Skoolers ACG exam 2 Flashcards
revenue needed formula shortcut
Fixed cost + Target op. income / CM ratio %
of units needed shortcut
Fixed cost + Target op. income / CM per unit
DM and DL are a variable or fixed cost?
VARIABLE
How to calculate a firm’s breakeven point of a sales mix
Fixed cost + target op. income / WACM
WACM formula
Combined contribution margins / total number of unit sales
Margin of safety (MOS) formula (units)
Target (or actual) units minus breakeven units = margin of safety
Margin of safety (MOS) formula (sales)
Target (or actual) sales minus breakeven sales = margin of safety
MOS as a % formula
MOS number / TARGET NUMBER x 100
High operating leverage means…
The company has MORE fixed costs relative to variable costs
Indifference point
the point at which low operating leverage and high operating leverage are equal to one another
If you think that you’ll sell more than the indifference point …
Choose the option with the HIGHER fixed cost (operating leverage)
If you think you’ll sell less than the indifference point…
Choose the option with the LOWER fixed cost (operating leverage)
Operating leverage really just means
FIXED COSTS relative to variable cost
How to calculate operating leverage
Contribution Margin / operating income
What does operating leverage tell us?
How operating income is changed by a change in sales
Variable costs are avoidable and therefore
Do matter when evaluating decisions
Fixed costs are unavoidable and therefore
Do NOT matter when evaluating decisions
Sunk costs (money already spent)…
are IRRELEVANT and do not matter when evaluating decisions
Opportunity costs…
are RELEVANT
Differential costs
the difference in costs between two decisions
ARE RELEVANT
If you do not have capacity and have to forego some of our normal business
ADD the foregone business into expenses (opportunity cost)
In a make vs. buy scenario, avoidable fixed costs get added into…
the “make” column
In a make vs. buy scenario, opportunity costs get added into…
the “make” column
What is an “avoidable” fixed cost?
A cost that a company can eliminate if they stop an activity
Joint product costs are…
Always irrelevant
The cost of further processing is…
always RELEVANT
If a firm has control over the price
What is the formula for determining the price to set?
price = cost + profit
If the firm has NO control over the price
What is the formula for determining the COST to target?
Target costing
Revenue at market price - profit = target cost
True or Falase
Absorbtion costing is required by GAAP
TRUE
True or false
variable costing is used both internally and externally
FALSE
it is only used internally
Product cost formula using ABSORBTION costing
DM + DL + Variable OH + FIxed OH
Product cost formula under VARIABLE costing
DM + DL + Variable OH
(everything in absorbtion - fixed.)
Shortcut for difference in operating incomes
(between absorbtion vs variable)
(FOH/unit) x (diff in # units produced vs. sold)
Op. Leverage formula
CM / Op. income
What are the ONLY costs we consider for a special order?
Direct materials + Direct labor + variable manufacturing
**never include fixed or total cost in new calculation
First step in maximizing income problem?
Find CM for each product
After you find the CM for each product, what next?
Whichever product has the higher CM = produce MORE of that one
How to find the price a firm should charge using cost plus pricing?
cost + profit (your target return on investment) = x/#units
If units produced are greater than units sold…
Operating income is HIGHER UNDER ABSORBTION COSTING
so you can rule out any option under the given amt
Segment margin formula
Revenue - VC (traceable or direct FC)
