Managerial ACC Exam 2

Contribution Margin

the amount available to cover fixed expenses and then provide profits for the period

Contribution Margin =

sales revenue - variable costs

Contribution Margin Ratio

CM as a percentage of sales. CM / SR

Variable Expense Ratio

Variable expenses as a percentage in sales. Variable Expenses / SR

Break Even Point

the level of sales at which the companys profit equals zero

BE Point Equation Method

Profit = cm/unit (x) - fixed expenses

BE Point Formula Method

(fixed expenses + target profit) / (cm/unit)

BE Point in Sales

(fixed expenses+target profit) / cm ratio

Margin Of Safety

shows how far sales can fall before the company incurs a loss. A higher MOS means a lower risk

MOS in dollars =

total budgeted (or actual) sales - BE sales

MOS %

MOS in dollars / total or actual sales in dollars

Least-Squares Regression Method

Determines the line and cost equation that best fits all the data points in the data set.

Y=mx+b

y= total cost, m= variable cost, x= activity level, b= fixed cost

R-Squared

shows how accurately is the volume able to predict the variable cost. 0-1. 0.7+ is good

Variable Costs

vary total, in direct proportion to changes in level of activity. Per unit value remains constant, but total amount changes as volume changes

Fixed Cost

remain constant in total, regardless of changes in level of activity.

Mixed Costs

Contain both a variable and a fixed cost element. total will change with the changes in level of activity, but not direct proportion

Absorption Costing

all manufacturing costs (variable and fixed) are included in the product cost. required by GAAP

Absorption Costing Income Statement

sales revenue - COGS (DM,DL,MOH) = Gross Margin - Selling and Admin Expenses = Operating Income

Variable Costing

only variable MOH are treated as product costs. used for internal magaement

Variable Costing Income Statement

sales revenue - V COGS - V sales and admin = CM - fixed MOH - fixed selling and admin = Operating Income

What is the difference between absorption and variable costing

the treatment of fixed MOH, and the timing of when it is expenses

When Units produced = Units Sold

Same income (no change in inventory)

Units Produced > Units sold

absorption is higher, because fixed MOH is deferred in inventory

Units Produced < Units Sold

variable costing is higher, because absorption releases fixed MOH from beginning inventory

Why are budgets used?

a budget is a detailed plan for the future that is usually expressed in formal quantitative terms. they are used for planning and controlling

Self Imposed / Participative budgets

prepared with the full cooperation and participation of managers of all levels. managers prepare their own budgets, which are then review by high-level managers, and any issues are resoled by mutual agreement

Master Budget

a number of separate but interdependent budgets that formally lay out the company sales, production, and financial goals.

Manufacturer Master Budget Order

Sales Budget, Production Budget, DM DL MOH Budget, Selling and admin budget, Cash budget, Budgeted Income Statement & Balance sheet

Merchandiser Master Budget

Sales budget, inventory purchases budget, financial statement

Sales Budget

budget selling price = unit sales x selling price

Production budget

Budgeted Unit sales + Desired Ending Inventory = Total unit needed - Beginning Inventory = Budget Production

Budgeted Material Purchases

DM needed + desired ending inventory + beginning inventory = DM purchases

Budgeted Direct Labor Cost

Budgeted Production x DL hrs rq/unit = Budgeted DL Hours needed x DL cost/hr = Budgted DL cost

Budgeted MOH

Budgeted Production x Variable MOH/unit = Budgeted V MOH + Budgeted fixed OH = Budgeted MOH

Budgeted selling and admin

Budgeted Sales /unit x Variable S&A/unit = Budgeted variable S&A + Budgeted fixed S&A = Total Budgeted S&A expense

Cash collections budget

(Sales x % collected in the month of sale) + (prev month sales x % collected in that month of sale)

Cash payments budget

(Purchases of that month x % paid in that month) + (purchases of previous month x % paid in that month)

Inventory Purchases Budget

Budgeted COGS + desired end inventory cogs - beginning inventory cogs = budgeted inventory purchases

Budgeted Accounts Recievable

find what cash hasnt been collected yet based on the previous month of sale

Planning Budget

also known as master budget, is prepared before the period begins and is valid for only the planned level of activity, which many times is different than the actual level of activity

The Flexible Budget

an estimate of what revenues and costs should have been, given the actual level of activity for the period

Activity Varience

the difference between the planning budget and the flexible budget. Variances are solely due to the differences between the levels of activity in the two budgets

Revenue and Spending Variance

difference between the actual results and the flexible budget. Variances are due to something other than volume like discounts or price competition