exam 2 (5-10) Flashcards
cost pool
the sum of resources related to a particular activity undertaken in response to customer demand or need
cost driver
the characteristic selected for measuring the quantity of the activity for a particular period of time
activity
a discrete task or step in a manufacturing or service process
resource
a cost or expense incurred by a company
production department costs
costs that are incurred by the production department
support department costs
costs allocated from other departments
practical capacity
the maximum possible volume of activity, while allowing for normal downtime for repairs and maintenance
how to calculate the POHR in ABC?
(total overhead cost pool) / ( budgeted activity driver) = POHR
how to know if a customer is profitable?
customer-specific gross profits > customer-specific costs
activity-based management
the identification and selection of activities to maximize the value of the activities while minimizing their cost from the perspective of the final customer
relevant range
the range of the activity where TOTAL fixed costs and variable cost PER UNIT remain constant
step costs
costs that increase abruptly at certain intervals in a “step” pattern
curvilinear costs
increase at a consistent rate as activity levels increase
the formula for break-even sales?
total variable costs + fixed costs = break even sales
or
(variable cost x units sold) + fixed costs = Sales price x units sold
the formula for variable costs?
variable cost x units sold = variable costs
the formula for break-even units?
fixed costs / unit contribution margin
the formula for unit contribution margin?
sales price - variable cost
what is another formula for break-even sales?
fixed costs / contribution margin ratio = break even sales
how to calculate net operating income
contribution margin - fixed costs = net operating income
contribution margin
the amount available to cover fixed costs and generate profits
the formula for the contribution margin ratio?
contribution margin / sales = contribution margin ratio
contribution margin ratio
Tell managers the amount from each sales dollar that is contributing margin
the formula for desired sales?
total variable costs+ fixed costs + desired net income = desired sales
the formula for desired units?
(fixed costs + desired net income) / unit contribution margin = desired units
the formula for desired sales revenue?
(fixed costs + desired net income) / contribution margin ratio = desired sales revenue
the formula for margin of safety units?
actual sales units - break-even sales units = margin of safety units
the formula for margin of safety revenue?
actual sales revenue - break-even revenue = margin of safety revenue
the formula for operating leverage?
contribution margin / net operating income = operating leverage
the formula for % change in operating income?
% change in sales x operating leverage = % change in operating income
when should you use absorption costing?
when you produce more than you sold
you will have a higher net income under absorption costing
when should you use variable costing?
when you sell more than you produce
you will have a high net income under variable costing
the formula for net income?
Sales - COGS = Gross profit - SG&A costs(selling, general, and administrative costs) = NI
the formula for unit product cost under absorption costing?
Unit variable product cost + (Total fixed product costs / Units Produced) = unit product cost(absorption costing)
the formula for absorption cost of goods sold?
absorption unit product cost x units sold = COGS
the formula for absorption SG&A costs?
Unit variable period costs x Units sold + Total fixed period costs = SG&A costs
the formula for total variable COGS?
Unit variable product costs x Units sold = variable COGS
the formula for total variable SG&A costs?
Unit variable period costs x Units sold = variable SG&A costs
the formula for total fixed costs under variable costing?
Fixed product costs + Fixed period costs = total variable fixed costs
relevant cost
a cost that differs between alternatives
future cost
a cost that will be incurred in the future
opportunity costs
future benefits forfeited due to a particular choice
formula for the advantage of accepting the special order?
Increase in revenue - increase in production costs - added FC = advantage of accepting the special order
how to know if you should sell or process further?
focus on the contribution margin
how to deal with a constrained resource?
focus on the contribution margin
the formula for budgeted sales revenue? (budgeting)
sales forecast x expected sales price = budgeted sales revenue
the formula for budgeted unit production? (budgeting)
sales forecast + desired ending inventory - expected beginning inventory = budgeted unit production
the formula for direct materials purchase? (budgeting)
units of material to be purchased x average unit price = direct materials purchase
the formula for total direct labor cost? (budgeting)
direct labor hours required x hourly rate = total direct labor cost (budgeting)
the formula for total manufacturing overhead? (budgeting)
(unit variable overhead x cost driver level) + total fixed overhead = total manufacturing overhead (budgeting)
the formula for selling and administrative expenses? (budgeting)
variable expenses + fixed expenses = selling and adminstrative expenses (budgeting)
when is a cost variance favorable?
when the actual is less than the standard
