevant objects
Wages of administrative building security guards would be categorized as
GSA or product, asset or expense
GSA
expense
Contribution Margin Ratio =
Contribution Margin/Revenue
We use the contribution margin ratio to
calculate money needed to break even or get profit
See the percentage of sales that goes to fixed costs
Raw Material Equation =
Beginning Inventory + Materials Purchased - Materials Used = Ending Inventory
Depreciation on vehicles used by salespeople would be categorized as
GSA or product, asset or expense
GSA, expense
cost-volume-profit graph
horizontal axis-activity
vertical axis-$
fixed cost line- constant at total fixed cost
total cost line - slants upwards as costs increase
sales line - revenue
Operating leverage =
Contribution margin/Net income
Cost volume profit limitations
1) selling price is constant
2) costs are linear: VC per unit is constant, FC don’t change, efficiency is consistent
3) sales mix constant
4) inventory levels constant
5) All CVP variables are within the relevant range
product costing
classifying and accumulating costs (materials, labor, overhead) to determine the cost of making a product or providing a service
managers need to know the costs of their products and servicesWhat is
Operating leverage means
how a % change in sales will affect profits
how much of an organization’s costs are fixed
Margin of Safety =
(units expected - break-even units)/units expected
When product cost is expensed, what is it expensed under? What financial statement?
Cost of Goods sold in the income statement
Asset/Inventory/Materials in the balance sheet
Work in Process Equation =
BI + Material used + Labor + Overhead - Cost of Goods Manufactured = EI
Definitions of fixed and variable costs depend on
context
Cost of merchandise shipped to customers is categorized as
GSA or product, asset or expense
Product, expense
Variable costs ___ when activity increases or decreases
increase or decrease proportionally
The variable cost assumption (constant unit variable cost) applies within the ______
relevant range
Mixed costs have both ____ and ____ components.
fixed, variable
Lubricant used to maintain factory equipment would be categorized under
GSA/product, asset/expense
Product, Asset
Increasing variable costs ____ operating leverage
decreases
The Cost of a delivery truck would be categorized under
GSA or product, asset or expense
GSA, asset
The break-even point is where
cost = profit
zero net income
CM = fixed costs (you’ve covered all your fixed costs)
Cost of goods sold =
product cost - COGM
Gross margin income statement
Revenue (COGS) Gross Margin (SGA) Operating Profit/Loss
Fixed cost per unit ___ when activity increases and ___ when activity decreases
decreases, increases
When is a product cost expensed
At the point of sale
Partially complete products or materials to which some labor and or overhead have been added are called
work in process inventory
manufacturing process
financial assets -> manufacturing process -> physical assets
Completed products awaiting sale are
Finished Goods
BI + cost added = ____ + EI
What equation is this
cost transferred
Inventory
A lower contribution margin means ____ break-even volume in units
greater