I was sick all last week and these notes were exactly what I needed to get caught up. Cheers!
Exam 2 Review
Chapter 6: Activity Analysis, Cost Behavior, and Cost Estimation Conceptual – 4 : Graph – 4 : Computational – 2
Cost Behavior – managers have to know how costs will be affected by changes in activity.
Cost Estimation – process of determining cost behavior – how particular cost behaves.
o Often focuses on Historical Data.
Account Classification Method
∙ Cost estimates are based on a review of each general
ledger account making up the total cost being analyzed.
∙ Used for semi-variable costs or if the analyst has no clear idea about the behavior of a cost item
∙ Difference between the COSTS corresponding to the
highest and lowest activity levels / difference between the
highest and lowest ACTIVITY levels = Variable Cost per
Dozen Bakery Items
Cost Prediction – using knowledge of cost behavior to forecast level of cost at a particular activity level.
o Focuses on the Future.
Types of Costs:
o Step-Variable Costs
Total cost increases to a new higher cost for the next higher range of activity
Total cost remains constant within a NARROW range of activity o Step-fixed Costs
Total cost doesn’t change for a wide range of activity, and then jumps to a new higher cost for the next higher range of activity Step variable costs can be adjusted more quickly and the width of the activity steps is much wider for the step-fixed costs
o Semi-Variable (Mixed) Costs
Advertisements and Research & Development
∙ Cost amount of month/broadcast hours during month = Cost per Broadcast Hour for Month
∙ Total Amount incurred for Cost
o Variable = Cost x Hours
o Fixed = Stays the Same
∙ VC per ____ = Difference in high-low cost/Difference in high-low activity ∙ FC per month = Cost - Activity Level x VC
Chapter 7: Cost Volume Profit Analysis
Conceptual – 6 : Computational – 4 If you want to learn more check out What does Epiphenomenalism mean?
o It provides management within comprehensive overview of the effects on cost revenue.
o Total Revenue = linear
o Total Expenses = linear over relevant range
Can be fixed, variable or semi-variable.
o Sales Mix – the relative combo (proportion) that a company’s products are sold.
Break Even Point – the level of activity where total revenues equal total expenses (variable and fixed).
Total Contribution Margin – the amount of revenue available to cover fixed costs.
Weighted-Average Unit Cost Margin - The average of the several products unit contribution margins, weighted by the relative sales proportion of each product.
Contribution Margin Income Statement - the contribution format highlights the distinction between variable and fixed expenses.
∙ Total Sales Revenue – Total Variable Expense = Total Contribution Margin ∙ Break Even Point in Units = Fixed Expenses / Contribution Margin per Unit (Sales Price – VC per Unit)
o To find Target Profit add Target Profit to Fixed Expenses in
Numerator We also discuss several other topics like what is city democracy?
∙ Break Even Point in Dollars = Fixed Expenses / Contribution Margin Ratio o To find Target Profit add Target Profit to Fixed Expenses in
∙ Contribution Margin Ratio = Contribution Margin per Unit / Sales Price per Unit
∙ Safety Margin = Budget Sales Revenue – Break-even Sales Revenue ∙ Weighted Average Contribution Margin = SUM(Contribution Margins * Sales Mix)
Chapter 8: Variable Costing and the Costs of Quality
Conceptual – 3 : Graph – 3 : Computational – 3
In a manufacturing firm, two alternative accounting treatments of fixed manufacturing overhead can result in different reported income amounts for the company.
Absorption Costing – a system of accounting for costs in which BOTH fixed and variable production costs are considered product costs.
Variable Costing – a system of cost accounting that only assigns the variable cost of production to products.
Grade vs. Quality: We also discuss several other topics like What drug did Dennis Quaid's twins receive at too high of a dose?
If you want to learn more check out what is Marketing Concept?
o A product’s grade refers to the extent of its capabilities in performing intended purpose, in relation to other products with the same
o Quality of Design – how well it is conceived or designed for its intended use.
o Quality of Conformance – the extent to which a product meets the specification of its design.
Four Types of Quality Costs:
o Prevention Costs – costs of preventing defects.
o Appraisal Costs – costs of determining whether defects exist. o Internal Failure Costs – cost of repairing defects found prior to product delivery.
o External Failure Costs – those costs incurred after product delivery. Computational
∙ Shortcut Method:
o Change in inventory in units (Difference of Sales over Years)
* Predetermined Fixed-Overhead Rate per unit (FMO/Production) = Difference in fixed overhead expensed under absorption and variable costing We also discuss several other topics like What is Buffalo Jump?
If you want to learn more check out Why do astronomers believe that the angular momentum problem is no longer an objection to the solar nebula problem?
∙ Prevention Costs + Appraisal Costs = Internal + External Failure Costs ∙ When Sales > Production = Variable Costing
∙ When Production > Sales = Absorption Costing
∙ Variable Costing – Inventorial Cost
DM used + DL + VMO
∙ Absorption Costing – Inventorial Cost
DM used + DL + VMO + FMO
∙ Operating Income – Absorption
o Sales Revenue – Cost of Goods Sold = Gross Margin
o Gross Margin – Selling and Administrative Expenses (Fixed and Variable) = Operating Income
∙ Operating Income – Variable
o Sales Revenue – Variable Expenses (Variable Manufacturing Overhead and Variable Selling and Administrative) = Contribution Margin o Contribution Margin – Fixed Expenses (FMO and FS&A) = Operating Income