exam 2 Flashcards
Actual Sales - Break-Even Sales =
Margin of Safety in dollars
Margin of safety in dollars / actual sales =
Mragin of safety ratio
Fixed Costs / Unit Contribution Margin =
Break-Even point in units
Fixed Costs / Unit Contribution Margin Ratio =
Break-Even point in dollars
(Fixed costs + target income) / unit contribution margin =
required sales in units
(Fixed costs + target net income)/ Contribution margin ratio =
required sales in dollars
unit contibution margin x sales mix percentage =
weighted average unit contribution margin
contribution margin per unit of limited resource
unit contribution margin/ limited resource consumed per unit
cost structure
refers to the relative proportion of fixed versus variable costs that a company incurs
operating leverage
the extent to which a comapny’s net income reacts to a given change in sales
degree of operating leverage
refers to the extent to which a company’s net income reacts to a given chance in sales.
generally accepted accounting principles require that absorption costing be used for the costing of inventory for external reporting purposes
true
sales mix
relative percentage in which a company sells its multiple products
the extent to which a company’s net income reacts to a change in sales.
operating leverage
cvp analysis
study of effects of changes in costs and volume on a company’s profit
target net income
fixed costs + target net income / unit contribution margin
margin of safety
actual sales - break even sales
Croc Catchers calculates its contribution margin to be less than zero. Which statement is true?
Its selling price is less than its variable costs.
why is sales mix important
different products have different cms
net income will be
Greater if more higher-contribution margin units are sold than lower-contribution margin units.
approach used to identify and manage constraints so as to achieve company goals
theory of constrainits
If the contribution margin per unit is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is:
5$
relative proportion of fixed versus variable costs
cost structure
operating leverage
When sales revenues are increasing, high operating leverage means that profits will increase rapidly
When sales revenues are declining, too much operating leverage can have devastating consequences.
OPERATING LEVERAGE
CAN BE COMPUTED BY DIVIDING TOTAL CM BY NET INCOME
PROVIDES MEASURE OF COMAPANYS EARNINGS
AFFECTS A COMPANYS BREAK EEN POINT
THE DEGREE OF OPERATING LEVERAGE
THE DEGREE OF OPERATING LEVERAGE MEASURES THE COMAPNYS SENSITIIVITY TO CHANGES IN SALES
TRUE
PRODUCT COSTS UNDER VARIALE COSTING
DIRECT MATERIALS
DIRECT LABOR
VARIABLE MANUFACTURING OVERHEAD
DIFFERENCE BETWEEN ABSORPTION AND VARIABLE COSTING
Under both costing methods, selling and administrative expenses are treated as period costs.
Companies may not use variable costing for external financial reports because GAAP requires that fixed manufacturing overhead be treated as a product cost.
FIXED MANUFACTURING OVERHEAD COSTS ARE RECOGNIZED AS
PRODUCT COSTS UDER ABSORPTION COSTING
COST BEHAVIOR ANALYSIS
STUDY OF SPECIFIC COSTS RESPOND TO CHANGES IN LEVEL OF BUSINESS ACTIVITY
CHANGES IN LEVEL OR VOLUME OF ACTIVITY SHOULD BE CORRELATED WITH CHANGES IN COSTS
T
ACTIVITY LEVEL SELECTED IS CALLED ACTIVITY OR VOLUME INDEX
T
IF ACTIVITY LEVEL INCREASES BY 5 PERCENT, TOTAL VARIABLE COSTS WILL INCREASE 10 PERCENT
T
IF THE ACTIVITY LEVEL DECREASES BY 25 PERCENT, TOTAL VARIABLE COSTS DECREASE Y 25 PERCENT
T
VARIABLE COSTS REMAIN TH ESAME PER UNIT AT EERY LEVEL OF ACTIVITY
T
EXAMPLES OF FIXED COSTS
PROPERTY TAXES
INSURANCE
RENT
DEPRECIATION
VARIABLE COSTS ARE COSTS THAT
VARY IN TOTAL DIRECTLY WITH CHANGES IN ACTIVITY LEVEL
AND REMAIN THE SAME PER UNIT AT EVERY ACTIITY LEVEL
CURVILENEAR
RELATIONSHIP BETWEEN VARIABLE COSTS AND CHANGES IN ACTIVITY LEVEL
RELEVANT RANGE
THE RANGE OVE RWHICH THE COMPANYE XPECTS TO OPERATE DURING A YEAR
HIGH-LOW METHOD
USES TOTAL COSTS INCCURRED AT HIGH AND LOW LEVELS OF ACTIVITY TO CLASSIFY MIXED COSTS TO FIXED AND VARIALE
CHANGES IN TOTAL COSTS / HIGH MINUS LOW ACTIVITY LEVEL
VARIABLE COST PER UNIT
WHICH OF THE FOLOWING IS NOT INVOLVED IN CVP ANALYSIS
FIXED COSTS PER UNIT
CONTRIUTION MARGIN
IS REVENUE REMAING AFTER DEDUCTING VARIABLE COSTS
CONTRIBUTION MARGIN MAY BE EXPRESSSED AS CM PER UNIT
T
GOSSEN COMPANY IS PLANNING TO SELL 200,000 PLIERS FOR 4$ PER UNIT. THE CONTRIUION MARGIN RATIO IS 25%. iF GOSSEN WILL BREAK EVEN AT THIS LEVEL OF SALES, WHAT ARE THE FIXED COSTS?
200,000
TARGET NET INCOME
VARIABLE COSTS + FIXED COSTS + TARGET NET INCOME
MARSHALL COMPANY HAD ACTUAL SALES OF 600K WHEN BREAKEVEN SALES WERE 420K. WHAT IS MARGIN OF SAFETY RATIO
30&
