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Midterm 2 Study Guide

by: Josh Manley

Midterm 2 Study Guide 212

Marketplace > University of Miami > Business > 212 > Midterm 2 Study Guide
Josh Manley
GPA 3.7
Managerial Accounting

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Managerial Accounting
Study Guide
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This 7 page Study Guide was uploaded by Josh Manley on Sunday April 5, 2015. The Study Guide belongs to 212 at University of Miami taught by Quintana in Spring2015. Since its upload, it has received 133 views. For similar materials see Managerial Accounting in Business at University of Miami.

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Date Created: 04/05/15
Accounting 212 Notes 2 Chapter 5 Cost Volume Pro t Relationships 0 Key assumptions of CVP analysis 0 Selling price is constant 0 Costs are linear and can be accurately divided into variable and xed elements 0 ln multiproduct companies the sales mix is constant 0 Inventories do not change Units produced units sold 0 Contribution margin 0 Amount remaining from sales revenue after variable expenses have been deducted Used to calculate breaking even point Used to cover xed expenses Remaining CM contributes to net operating income Used instead of an income statement to est pro ts at a particular sales volume 0 Can do a total or per unit basis Take sales of units variable expenses of units to get contribution margin 0 CVP relationships in equation form Pro t sales variable expenses xed expenses 0 Contribution Margin Ratio Total method 0 Variable expenses sales 0 Used when you aren39t making calculations based on individual units 0 Can be used to calculate of revenue generated past BEP that goes to income 0 total contribution margin total sales CM ratio 0 CM ratio used to calculate total contribution margin increase per dollar 0 If CM 40 CM increases by 40 per 1 Unit method 0 CM ratio CM per unit selling price per unit 0 Alternate CM ratio Selling price variable expense per unit selling price per unit 0 Can be used to determine amount of an increase in sales revenue 0 increase in sales x CM increase in sales revenue 0 Can be applied for a change in selling price 0 to earn extra revenue for instance 0 xed cost extra revenue desired CM total sales 0 Can be applied to calculate units needed 0 To meet a quota 0 Total revenue desires CM of units Variable expense ratio 0 Ratio of variable expenses to sales 0 total variable expenses total sales Calculating new operating income based on incremental analysis Increase in CM increase in expenses increase or decrease in net operating income 0 Change in xed cost sales price and volume Unless xed cost is explicitly states as a changing variable don39t assume it will Calculate new unit price 0 Use to determine unit CM price Calculate new quantity of sales 0 Use to determine the number of units added or subtracted w changes made Multiply CM per unit x increasedecrease in sales new CM revenue 0 Breakeven Analysis Pro ts unit CM x quantity xed expenses Dollar sales to break even xed expenses CM ratio 0 Target pro t Equation method 0 Pro t Unit CM x Quantity xed costs Formula Method 0 Used to calculate unit sales needed to attain target pro t 0 Target pro t xed expenses CM per unit CM ratio 0 Margin of safety How much sales can increase or decrease and remain at the breakeven point Margin of safety total sales break even sales In units margin of safety price per unit of units 0 Cost structure and pro t stability Advantages and disadvantages of high xed costs High xed costs advantage 0 Income will be higher in good years Disadvantage Income will be lower in bad years compared to companies with lower proportion of xed costs 0 Takes longer to pay for xed costs 0 Companies with low xed cost structures enjoy greater stability 0 Operating leverage How sensitive net operating income is 0 percentage changes in sales It is a measure at any given level of sales of how percentage change in sales volume will affect pro ts Operating leverage contribution margin net operating income 0 percent increase in pro ts percent increase in sales x degree of operational leverage o concept of sales mix sales mix is the relative proportion in which a company39s products are sold different products have different selling prices cost structures and contribution margins when a company sells more than one product break even analysis becomes more complex 0 Multiproduct break even analysis For the total breakeven point 0 contribution margin product 1 contribution margin product 2 total sales product 1 product 2 o total CM total sales Using to get overall breakeven point e total xed costs total CM Variable Costing and Segment Reporting Tools for Management 0 Overview of Variable and Absorption Costing Overwew of Variable and Absorption Costing variable A bsarrp tiiam Casting 1 Casting Direth Wilateriale Prelim ct Casts Dlmm Lahm w Pmduet Variable Manufacturing Ouerlread I CHEM Fixed Manufacturing uerhead Periml Casts 7 Variable Selling and dminiatrative Expeneee Periml Fixed Selling and Adlmiiniletrative Expenses 1 CME O 0 Both methods are used to determine the cost of inventory 0 Absorption costing All production costs variable and xed are included when determining unit product cost Unlike variable costing xed overhead is included Includes DM DL variable MOH and xed MOH Unit cost computations To factor in xed MOH o Fixed MOH units produced not units sold 0 Variable costing Only the variable production costs are included in product costs Includes DM DL variable MOH Fixed MOH goes to income statement as period costs I think More realistic Managers prefer because income appears higher Net operating income sales variable expenses xed expenses Variable expenses include COGS and