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# Accounting 2102 Midterm Exam 1 ACCT 2102

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This 10 page Study Guide was uploaded by Lucero Ganley on Monday January 18, 2016. The Study Guide belongs to ACCT 2102 at Georgia State University taught by Kathleen S. Partridge (P) in Fall 2016. Since its upload, it has received 16 views.

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Date Created: 01/18/16

Account 2102 Midterm Exam 1 Study Guide Chapter 1: 1. Define Managerial Accounting and Understand characteristics. - Managerial Accounting: The generation and analysis of relevant information to support managers’ strategic and operational decision-making activities. - An internal rather than external focus. - Lack of mandated rules. - Focus on operating segments. (different departments) - Focus on the future. - Emphasis on timeliness. 2. List and understand the responsibilities and four general activities of managerial accountants. - Planning, Controlling, Evaluating, and decision Making. - Planning: - Controlling: Monitoring day-to-day operations to ensure that processes operate as required. Who does this: Managers and line workers. When do they do it: In real time- hourly, daily, weekly. - Evaluating: Comparing actual results to planned results for the period. Who does this: Managers. When do they do it: weekly, monthly, quarterly, annually. - Decision-making: choose a course of action. Who does this: Managers and workers. When do they do it: as needed. 3. Understand objectives of Just-in-time Inventory Management. - Just-In-Time Inventory Management (JIT): is an inventory strategy that focuses on reducing waste and inefficiency by ordering inventory items so that they arrive just when they are needed. Requires frequent deliveries of small lots of materials. Reduces warehousing costs. 4. Define the goals and characteristics of the supply chain. - Supply Chain: A network of facilities that produce raw materials, transform them into intermediate goods and then then into final products and deliver the final products to the customers through a distribution system. The goal is to get the right product to the right location, in the right quantities, at the right time, and at the right cost. Chapter 2 5. Understand the definitions and applications of fixed, variable, mixed, and step costs. - Fixed costs: A cost that does not change in total with changes in activity, but per unit cost varies indirectly with changes in activity. EXAMPLE: Total cost is always the same. # of People Total Cost Cost per person 1 $900 $900 2 $900 $450 3 $900 $300 4 $900 $225 5 $900 $180 - Variable cost: Any cost whose total varies in proportion to a business activity. Variable cost per unit is constant over the relevant range. EXAMPLE: Total cost varies with activity change. Minutes Used Cost per Minute Total cost 10 $0.05 $0.50 200 $0.05 $10.00 500 $0.05 $25.00 800 $0.05 $40.00 1000 $0.05 $50.00 1600 $0.05 $80.00 - Mixed cost: A cost that has both fixed and variable components. EXAMPLE: The fixed cost is $10.00 and variable cost is $0.06 per unit. Cubic feet used Total cost Cost per cubic feet 1 $10.06 $10.06 100 $16.00 $0.1600 200 $22.00 $0.1100 500 $40.00 $0.0800 800 $58.00 $0.0725 1000 $70.00 $0.0700 1500 $100.00 $0.0667 - Step Cost: Costs that are fixed over only a small range of activity. Once that level of activity has been exceeded. Total costs increase and remain constant over another small range of activity EXAMPLE: Minutes Cost Total Cost 1-500 $40 $40 501-1000 $40 $80 1001-1500 $40 $120 6. Given income statement information, calculate variable cost. - Variable cost per unit = Total Variable Expenses Quantites (get this number from sales revenue divided by unit price to get total units sold) 7. Given information, calculate the fixed costs. - Fixed costs = Total Cost – Variable Cost X = $2600 - $2100 ($1.40 x 1500 units) X = $500 Note: you will need to calculate variable cost first. 8. Use the High-low method to calculate both variable, fixed costs and total costs. - variable cost per unit = Change in total units (high point $ – lowest point $) Change in activity (Highest unit – lowest unit) 9. Understand advantages and disadvantages of regression analysis. - Regression analysis: A statistical technique that separates a mixed cost into its fixed and variable components by identifying the line of best fit for the points in the data. 10. Understand and calculate contribution margin and contribution margin ratio. - Contribution Margin = Sales Revenue – Total Variable Expenses - Contribution Margin Ratio = Contribution Margin Sales Revenue 11. Understand and calculate contribution margin and operating income given sales, variable costs and fixed costs. - Sales Revenue - Variable Expenses = Total Contribution Margin -Total Fixed Expenses = Operating Income 12. Define and identify fixed vs. variable costs. - Fixed costs: The total cost does not change when there is a change in activity. - Variable costs: The total cost does change when there is a change in activity. 