EXAM 1- Ch. 1, 2, & 3 (2/1)

Question 1

managerial accounting:

Answer 1

gathering and analyzing relevant information that’s needed to make decisions

Question 2

4 roles of a manager:

Answer 2

planning, controlling, evaluating, and decision making

controlling: monitoring day to day activities

evaluating: comparing actual to planned results

Question 3

variable cost

Answer 3

a cost that changes IN TOTAL with volume, but remains constant PER UNIT

Question 4

fixed cost

Answer 4

a cost that is constant IN TOTAL within relevant range of activity, but varies INVERSELY per unit of activity

Ex: Rent, salaries

Question 5

total cost formula:

Answer 5

y=mx+b

Total mixed cost=variable cost componenet + fixed cost component

Question 6

two types of fixed costs:

Answer 6

committed and discrestionary

Question 7

committed fixed cost:

Answer 7

a cost that CANNOT be changed in the short term (within the year)

a cost set by someone else (like a contract)

Ex. Salaries or rent (typically both are signed contracts)

Question 8

discretionary fixed cost:

Answer 8

a cost that CAN be changed in the short term (within the year)

cost that we have control over

(maybe advertising if tough year & trying to cut back)

Question 9

Mixed Costs:

Answer 9

a cost with both a variable and fixed component

*both total cost and cost per unit will vary with volume!

Question 10

high-low method:

Answer 10

a quick way to estimate the variable and fixed components of a mixed cost (basically just subtract the cost of highest and lowest levels of activity and then divide by volume of the two)

Question 11

TC=VC+FC

Answer 11

Total Cost= Variable Cost + Fixed Cost

Question 12

two types of income statements:

Answer 12

traditional and CM (contribution margin) approach

traditional income statement=financial accounting

contribution margin income statement=managerial accounting

Question 13

breakeven calculation:

Answer 13

1. solving for units sold: Total FC/contribution margin per unit
2. solving for sales dollars: FC/contribution margin ratio

Question 14

CM (contribution margin) ratio:

Answer 14

(contribution margin/sales rev.) OR contribution (margin per unit/sales price per unit)

Question 15

**EDIT?: how to calculate profit:

Answer 15

Sx-VCx-FC
maybe?:FC/CMR(contribution margin ratio)

Sales (x)-Variable Cost(x)-Fixed costs

x=volume/# of units

Question 16

target operating income:

Cost-volume-profit or “what-if” analysis!

Answer 16

use the same breakeven point equation, but set profit equal to target income rather than $0

the target income will be given!

Question 17

target profit:

Answer 17

what a company wants/predicts to earn in profit

will be given on test to help calculate “what if” analysis!

Question 18

margin of safety definition:

Answer 18

the sales that can be lost before a company starts to lose money

can be found in units and/or dollars

Question 19

margin of safety equation:

Answer 19

current sales-breakeven sales

Question 20

Contribution Margin (CM) Income Statement form:

Answer 20

S-VC=CM-FC=NOI

S=sales revenue, VC=variable cost, CM=contribution margin

FC=fixed cost, NOI= Net Operating income

Question 21

target operating income equation to find TP in units:

TP=target profit

Answer 21

total FC+TP/(CM/unit)

total fixed cost + target profit / contribution margin per unit

Question 22

target operating income equation to find TP in sales dollars:

TP=target profit

Answer 22

total FC+TP/(CMR)

total fixed cost + target profit / contribution margin ratio