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Get Full Access to USC - ACCT 226 - Study Guide - Midterm
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USC / Engineering / ACCT 226 / How do you calculate variable cost and contribution margin ratio?

# How do you calculate variable cost and contribution margin ratio? Description

##### Description: This study guide encompasses suggested review topics for Professor Daulton's Exam 2 for ACCT 226
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Study Guide: ACCT 226

## How do you calculate variable cost and contribution margin ratio?

Exam 2: Chapters 5-8

Note: This is a list of suggested study topics.

This is not necessarily an exhaustive list of exam topics.

Chapter 5:

• Know how to calculate the contribution margin, CM ratio, and variable expense ratio.  • Define break-even point.

• Know the 3 assumptions of CVP analysis.

• Understand CVP relationship formulas (e.g. Profit = (Sales - Variable Expenses) - Fixed  Expenses).

• Be able to interpret CVP graphs.

• Know how to use the CM ratio formulas to calculate change in CM or profit.  • Be able to calculate unit sales to break even, dollar sales to break even, unit sales to attain  target profit, and dollar sales to attain target profit.

## How do you calculate fixed costs when sales and profits are given?

• Define margin of safety and be able to calculate MoS percentage and unit margin of safety.  • Define operating leverage and know how to calculate degree of operating leverage, as well as  percent change in NOI using the degree of operating leverage formula.

• Define sales mix.

Chapter 6:

• Understand how product and period costs differ between variable and absorption costing.  • Be able to interpret and/or construct a variable costing income statement and an absorption  costing income statement.  If you want to learn more check out Is the average length of time a person born in a specific year can expect to live?

• Understand the relationship between absorption costing’s and variable costing’s NOIs and the  number of units produced and sold (e.g. which one’s NOI is higher when units produced is  higher than units sold and vice versa).

## How do you find the unit sales to attain target profit?

• Understand how to reconcile absorption costing and variable costing’s NOI when units  produced is greater than or less than units sold.  We also discuss several other topics like What would cause a company's current ratio to decrease?

• Differentiate between traceable fixed costs and common fixed costs in segments.  • Be able to find a segment margin.

• Understand and be able to interpret segmented income statements.

• Be able to calculate dollar sales or unit sales to break even in a segment or company using  traceable and common fixed cost formulas.

• Give examples of negative effects of allocating common fixed costs to segments.  • Know consequences of assigning common fixed costs to segments.

• Know which type of costing—absorption or variable—is used for both external and internal  reporting and why.

Chapter 7:

• Know that: a) both manufacturing and non-manufacturing costs are allocated to products in  activity-based costing (ABC); b) not all manufacturing costs are allocated to products in ABC;  c) unlike job-order costing, ABC has several overhead cost pools.  We also discuss several other topics like What is the outer layer of connective tissue covering the bone called?

• Know that all indirect costs—manufacturing and non-manufacturing—are called “overhead”  in ABC.

• Know that direct non-manufacturing costs are product costs in ABC.

• Define activity, activity cost pool, activity rate, and activity measure.

• Know the five levels of activities (page 290-291).

• Understand first-level and second-level allocation.

• Understand the process of designing an ABC system.

• Know how to assign overhead to products and customers (and which costs are included/ excluded for each).

• Know how to calculate product and customer margins.

• Understand the reasons for differences in products costs between ABC and traditional  (absorption) costing.

• Know the reasons why ABC is not used for external reports, as well as the limitations of ABC.  Chapter 8:

• Define budget, planning, and control.

• Describe the five benefits of budgeting.

• Define responsibility accounting and its uses/benefits.

• Describe a continuous/perpetual budget.

• Define self-imposed/participative budget and advantages to using it.  If you want to learn more check out Why can we only see one layer of the sun's atmosphere?
We also discuss several other topics like Why did egypt originally form as two kingdoms upper egypt and lower egypt?
Don't forget about the age old question of What are the three domains of symptoms of adhd?

• Describe the “order” of budgets (sales budget, then production budget, etc.).  • Know the structure of: sales budget, production budget (or merchandise purchases budget in  merchandising companies), DM, DL, and MOH budgets, ending finished goods budget, S&A  budget, cash budget (including how to calculate ending cash balance when borrowing from and  paying back the bank), the budgeted income statement, and the budgeted balance sheet.

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