Exam 2-202 Flashcards
Total revenue line
Starts at orgin slopes up
Fixed cost line
Horizontal line
Total cost line
Starts at fixed cost line and slopes up
Break even point
Total revenue crosses total cost
Variable cost
Cost whose total dollar amount varies in direct proportion to changes in the activity level. Constant on per unit basis, slope of the line is variable cost
Fixed cost
Remain constant in total dollars as volume changed within the relevant range of activity. Increases as volume decreases
Step cost
Only obtainable in chunks
Scatter plot method
Total maintance cost-fixed cost=variable cost. /units=variable cost per unit
High low method
Based on level of activity. Change in cost/change volume
Absorpition costing
Cogs=DM,DL,all MOH
Variable costing
Cogs=DM,DL,variable MOh
Advantages absortion costing
GAAP and meets matching principal
Disadvantages absorption
Not for CVP, fixed MOH as variable
Advantages variable costing
Useful for manages not responsible for fixed costs. CVP analysis
Disadvantages variable costing
Different for GAAP
Sales equals
VC+FC+profit
Contribution margin
Sales-VC
Contribution Margin Ratio
(Sales-VC)/sales
Assumptions underlying CVP analysis
Selling price per unit is constant, cost are linear, sales mix is constant, no change in inventories
Break even in sales
Fixed expenses/CMR
Break even in units
Fixed expenses/CM
Sales to profit
(Fixed + profit)/CMR
of units to profit
(Fixed +profit)/CM
Margin of safety
Total sales-break even sales
Margin of safety as % of sales
Margin of safety/sales
Operating leverage
Measure of hoe a percent change in sales will affect profits
Operating leverage equation
(S-V)/(CM-FC)
CM/NOI
Relevant cost are
Incremental, differential and marginal
Differential approacht
Only relevant cost are considered
Total cost approach
All revenue and cost are displayed in income statement then NOI is compared
Special order
Accept a special order if incremental revenue exceeds the incremental expense of producing it
Target costing
Revenue-profit=target total cost
Cost plus pricing
Total cost+profit=cost plus price
Discontinue a product
Drop if advoidable FC exceeds CM
Resource constraints
Given bottle neck, emphasize the products with the greatest CM/unit of constrained resources
Make or buy
Choose alternatice that has the greatest net incremental revenues over incremnetal cost
Joint products
Continue process after split off point if the revenue exceeds cost of more processing
Budget
A detailed plan for acquiringg and using financial and other resources over a specific period
Budgeting is used for
Planning and control
Issues to consider in budgeting
Strategic planning, budget period, type of budgeting, input process
Steps for creating a master budget
- Sales budget 2. Production 3. DM budget 4. DL budget 5. MOH budget 6. Operating expenses budget 7. Budgeted income statement 8. Capital expenditured budget 9. Cash budgets 10. Budgeted balance sheet
The first 7 budgets are
Operating budgets used to build income statements
The last three budgets are
Financial budgets
Sales budgets
Expected sales x selling price per unit
Production budgets
Expected sales+ending inventory-beginning inventory
DM budget
DM needed+desired FG inventory-beginning inventory
Income statement budget
Sales-COGS=gross profit-SGA=NOI-nonoperating income=net income
Capital expenditures budget
Planned purchases of long-lived assets
Cash collections budget
May be useful in analyzing the flow of sales/accounts recievable/receipts
