Exam 3 Chp 8/9 Flashcards
Is Target Costing a (Price-Taker) or (Price-Setter)
Target Costing is Price-Taker
Is Cost-Plus Pricing a (Price-Taker) or (Price-Setter)
Cost-Plus Pricing is a Price-Setter
What is the definition of Relevant Information
Information that differs among alternatives that incur in the future
What is the definition of Irrelevant Information
Past information that we cannot change.
Example Sunk cost.
When do you use Target Costing and What is the Formula?
You use Target Costing when the product is not unique and the competition is fierce and the company has no influence on the market.
Revenue at Market Price
(-) Desired Profit
———————————-
Target cost
When do you use Cost-Plus pricing and what is the Formula?
You use Cost-Plus pricing when you are the Price setter you have influence in the market and can set your own prices.
(Unique Product)(Monopoly Market)
Total Cost
(+) Desired Profit
——————————-
Cost-Plus Price
What is a Special Order? What are key considerations on whether to accept or deny?
A One time order at a reduced price for a large quantity.
Key considerations-
- Do we have excess capacity to fill the order
- Will the reduced sale price be enough to cover costs
- Will the special order affect regular sales
How do you calculate return on assets?
Operating income (Divided by) Assets
If the plant is producing 630,000 cases a month, yet only operating at 90% of capacity, it must have a capacity level of? How do you find the total capacity?
Divide 630,000/.90 = 700,000 which is the total capacity
How do you calculate target variable cost? and Target fixed cost per unit)
Target total cost
(-)Fixed cost
———————-
Target Variable Cost
(Divide # of units)
—————————-
Target Variable cost per unit
To get Target total cost you would do target costing
How do you calculate target fixed cost?
Target total cost
(-)Variable cost
———————-
Target Fixed Cost
____ is extra inventory of finished goods that is kept on hand in case demand is higher than predicted or problems in the factory slow down production
Safety Stock
Managers will sometimes build _____ into their budgets to protect themselves against unanticipated expenses or lower revenues.
Slack
The sales budget and production budget are examples of _____
Operating Budget
The ______ is used to forecast how many units should be made to meet the sales projections.
Production Budget
_____ is a budgeting process that begins with departmental managers and flows up through middle management to top management.
Participative Budgeting
_____ is a budget that is continuously updated by adding months to the end of the budgeting period.
Rolling Budget
The _____ is the difference between actual and budgeted figures and is used to evaluate how well the manager controlled operations during the period.
Variance
The ______ is the all-inclusive planning document for the entire organization.
Comprehensive Budget
When an organization builds its budgets from the ground up, it’s using _____
Zero-based Budgeting
The _______ project both the collection and payment of cash and forecast the company’s budgeted balance sheet.
Financial budget
______ is the process of setting long-term goals that may extend several years into the future
Strategic Budgeting
What is the order of the operating budget?
1- Sales budget
2- production budget (In Units)
3- Operating Expenses
4- Income statement
What is the order of a Financial budget?
1- Capital Expenditure budget
2- Cash collections
3- Cash payments
4-Combined Cash budget
5- Budgeted balance sheet
