Accounting exam 2

unit level(hierarchy of activities)

processing on machines or by hands, using factory supplies

batch level(hierarchy of activities)

processing production/purchase orders, setting up equipment, handling material

product level(hierarchy of activities)

testing new products, administering parts inventories, designing products

facility level(hierarchy of activities)

general factory administration, plant building and gronds

designing an ABC

small # of activities, broad range of managers, combined related activites

POHR

estimated moh/estimated allocation base

Effect of ABC

cost shifts from high volume to low volume products

looking at activity rates

can target where costs seem excessively high

benchmarking

comparing activity cost info with world class standards and other orgs

benefits of ABC

improves accuracy, highlights deficiencies

when to use ABC

products differ substantially, conditions changed, MOH costs are high, no trust in existing cost system

When is process costing used

single products produced for long period of time

CVP

focuses on prices, volume, variable costs, fixed costs, and mixed costs

assumptions of CVP

constant prices, costs linear, constant sales mix, inv dont change

CM ratio

CM/sales either unit or total

break even dollars

fixed expense/cm ratio

break even units

fixed expense/unit price cm

margin of safety dollars

total sales-break even dollar s

margin of safety percentage

total sales/margin of safety dollars

margin of safety def

how much sales can drop before getting negative profit

Degree of operating leverage def

how much an increase in sales will impact increase in NOI

degree of operating leverage formula

CM/NOI

cost structure

relative proportion of fixed and variable costs in an org

high fixed cost

high risk high reward

low fixed costs

greater stability

HIgher CM

higher operating leverage

Lower CM

lower operating leverage

commissions based on sales dollars

lower profits in a company

operating leverage near break even point

highest

away from break even

lowest operating leverage