f&a openstax summary

Merchandising

Buys ___ goods and ___ them

Walmart, Amazon

Cost of goods purchased for ___

finished, resells, resale

Manufacturing

Produces ___from ___materials

Ford, Nike

___to make goods: materials, labor, ___

products, raw, cost, overhead

Service

Provides intangible products (no ___)

Banks, hospitals, law firms

___and overhead (no ___inventory)

inventory, labor, materials 

All three (manufacturing, merchandising, service) must control ___to remain profitable.
Their income statements differ in how costs are classified (especially ____vs. period costs)

costs, product 

Basic Cost Behavior Patterns

Purpose: Helps managers predict how ___ change with ___ levels.

costs, activity

Fixed Costs

Stay ___ in total within ___ range

___ = $2,000/month

constant, relevant, rent

____ Costs

Change in total with ____; constant per unit

$5 per unit sold

variable, activity

___ Costs

Contain both fixed + variable parts

___ bill = $300 + $0.10 per kWh

mixed, utility

___ Costs

Fixed over a ___, then jump to a new __

Supervisor ___ per 10 workers

step, range, level, salary

___Costs

Direct ___+ Direct Labor

Directly ___ to product

prime, material, traceable 

___ Costs

Direct Labor + ___ Overhead

Convert materials into __

conversion, manufacturing, products

___Range: The activity range where total ___costs remain ___and cost relationships hold true. Outside this range, cost behavior may change.

relevant, fixed, constant 

Managers use past cost data to estimate future costs using three methods: ___graph, ____ method, least-squares ____

scatter, high-low, regression

___Graph

Diagnostic tool

Plots cost vs. activity; checks for +___relationship

scatter, linear 

High-Low Method

Simple ___

Uses highest and lowest activity levels to separate ___ & variable portions

estimate, fixed

Least-Squares Regression

Statistical method

Fits a line that ___ error between ___ and actual costs

minimizes, predicted

Equation Format: Total Cost (Y) =

fixed cost + (variable cost per unit x activity level)

Contribution Margin (CM): The portion of sales ____remaining after deducting ____costs — contributes to covering ____costs and ___.

revenue, variable, fixed, profit 

CM per Unit =

selling price per unit - variable cost per unit

CM Ratio =

CM per unit / selling price per unit

Total CM =

CM per unit x units sold

contribution method - Each $1 of sales provides “X cents” toward ___ costs and ___.

fixed, profit

Contribution Margin Income Statement:

• Emphasizes ____ vs. fixed costs

• Useful for comparing ___ impact at different sales levels.

variable, profit

Break-Even Point (BEP): The level of sales at which total ___ = total __ (no profit, no loss).

revenue, cost

break even point - In Units: Break-Even Units =

fixed costs / CM per unit

break even point - In Dollars: Break-Even Sales ($) =

fixed costs / CM ratio

break even point - Helps determine the ___ sales volume needed before ___ begins.

minimum, profit

Break-Even Sensitivity Analysis (____ Product)

Used to see how changes in ____ affect the break-even point.

single, variables

Variable Change	Effect on BEP
↑ Selling Price	__Break-Even (need fewer sales)

decrease 

__ Selling Price

↑ Break-Even

decrease 

__ Variable Cost per Unit

↑ Break-Even

increase 

___Fixed Costs

↑ Break-Even

increase

___Fixed Costs

↓ Break-Even

decrease

Break-Even Analysis in Multi-Product Environments

Many companies sell multiple products/services, so BEP must account for the sales ___(the ratio of products sold).

mix 

• ____ Unit: A “____” representing the typical sales mix (2 A’s + 3 B’s).

• ____ is calculated based on this composite unit.

composite, bundle, BEP

If the sales mix changes, the break-even point also changes — even if total ___dollars stay the same.

sales 

Margin of ____(MOS): Measures how much sales can ___ before a company incurs a loss ___ 

safety, drop, loss 

MOS = 

MOS % = 

actual sales - break even sales or MOS / actual sales 

🟩 Higher MOS = ____ risk of not breaking ___.

lower, even

Operating ____ (OL)

Measures how sensitive net operating ____ is to changes in ___.

leverage, income, sales

Firms with ____ fixed costs (airlines, software) have ___ operating leverage.

high high

Small sales changes → ___ profit swings.

large

Degree of OL=

total CM / net operating income

High OL: High potential profit and high ___ during sales ___.

risk, downturns

Fixed Costs

Constant in total

Rent, ___

salaries

Variable Costs

Change per ___

Materials, commission

activity

Mixed Costs

Fixed + Variable

__

utilities

___ Costs

DM + DL

____ production costs

prime, direct

___Costs

DL + OH

Convert materials to product

conversion 

CM/unit

SP – VC

___ contribution per unit

profit

CM Ratio

% of each $ covering fixed costs

CM / SP 

BEP Units

____

Sales volume to break even

FC / CM per unit 

BEP $

___

Sales revenue to break even

fixed cost / CM ratio 

MOS

____

Safety buffer above BEP

actual sales - BEP 

OL

____

Income sensitivity to sales

CM / NOI