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ACC 202 Exam 2 Formulas and Definitions

by: Sharon Liang

ACC 202 Exam 2 Formulas and Definitions ACC 202

Marketplace > University of Kentucky > Accounting > ACC 202 > ACC 202 Exam 2 Formulas and Definitions
Sharon Liang

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About this Document

This is more of a formula sheet included with definitions of terms
Managerial Accounting
Dr. Stephen Weissmueller
Study Guide
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This 3 page Study Guide was uploaded by Sharon Liang on Monday February 15, 2016. The Study Guide belongs to ACC 202 at University of Kentucky taught by Dr. Stephen Weissmueller in Spring 2016. Since its upload, it has received 23 views. For similar materials see Managerial Accounting in Accounting at University of Kentucky.


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Date Created: 02/15/16
Exam 2 Formulas and Definitions Formulas 1) Sales revenue = price per unit * number of units sold 2) Total variable costs = variable cost per unit * number of units sold 3) Operating income = sales revenue – total variable costs – total fixed costs 4) Break even units a. Total fixed costs/(price per unit – total variable costs) b. (total fixed costs + desired ending profit)/contribution margin per unit 5) Variable cost ratio a. Total variable costs/sales revenue b. Variable cost per unit/price per unit 6) Total contribution margin = sales revenue – total variable costs 7) Contribution margin ratio a. Total contribution margin/sales revenue b. Contribution margin per unit/price per unit 8) Contribution margin per unit = price per unit – variable cost per unit 9) Break even sales a. Total fixed costs/contribution margin ratio b. (total fixed costs + desired ending profit)/contribution margin ratio 10) Margin of safety = sales revenue – breakeven sales 11) Degree of operating leverage = total contribution margin/operating income 12) Percentage change in operating income = degree of operating leverage * percent change in sales 13) Amount in increase in operating income = operating income * percentage change in operating income 14) Absorption costing product cost = direct material + direct labor + variable overhead + fixed overhead 15) Variable costing product cost = direct material + direct labor + variable overhead 16) Total inventory related costs = ordering costs + carrying costs 17) Ordering costs = number of orders per year * cost of placing an order 18) Average number of units in inventory = (units in order)/2 19) Carrying costs = average number of units in inventory * cost of carrying one unit in inventory 20) Economic Order Quality (EOQ) = √(2*cost of placing an order*annual demand for item in units/cost of carrying one unit in inventory for one year) 21) Reorder point = daily usage * lead time 22) Safety stock = (maximum daily usage – average daily usage) * lead time Definitions 1) Absorption costing: assigns all manufacturing costs to a product 2) Carrying costs: cost of keeping and storing inventory (insurance, inventory taxes, obsolescence, handling costs, storage, and opportunity costs) 3) Common fixed costs: jointly caused by 2 segments 4) Direct fixed costs: directly traceable to a segment 5) Economic order quality (EOQ): the number of units in the optimal size order quantity and minimizes total inventory-related 6) Just in time: this approach maintains that goods should be pulled through the system by present demand rather than being pushed through on a fixed schedule based on anticipated demand 7) Lead time: time required to receive EOQ once the order is placed or setup is started 8) Ordering costs: cost of receiving and placing an order 9) Reorder point: point in time when a new order should be placed or setup started 10) Safety stock: the extra inventory carried to serve as insurance against changes in demand 11) Segment: as subunit of a company of sufficient importance to warrant the production of performance reports 12) Segment margin: profit contribution each component makes toward covering of firm’s common fixed costs 13) Stock out costs: cost of having a product available when demanded by a customer or the cost of not having a raw material when needed for production 14) Variable costing: assigns only variable manufacturing costs to the product 15) Breakeven point: total revenue equals total cost point 16) Contribution margin: amount of sales revenue left over after all variable expenses are covered that can be used to contribute to fixed expenses and operating income 17) Contribution margin income statement: statement format that’s based on separation of costs into fixed and variable components 18) Contribution margin ratio: percentage of sales dollars remaining after variable costs are covered; the proportion of each sales dollar available to cover fixed costs to provide for profit 19) Cost-Volume-Profit Analysis: estimates how changes in costs, sales volume, and price affect a company’s profit 20) Cost structure: a company’s mix of fixed costs relative to variable costs 21) Cost-Volume-Profit Graph: depicts the relationship among cost, volume, and profits by plotting the total revenue line and total cost line 22) Degree of operating leverage: can be measured for a given level of sales by taking the ratio of contribution margin to operating income 23) Indifferent point: the quantity at which two systems produce the same operating income 24) Margin of safety: units sold or revenue earned above the break- even volume 25) Operating leverage: it’s the use of fixed costs to extract higher percentage changes in profits as sales activity changes; higher percentage will cause greater reduction in profits as sales decrease 26) Profit volume graph: visually portrays the relationship between profits (operating income) and units sold 27) Sales mix: relative combination of products being sold by a firm 28) Sensitivity analysis: “what if” technique that examines the impact of changes in underlying assumptions 29) Variable cost ratio: proportion of each sales dollar that must be used to cover variable expenses


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