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Accounting test 2

Terms in this set (38)

contribution margin ratio
contribution margin
over
total sales
contribution margin
sales minus variable expenses
included in variable expenses
direct materials
direct labor
variable manufacturing overhead
variable selling and administrative
contribution margin unit
percentage
add up per unit costs just how you would to find CM, then divide by selling price per unit
contribution margin income statement
sales
less:variable expenses
CM
less: fixed expenses
net operating income
break even equation dollar sales
Profits= CM ratio * sales - fixed expenses
break even equation unit sales
Profits= unit CM * Q - fixed expenses
break even formula unit sales
Fixed expenses
over
CM per unit
break even formula dollar sales
Fixed expenses
over
CM ratio
target profit analysis unit sales
target profit + fixed expenses
over
CM per unit
target profit analysis dollar sales
target profit + fixed expenses
over
CM ratio
Break even point
the point at which cost or expenses and revenue are equal
variable expense ratio
the ratio of variable expenses to sales
total variable expenses
over
total sales
margin of safety
helps management assess how far above or below the break even point the company is currently operating
margin of safety in dollars
total sales minus break even sales
margin of safety percentage
margin of safety in dollars
over
total sales in dollars
margin of safety in units
margin of safety in dollars
over
actual sales unit (price per product)
operating leverage
a measure of how sensitive net operating income is to percentage changes in sales
degree of operating leverage
CM
over
net operating income
unit level activites
performed each time a unit is produced
ex. providing power to run processing equipment
batch level activities
performed each time a batch is handled or processed, regardless of how many units are in a batch
ex. setting up equipment and shipping customer orders
product level activities
relate to specific products and must be carried out regardless of how many batches are run or units are produced
ex. designing or advertising a product
organization sustaining activities
carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made
ex. heating a factory and cleaning executive offices
duration drivers
measures of the amount of time needed to perform an activity such as the time spent preparing individual bills for customers
transaction drivers
simple counts of the number of times that an activity occurs such as the number of bills sent out to customers
1st ABC limitation
sustainable resources required to implement and maintain. benefits of increased cost accuracy may not outweigh implementation cost
2nd ABC limitation
produce numbers that are at odds with the numbers produced by traditional cost systems. faces resistance
3rd ABC limitation
allocating all costs to products
4th ABC limitation
data can be misinterperated and must be used with care for decision making
5th ABC limitation
does not conform to GAAP. two systems may be needed
Activity based costing
designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed and variable costs
1st difference from traditional
nonmanufacturing as well as manufacturing costs may be assigned to products but only on cause and effect basis
ex. can assign sales commissions, shipping costs, and warrenty repair costs
2nd difference from traditional
some manufacturing costs may be excluded from product cost if
a. organization sustaining costs
b. the cost of unused or idle capacity
3rd difference from traditional
numerous overhead costs pools are used. will exceed the number of departments within a company since more than one activity is often performed
relevant cost
cost that differs between alternatives
avoidable cost
cost that can be eliminated in whole or by part by choosing one alternative over the other (relevant cost)
unavoidable cost
irrelevant cost
sunk cost
cost that has already been incurred and cannot be avoided regardless of what a manager decides to do .
depreciation
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