13. Understand and compute the total cost equation. - Total Cost = Total variable Cost + Fixed cost 14. Understand the relationship between contribution margin and profit. - Contribution Margin is the revenue remaining to cover fixed expenses and provide profit after variable expenses have been covered. - Operating income = (C.M. per unit x # of units) – Fixed expenses Chapter 3 15. Understand and calculate margin of safety. - Margin of safety = current sales – breakeven sales Represents the volume of sales that can be lost before the company begins to lose money. Can be measured in units or money. 16. Understand concept of breakeven point and calculate in both dollars and units. - SPx – VCx – Fixed Costs = $0 (operating income) - Total Fixed expenses Contribution Margin per unit = Breakeven point in units - Breakeven point in units x sales price = $ in breakeven point - Breakeven point in sales dollars = Total fixed expenses Contribution margin ratio 17. Calculate selling price per unit using breakeven analysis. - Total fixed expenses Contribution margin ratio = breakeven point in sales dollars Breakeven point in sales dollars Breakeven points in units = selling price per unit 18. Given selling price, fixed and variable costs, calculate how many units must be sold to reach a certain level of operating income and net income. - SPx – VCx – FC = Desired operating income or net income. - Target net income (1-Tax rate in decimal) = net income (this is the equation for before tax) - Total FC + Net income before tax C.M. per unit = Required sales volume 19. Understand and calculate markups using cost-plus pricing. - Product cost + markup = Sales price - Sales price – cost Cost = Markup % 20. Calculate how many units must be sold to reach breakeven point. - SPx – VCx- FC = $0 (SP – VC)X – FC = $0 +FC +FC OR FC (SP-VC)X = FC C.M./unit = Breakeven in units (SP-VC) (SP-VC) X= Breakeven in units *(SP – VC) is equal to C.M. (Contribution Margin) 21. Using CVP analysis, calculate new total cost and operating income. - You will be given a problem that has all the required information for a certain year income statement. Then you will be given 3 changes for the next or current year. EXAMPLE) TOTAL PER UNIT SALES REVENUE $600,000 $50 VARIABLE EXPENSES -$210,000 -$17.50 CONTRIBUTION MARGIN $390,000 $32.50 FIXED EXPENSES -$292,500 OPERATING INCOME $97,500 Managers have determined that variable costs per unit will increase by 16% beginning next month. To offset this increase in costs, they are considering a 10% increase in the sales price. Market research indicates that the price increase will result in a 2% decrease in the number of learning systems MathTot sells. What will be the expected operating income if the price increases as implemented? - The new VC= $20.30 ($17.50 + 16%= $20.30) - The new SP= $55 ($50 + 10% = $55) - Unit sales= 11,760 ($600,000 / $50 = 12,000 12,000 – 2% = 11,760) TOTAL PER UNIT SALES REVENUE $646,800 (11,760 x $55 $55) VARIABLE EXPENSES -$238728 -$20.30 CONTRIBUTION MARGIN $408,072 $34.70 FIXED EXPENSES -$292,500 OPERATING INCOME $115,572 * New operating income is $115,572 and New total cost is $646,800. 22. Using CVP analysis, calculate operating profit. - Look at Question 21’s answer because operating profit and operating income are synonyms. 23. Understand impact of increases selling price and variable cost on contribution margin and breakeven analysis. - Contribution Margin and Breakeven analysis is also called CVP. Look at Question 21’s answer. 24. Understand components of breakeven graph. - Breakeven graph: a graphical representation that shows the intersection of the total revenue line and the total cost line at the sales volume where the company breaks even. - Shows operating loss (left of the breakeven point) and operating income (right of the breakeven point). - Gives 2 lines: Total Sales Revenue line and Total Expenses line. Chapter 12 25. Calculate common-size percentages for both balance sheet and income statement accounts. - Balance sheet Account Balance (Any) Total Assets (It might be Total Liabilities as well) - Income statement Account Balance (Any) Net Sales (Sales revenue) 26. Given relevant financial information, calculate return on common shareholders’ equity. - NI – Preferred dividends Average common stockholders’ equity 27. Define, understand and calculate both vertical (common- size statements) and horizontal analysis of financial statements. - Horizontal analysis Current year amount – Base year amount Base year = % Change You do NOT add the % change column to get totals. - Vertical Analysis Account Balance Account Balance Total Assets OR Net sales (Sales Revenue) You CAN add the percentages to get to 100% 28. Understand and calculate earnings per share. - NI – Preferred Dividends Average number of shares outstanding 29. Understand and calculate the average collection period and accounts receivable turnover. - A/R turnover = Net Credit Sales Average collection period = 365 Days Average A/R A/R turnover 30. Calculate times interest earned. - Earnings before interest and taxes (operating income) Interest Expense 31. Understand and calculate inventory turnover. - Cost of Goods Sold Average inventory = Inventory turnover. 32. Calculate earnings per share. - NI – Preferred Dividends Average number of shares outstanding.

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