Final Exam Flashcards
Contribution Margin
Revenue - Variable Costs
Contribution Margin Ratio
Revenue- Variable Costs/ Revenue
Variable Costs
-Rise as you make more
-Cost that changes in total as activity level flunctuates but remains constant on a per unit basis
-Raw materials
-Hourly wages
-Shipping charges
-Advertising
-No operating leverage
Fixed Costs
-Stays the same
-Cost that remains constant in total as the activity level flunctuates but changes on a per unit basis
-Must be paid no matter how much you sale
-Rent
-Insurance
-Weekly pay
-Equipment
-Operating leverage
Break Even Point
Fixed Cost/ Contribution Margin per Unit
Desired Profit
Fixed Cost+Profit/Contribution Margin Per Unit
Break Even Point Definition
Break even point allows managers to determine the sales volume required to earn a desired profit (loss zero profit)
Target Net Income (Managerial)
Rev - Variable cost = CM - fixed cost = NI
Target Net Income (Financial)
Rev - COGS = GM - SG&A Expense = NI
SG&A Expense (period cost)
Selling, general, administrative
-non production expenses incurred
-rent
-utilities
-legal fees
-insurance
-advertising
-marketing
COGS
Product cost
Margin of Safety
Budgeted Sales - Break Even Sales
Margin of safety ratio
budgeted sales - break even sales / budgeted sales
Margin of Safety Definition
Measures the cushion between budgeted sales and the break even point. Quantifies the amount by which actual sales can fall short of expectations before the company will begin to incur losses
Cost of goods sold (Merchandiser)
Beg Inv + Cost of goods purchased - Ending Inv
Cost of goods sold (Manufacturer)
Beg finished goods inv + Cost of goods manufactured - ending finished goods inv
Cost of Goods Manufactured
Beg WIP Inv + Total manufacturing costs - Ending WIP inv
Total cost of WIP
Beg WIP inv + Total manufacturing costs
Total Manufacturing Costs
DM + DL + MOH
Manufacturers Inventory
Raw materials + WIP + Finished Goods
Managerial Accounting Basis
Provides economic and financial info for managers and other internal users
Managerial & Financial Similarities
-Deal with economic events of a business aka business transactions
-Economic events quantified and communicated to interested parties
Financial
-External : stockholders, creditors and regulators
-Financial reporting: quarterly & annually
-General purpose
-Pertains to business as a whole, highly aggregated (condensed), limited to accrual acct and cost data, GAAP, audited by CPA
Managerial
-Internal : officers & managers
-Internal reports: as frequently as needed
-Special purpose for specific decisions
-Pertains to subunits of a business, very detailed, extends beyond accrual acct to any relevant data
-Evaluated based on relevance to decisions
-No independent audits
Just in Time (JIT) inventory
-system in which goods are manufactured or purchased just in time for sale
-companies receive the exact amount of inventory they need, right when they need it
-goal is for companies to retain little to no excess inventory at any given time.
Time Quality Management (TQM)
Reduce defects in finished products with goal of zero defects
Theory of Constraints (“bottlenecks”)
-Constraints limit companies potential profitability
-Allows management to identify & eliminate constraints in order to achieve company goals
Enterprise Resource Planning (ERP)
Software programs designed to manage all major business processes
Activity Based Costing (ABC)
-Allocates overhead based on use of activities
-Results in more accurate product costing & scrutiny of all activities in value chain
Balance Scoreboard
-Evaluates operations in an integrated fashion
-Uses both financial & non financial measures, often expressed as “key performance indicators” KPI’s
-Links performance to overall company objectives
Depreciable basis
HC - SV
Annual Depreciation Expense
Depreciable basis/ useful life
Product Costs
-costs that are an integral part of producing a product
-recorded in inventory account
-not an expense (COGS) until goods are sold
-components: DM, DL, MOH
Period Costs
-charged to expense as incurred
-non manufacturing costs
-includes all selling, general, & administrative expenses (SG&A)
-unrelated to making products
MOH
-indirect materials
-indirect labor
-other indirect costs
Periodic Inventory system
-under the periodic inventory system the income statements of a merchandiser & a manufacturer differ in the cost of goods sold section
Environmental
-renewable fuels
-greenhouse gas emissions
-energy efficiency
-climate risk
-water management
-recycling processes
-emergency prepardness
Social
-health & safety
-working conditions
-employee benefits
-diversity & inclusion
-human rights
-impact on local communities
Goverance
-ethical standards
-board diversity & governance
-stakeholder engagement
-shareholder rights
-pay for performance
Total variable costs
solve for x
Total fixed costs
stays the same its a fixed cost
Variable costs per unit
stays the same
Fixed costs per unit
solve for x
Rental cost per unit
rent expense/ # of units produced
Utilities cost per unit
utilities expense/ # of units produced
4 primary financial statements and order prepared
-Income statement
-Statement of RE; shareholders equity
-Balance sheet
-Statement of cashflows
Net income
revenue - expenses
Statement of RE
beg re + NI - dividends
Operating
-income statement items
-revenues
-expenses
-current asset; cash
-current liability
Investing
-long term asset
-investments; land & buildings
Financing
-long term liability
-shareholders equity; loans \/
-common stock & retained earnings\/
-revenues & expenses
-dividends
Accounting Equation
Assets + liabilities + stockholders equity
On account
-accts payable or accts receivable
accounts payable
-represents money that your business owes to suppliers
-current liability
accounts receivable
-represents money owed to your business by customers
-current asset
Big 4
-KPMG
-PricewaterhouseCoopers
-Deloitte
-Ernst & Young
Enron scandal
-Fraudulent accounting practices (revenue recognition, mark-to-market accounting, special purpose entities)
-Ken Lay; founder and CEO
-Jeff Skilling; CEO during scandal
-collapsed in 2001
Sarbanes-Oxley (SOX) Act of 2002
-“Corporate responsibility”
-made it harder for corporations to commit unethical behavior, publicly-traded companies have been subject
to the “integrated audit” since 2002.
-Senator; paul sarbanes
-rep; mike oxley
Accounting rules (US)
-Generally Accepted Accounting
Principles (GAAP)
-Financial Accounting Standards Board (FASB) continually monitors and updates US GAAP
-Securities and Exchange Commission
(SEC) is the entity to which publicly-
traded companies submit their quarterly and annual financial statements on the Forms 10-Q and 10-K, respectively
Accounting rules (international)
-International Financial Reporting
Standards (IFRS)
-International Accounting Standards
Board (IASB) continually monitors and updates IFRS
SOX compliance required for
-Publicly-traded companies in the U.S. and their subsidiaries
-Foreign companies that are publicly traded and do business in the U.S.
-Private companies planning their Initial Public Offering (IPO) to become a publicly traded company
-Accounting firms performing audits of the above SOX-regulated companies
