ACCT 2603 - Exam 2 Review

Term
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What can change (in terms of costs) the breakeven point?
(AKA- what variables change BEP?)
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Terms in this set (26)
What can change (in terms of costs) the breakeven point?
(AKA- what variables change BEP?)
- An increase in the company's fixed expenses.
- A reduction in the contribution margin.
- A reduction in the contribution margin caused by a decrease in selling prices.
- A less favorable sales mix.
What are the benefits of the high-low method of cost estimation? the limitations?
Advantages: simple, uses familiar format y=mx+b

Disadvantages: only uses 2 data points, subjective
For external financial reporting, what format of the income statement does GAAP require?
Sales
- C.O.G.S
= Gross Profit
- Operating Expenses
= Operating Income
Fixed Cost Behavior
remain unchanged w/ changed in volume

2 Types:
1. committed: must
ex) rent
2. discretionary: choose to incur
ex) advertising

look @ graph
Variable Cost Behavior
change (increase or decrease) proportionately w/ changes in volume

look @ graph
Mixed Cost Behavior
part fixed and part variable

look @ graph
How is Contribution Margin calculated?
Sales Price (per unit)
- Variable Cost (per unit)
= Contribution Margin (per unit)
Who (type(s) of industry) can use ABC?
everyone (merchandisers, manufacturers, services)
What is sales mix?
the relative proportions in which a company's products are sold

- used in Weighted-Average Contribution Margin
What does R^2 represent in a regression output?
measure of "goodness of fit"
- < 50% : indicates BAD regression (below 50, pack it up/go home)
- ≥ 75% : indicates GOOD regression
- > 90% : indicates GREAT regression
Calculation of Target Income2 Methods: Sales Units (Q): TIu = Fixed Costs + T.I. / Unit Contribution Margin Sales Dollars ($): TI$ = Fixed Costs + T.I. / Contribution Margin RatioWhat is the relevant range?range of activity (Q) over which a fixed & variable remain true -or- the range over which a company expects to operate during a yearHow do Unit Variable Costs behave?CONSTANT regardless of increase or decreaseWhat is a scatterplot? What is it used for?- a graphical depiction of data - helps to identify pattern, trend, and outliers (often remove outliers b/c skews data)Calculation of plant wide overhead rate. (Traditional POHR)POHR = estimated MOH / estimated cost driver activityWhy would departmental overhead rates be preferred by a firm?offer the flexibility to use a different activity or cost driver for each department - manufacturer is likely to produce many diverse products which use different processes - Stage 1 and Stage 2 AllocationsHow is an ABC activity Rate calculated?step 1 allocation / estimated allocation baseWhat does the Contribution Margin Ratio represent?percentage of each $ in sales to cover fixed cost & profit CMR = unit contribution margin / unit selling priceExamples of "LEAN" strategies:LEAN Focus: want to minimize customer response time - Just-In-Time Inventory: eliminate waste caused by maintaining inventory - Value Stream Mapping: value added - Production occurs in self contained cells (goes from RMI > FGI w/in cell)What are the costs of quality (COQ)? Examples of each:1. Prevention Costs: avoid producing poor quality 2. Appraisal Costs: identify poor quality 3. Internal Failure Costs: incurred on defective units before leaving plant 4. External Failure Costs: warrantyPrevention Costs:avoid producing poor quality ex) quality control of grain before entering distilleryAppraisal Costs:identify poor quality ex) "approved by 24" tag in T-shirt bagInternal Failure Costs:incurred on defective units before leaving plant ex) "final check"External Failure Costs:warranty ex) warranty on carBenefits of using ABC:- more precise allocations - reduce cost distortionCalculation of ABC Activity Ratestage 1 allocation / estimated allocation base