Exam 2 Flashcards
Cost Volume Profit analysis
the relationships between sales volume, expenses, revenue, and profit
Cost Volume profit equation
E = (P - UVC) *q - FC
Break even
level of activity where profit = 0
Target profit
the volume of sales required to earn a particular target profit
Safety Margin
the difference between actual sales and break even sales revenue
Cost Structure
the relative proportion of fixed and variable costs in an organization
Operating Leverage
the extent to which an organization uses fixed costs in its cost structure ( contribution margin / net operating inocme)
CVP Analysis
total revenue and expenses are lineaer
Break even quantity in units
FC / Unit Contribution Margin
Break even sales (in dollars)
FC / Contribution Margin Ratio
Sales Quantity in units
FC + TP / UCM
Sales amount in dollars
FC + TP / CMR
Contribution Margin Ratio
(Price - Unit Variable Cost) / P
Budget
a detailed plan that specifies how resources will be acquired and used during a specified future time period
capital budget
acquisition and disposal of capital assets such as buildings and equipment
financing budget
how the organization will acquire financial resources, such as through the issuance of stock or incurrence of debt
rolling budget
continually updated by periodically adding new incremental time period and dropping the period just completed
master budget
a comprehensive set of budgets that cover all phases of an organizations operations for a specified time period.
planning
forces organizations to look ahead, define strategies and action plans
communication and coordination
helps managers throughout the organization become aware of the plans made by other managers
allocating resources
defines resources needed and what identifies priority
controlling
serves as a useful benchmark with which actual results can be compared
evaluation and incentives
primary input for performance evaluation and motivates employees and departments to meet the budget
Budget order
sales budget, production budget, direct labor/materials budget, cash budget, then balance sheet
budgetary slack/ padding the budget
overestimate costs and underestimate revenues during the budgeting process to make the numbers easier to hit during the period
participative budgeting
involves employees at all levels of the organization and increases feeling of “our” budget verses a budget imposed on them.
standard price
prices that should be paid for resources
standard quantity
quantity that should be used
price variance
the difference between the actual price and the standard price (also: AQ(AP-SP) or AH(AR-SR)
Quantity variance
the difference between the actual quantity and the standard quantity (also: SP(AQ-SQ) or SR(AH-SH)
