Exam 2 Man. Acc. (4, 6, 7)

Predetermined Overhead Rate

Total estimated indirect costs divided by a cost driver.

Activity Cost Allocation

Different cost allocation bases for each different activity.

Unit Level

Cost level pertaining to single units or products.

Batch Level

Cost level pertaining to multiple units.

Product or Customer Level

Specific product line costs or customer costs.

Facility Level

Cost level that encompasses all of a company's processes.

Activity Cost Allocation Rate

Activity Cost/ Activity Volume

Assigning Indirect Costs

Allocation rate x actual quantitiy

Value Added Activities

Necessary and efficient activities that customers are willing to pay for.

Non Value Added Activities

Activities that are necessary or inefficient.

Cost Hierarchy

A categorization of costs into unit, batch, product, customer, and facility levels.

Relevant Range

The range over which costs remain constant.

Contribution Margin

Sales Revenue minus Variable Costs.

Variable Costs

Costs that change in proportion to volume.

Fixed Costs

Costs that do not change regardless of volume.

Fixed Cost per Unit

Decreases as volume increases

Variable Cost per Unit

The same for each product with a graph that starts at (0,0) and rises in a straight line.

Mixed Costs

Costs that change but not in direct proportion to volume, including an added component. Still affected by volume increase or decrease

Sunk Costs

Costs that have already been incurred and cannot be recovered.

High Low Method

A method useful for estimating variable costs based on the highest and lowest costs and outputs. (high cost - low cost)/(high activity - low activity)

Cost Equation

y = mx + b, where y is total costs, m is variable costs per unit, x is units, and b is fixed costs.

Regression Analysis

A statistical method to find the most precise calculation of fixed and variable costs.

R Sqaured

0 equals no correlation to between cost and volume while 1 suggest high.

Y Intercept Coefficient

Fixed Cost

X Intercept Coefficient

Slope of Variable Cost per unit

Break-Even Point

The level of sales at which total revenues equal total costs. (fixed cost + net income)/ contribution margin per unit

Operating Leverage Factor

Contribution Margin divided by Operating Income.

Contribution Margin Ratio

Contribution Margin divided by Sales Revenue.

GAAP Income Statement

Sales - COGS = Gross Profit - SGA = NI

Absorption Costing

A method where fixed overhead is included in the cost of inventory until sold. GAAP

Variable Costing

A method where all fixed costs are expensed as incurred, regardless of when the product is sold. Not GAAP

Sales Revenue Formula

Sales Price x Units Sold.

Net Income/ Profit Calculation

Sales Revenue - Variable Costs - Fixed Costs.

Operating Income

Contribution Margin minus Fixed Costs.

Margin of Safety

Sales Revenue - Break Even Revenue.

Unit Contribution Margin Formula

Sales Revenue per unit - Variable Costs per unit.

Target Net Income Calculation

(Fixed Costs + Desired Net Income) divided by Contribution Margin per unit.

Sales Mix Assumption

The assumption that the mix of products sold does not change during analysis.

Cost Behavior

How costs react to changes in volume.

Step Cost

Costs that are fixed over a range but increase after a certain point.

Accounting Analysis

The process of determining whether a cost is fixed, variable, or mixed.

Activity Dictionary

A document that defines activities, the resources used, and the time spent.

Storyboarding

A visualization tool used to sequence events in creating an ABC system.

Direct Costs

Costs that can be directly traced to a specific product or service.

Indirect Costs

Costs that cannot be directly traced to a specific product or service.

Cost Driver

A factor that causes changes in the cost of an activity.

Drawbacks to ABC

Complexity to create, internal use only, and requires support from all areas.

Contribution Margin Income Statement

Sales Revenue - Variable Costs = Contribution Margin - Fixed Cost = Net Income

Sales Price

Variable Costs per unit / (100% - Contribution Ratio)