ACCT quiz 2 notes

CM ratio formula

CM/sales

Variable expense ratio

Variable expense/sales

Main difference relating to sg&a between activity costing and traditional costing is:

Traditional costing treats sg&a strictly as a period cost while activity costing treats any sg&a costs relating to a product as part of product cost

Format of contribution format

Sales

Variable exp

CM

Traceable fixed exp

NOI

For segmented:

Segment margin

Common fixed exp

NOI

Format of reconciliation

Variable costing NOI

Change in units

Fixed cost/unit

Total change in fc in inv

Absorption costing NOI

Unit for activity rate

Dollars/unit

ROI formula

NOI/Average operating assets

ROI formula 2

Margin * turnover

Margin formula

NOI/Sales

Turnover formula

Sales/Average operating assets

Residual income formula

NOI - (Average operating assets * Minimum required rate of return)

Concerns for residual income

No one can agree on how to find the minimum rate of return. And it's not useful for comparisons

Seller requirements for transfer price

Transfer price >= variable cost per unit + (total contribution margin on lost sales/units transferred)

(Cost + opportunity cost of lost sales)

Buyers requirements for transfer price

Transfer price <= cost of buying from outside supplier

Or if outsider supplier doesn't exist:

Transfer price <= profit to be earned per unit sold

How does idle capacity affect transfer price

Total contribution margin on lost sales = 0, aka no opportunity cost

Determining VC for operating departments

Variable costs charged to operating departments = budgeted variable rate * actual level of activity

Determining fixed costs for operating departments

Budgeted total fixed cost * peak period capacity required

Ethical tests

The golden rule

Public disclosure test

Universalization test

Violation of public trust

Universalization test

Would everyone (in the company, market, etc.) make this decision?

The golden rule

Would you like to be on the other end of this decision?

Public disclosure test

Would you want to disclose your intentions to the public?

Violation of public trust

Would this decision weaken public trust in your company

Does contribution format VC include sg&a?

Yes

What metric to use to see which product gets the extra resources

Compare FINAL NOI gained, not cm ratio or margin ratio. Also remember to subtract any cost