Managerial Accounting Equations Test 2

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Y=FC + VC (X)

Mixed Cost Equation (also used in High-Low Method)

DOL = total CM / NOI

Degree of operating leverage

MOS in % = MOS in $ / Total Budgeted or actual sales in $

Margin of Safety Percentage

Actual S - BE S

Margin of Safety

VE ratio = VE / S

Variable Expense Ratio

Unit S = (TP + FE) / Unit CM

Formula Method Target Profit (Units)

$ S = (TP + FE) / CM Ratio

Formula Method Target Profit (Dollars)

Unit CM = Pr - V

Unit CM

CM Ratio = CM / S

CM Ratio

CM = S - VC

Contribution Margin

BE in $ = FE / CM Ratio

Break Even in Dollars

BE in units = FE / Unit CM

Break Even in Unit Sales

P = (S - VE) - FE ::::
P = (Unit CM x Q) - FE ::::
P = (CM Ratio x S) - FE

3 forms of Master Equation

S = Pr x Q

How to Calculate S of Master Equation

VE = unit V x Q

How to Calculate VE of Master Equation

VC = change in cost / change in activity

Variable Cost

unit-level

level of activity: performed each time a unit is produced, should be proportional to the number of units produced

batch-level

level of activity: performed each time a batch is handled/processed, regardless of how many units there are in the batch

product-level

level of activity: relate to specific products, typically must be carried out regardless of how many batches are run or units are sold

Customer-level

relate to specific customers, not tied to any specific product

Organization-sustaining

carried out regardless of customers, products, batches, or units (basically other)

Unit level

power to run processing equipment

Batch level

placing purchase orders

Batch Level

setting up equipment

batch level

arranging for shipments to customers

product level

designing a product

product level

advertising a product

product level

maintaining a product manager and staff

customer level

sales calls

customer level

catalog mailings

customer level

general technical support

organization sustaining

heating the factory

organization sustaining

cleaning executive offices

organization sustaining

providing a computer network

organization sustaining

arranging for loans

organization sustaining

preparing annual reports to shareholders

customer level

Sales representatives' periodic visits to customers to keep them informed about the services offered by CD express

product level

ordering labels from the printer for a particular CD

batch level

setting up the CD duplicating machine to make copies from a particular master CD

batch level

Loading the automatic labeling machine with labels for a particular CD

unit level

Visually inspecting CDs and placing them by hand into protective plastic cases prior to shipping

product level

preparation of the shipping documents for the order

organization sustaining

periodic maintenance of equipment

organization sustaining

lighting and heating the company's production facility

organization sustaining

preparation of quarterly financial reports

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