BA 213 (Managerial Accounting) Final Study Guide UO

CVP Analysis is based on these 5 Factors:

Selling Prices, Sales Volume, Unit Variable Costs, Total Fixed Costs, Mix of Products Sold

Contribution Margin

Sales - Variable Costs

Contribution Approach

Separates costs into Variable and Fixed after finding CM

Variable Expense Ratio

Variable Expenses / Sales

Contribution Margin Ratio

Contribution Margin / Sales

Degree of Operating Leverage

Contribution Margin / Net Operating Income

Break-Even Point

the level of sales at which profit is zero

Unit Sales to Break-Even

Fixed Expenses / Unit CM

Margin of Safety (Formula)

Total Sales - Break Even Sales

Margin of Safety (Concept)

Amount of sales that can drop before losses are incurred

Profit (Formula)

(Unit CM x Quantity) - Fixed Expenses

Unit Sales to Attain Target Profit

(Target Profit + Fixed Expenses) / Unit CM

Incremental Analysis

Includes only the costs and revenues that will change if the proposal is implemented

Sales Mix (Concept)

The relative proportions in which a company's products are sold

Operating Leverage

a measure of how sensitive net operating income is to a given percentage change in dollar sales

Avoidable Cost

a cost that can be eliminated by choosing one alternative over another

Bottleneck

A part of a process that limits the total output of the entire system

Constraint

A limitation that a company has that restricts their ability to satisfy demand

Differential Cost

A future cost that differs between any two alternatives.

Differential Revenue

future revenue that differs between any two alternatives

Incremental Cost

an increase in cost between two alternatives

Joint Costs

costs that are incurred up to the split-off point in a process that produces joint products

Joint Products

Two or more products produced from a common input

Opportunity Cost

The potential benefit given up when one alternative is selected over another

Split-off Point

that point in the manufacturing process where some or all of the joint products can be recognized as individual products

Sunk Cost

a cost that has already been committed and cannot be recovered

Capital Budgeting

The planning and decision making processes companies use to evaluate investment projects with multiyear profit and cash flow implications

Cost of Capital

The average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds.

Internal Rate of Return

the discount rate at which the net present value of an investment project is zero; the rate of return of a project over its useful life

Net Present Value

The difference between the present value of an investment project's cash inflows and the present value of its cash outflows.

Payback Period

The length of time that it takes for a project to fully recover its initial cost out of the net cash inflows that it generates.

Postaudit

the follow-up after a project has been approved and implemented to determine whether expected results were actually realized

Profitability Index

Net Present Value / Investment Required

Screening Decision

a decision as to whether a proposed investment project is acceptable

Simple Rate of Return

Annual Incremental Net Operating Income / Initial investment

Time Value of Money (Concept)

A dollar today is worth more than a dollar a year from now

Working Capital

current assets - current liabilities

(+) Net Present Value

Acceptable (Return is greater than required rate of return)

(0) Net Present Value

Acceptable (return is equal to required rate of return)

(-) Net Present Value

Not Acceptable (return is less than required rate of return)

Profitability Index (Concept)

the higher the index, the more desirable the project