SampA expenses Includes contribution margin 0 Summary of key insights Relation between Relation between production Ett ect on variable and and ies inure ll ttIDW absorption income ILInitza produced hbaorption lilo change ILInita sold in inrrentorrlF Varia ble lLInitza produced Absorption 3 lnrre in h lLInitza eold ill t lf Varia ble Unite produced Absorption I lnne no I Unite cold decreame Haria ble o Decentralization and segment reporting Segment is any part or activity of an organization about which a manager seeks cost revenue or pro t data On test it would be more of an understanding question than computation Two keys to building segmented income statements 0 Contribution format should be used because it separates xed from variable costs and enables the calculation of a contribution margin Traceable xed costs should be separated from common xed costs to enable the calculation of a segment margin 0 Fixed costs per unit will be different depending on different xed costs depending on the segment 0 Ex Rent may be higher at a different facility xed cost per unit is different Levels of segmented reporting 0 Segment reporting uses contribution format variable costing Common costs should not be allocated to the divisions 0 Common costs indirect expenses unable to be traced to a speci c aspect of a company39s operations 0 Costs would remain even if one of the divisions were eliminated o Traced to division not to individual products Segmented income statements 0 Company uses contribution format segmented statements to make decisions and perform breakeven analysis 0 Contribution margin traceable xed costs product line margin 0 common costs divisional margin 0 Be able to use segmented income statement to calculate CM ratio breakeven point and various other calculations depending on changing variables Omission of Costs 0 Costs assigned to a segment should include all costs attributable to that segment from the company39s entire value chain 0 Value chain the process or activities by which a company adds value to an article including production marketing distribution and provision of aftersales service Inappropriate methods of allocating costs among segments 0 Failure to trace costs directly Inappropriate allocation base 0 Common costs should not be arbitrarily allocated to segments based on the rationale that quotsomeone has to cover itquot o Forces managers to be held accountable for costs they cannot control Segmented nancial information GAAP requires publically traded companies to include segmented nancial data in their annual reports 0 Must report segmented results using the same methods used for internal segmented reports Motivates managers to avoid using the contribution approach because they would be required to 0 Share sensitive data with public 0 Reconcile reports with applicable rules for consolidated reporting purposes ActivityBased Costing A Tool to Aid Decision Making 0 Activity Based Costing ABC 0 Designed to provide managers with cost information for strategic and other decisions that potentially effect 0 ABC costing differs from traditional cost accounting in three ways ABC assigns nonmanufacturing costs 0 How costs are treated Most complex Master Budgeting Each ABC cost pool has its own unique measure of activity Traditional cost systems rely on volume measures such as direct labor hours andor machine hours Activity 0 An event that causes the consumption of overhead resources Activity cost pool 0 Cost bucket in which costs related to a single activity measure are accumulated Two common types of activity measures 0 Transaction driver 0 Duration driver How costs are treated 5 classi cations 0 Unit level activity 0 Batch level 0 Organizational o ldk 0 U should check Characteristics of successful ABC Implementations Strong top management support 0 Link to evaluations and rewards Crossfunctional involvement Examples of activity cost pools Customer orders 0 Design changes 0 Order size 0 Other 0 All categories vary by organization Assign overhead costs to activity cost pools Assign overhead costs to activity cost pools Determine POH rate for each pool and apply Calculate activity rates 0 Basic framework for budgeting Budget 0 Detailed quantitative plan for acquiring and using nancial and other resources over a speci ed forthcoming time period Act of preparing a budget is called budgeting Budgetary control 0 Use of budgets to control an organization39s activities 0 Planning Involves developing objectives and preparing varius budgets to achieve those objectives 0 Control Involves the steps taken by management to increase the likelihood that the objectives established through planning are attained 0 Responsibility accounting Managers are held responsible only for items that they can actually control to a signi cant extent Allows organizations to react quickly to deviations from their plans and to learn from feedback 0 SelfImposed Budget Budget that is prepared with the full cooperation and participations of managers at all levels 0 Should be reviewed 0 Human factors in Budgeting Enthusiastic and committed Budget shouldn39t be used to pressure or blame Highly achievable budget targets 0 Master Budget Overview 0 Question on cash receipt from account receivable on test 0 Three estimatesassumptions What are budgeted unit sales What is the budgeted selling price per unit What percentage of accounts receivable will be collected in the current and subsequent periods 0 In Excel Budget Assumptions tab 0 Expected cash collections Collection pattern determines amount to be accounted in each month 0 Expected cash collections 0 Production Budget 0 Must be adequate to meet budgeted sales and to provide for the desired ending inventory 0 Direct Materials Budget


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