Week 3- Chapter 3 Cost Accounting
Week 3- Chapter 3 Cost Accounting Acct 3323
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This 4 page Class Notes was uploaded by Laura Notetaker on Friday September 11, 2015. The Class Notes belongs to Acct 3323 at University of Texas at El Paso taught by Marjorie A Marinovic in Fall 2015. Since its upload, it has received 75 views. For similar materials see Cost Accounting in Accounting at University of Texas at El Paso.
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Date Created: 09/11/15
Week 3 Notes Costvolumepro t CVP analysis is used to study the behavior of and relationship among these elements as changes occur in the number of units sold the selling price the variable cost per unit or the xed costs of a product Decision making process Identify the problem and uncertainties Obtain information Make predictions about the future Make decisions by choosing among alternatives Implement the decisions evaluate performance and learn The only numbers that change from selling different quantities of packages are total revenues and total variable costs The contribution margin is the difference between total revenues and total variable costs It indicates why operating income changes as the number of units sold changes When contribution margin is calculated be sure to subtract all variable costs Contribution margin per unit is a useful tool for calculating contribution margin and operating income Contribution income statement is called like that because it groups costs into variable costs and xed costs to highlight the contribution margin Contribution margin percentage is the contribution margin per dollar of revenue Where there is only one product we can divide both the numerator and denominator of the contribution of the contribution margin percentage equation by the quantity of units sold and calculate the contribution margin percentage Expressing CVP relationship The equation method selling price x quantity of units soldvariabe cost per unit x quantity of units sold xed costs operating income The contribution margin method Contribution margin per unit x quantity of units sold xed costs operating income The graph method This method helps managers visualize the relationship between total revenues and total costs Two things that need to plot 1 total costs line and 2 total revenue line Week 3 Notes The pro t or loss at any sales level can be determined by the vertical distance between the two lines Costvolumepro t assumptions 1 Changes in revenues and costs arise only because of changes in the number of product units sold Revenue driver is a variable such as volume that casually affects revenues 2 Total costs can be separated in to two components a xed components that does not vary with units sold and a variable component that changes based on units sold 3 When represented graphically the behaviors of total revenues and total costs are lines in relation to units sold within the relevant range 4 Selling price variable cost per unit and total xed costs are known and constant The shorter the time horizon the higher the percentage of total costs considered xed Breakeven point BEP is that quantity of output sold at which total revenues equal total costs the quantity of output sold results in 0 operating income Target operating income One approach to nd the target operating income is to plug in different quantities and check when operating income is equal to the desired operating income Another method is to use this equation Operating income contribution margin percentage x revenues xed costs The PV graph shows how changes in the quantity of units sold affect operating income One point M is the operating loss at 0 units sold and the second convenient point is N is the breakeven point Net income is operating income plus nonoperating revenues minus nonoperating costs minus income taxes The key step is to take the target net income number and convert it into the corresponding target operating income number Sensitivity analysis is a quotwhat ifquot technique managers use to examine how an outcome will change in the original predicted data are not achieved or if an underlying assumptions changes Uncertainty is the possibility that an actual amount will deviate from an expected amount Week 3 Notes CVPbased sensitivity analysis highlights the risks and returns as xed costs are substituted for variable costs in a company39s cost structure Operating leverage describes the effects that xed costs have on changes in operating income as changes occur in units sold and contribution margin Sales mix is the quantities that constitutes a company39s total unit sales The gross margin measure how much a company can charge for its products over and above the cost of acquiring or producing them Contribution margin indicates how much of a company39s revenues are available to cover xed costs and it help assessing the risk of losses These two concepts differ in two ways xed manufacturing costs and variable nonmanufacturing costs Gross margin percentage is the gross margin divided by the revenues Formulas Contribution margin total revenues total variable costs Contribution margin per unit Selling price variable cost per unit Contribution margin contribution margin per unit x number of units sold Operating income Contribution margin xed costs Contribution margin percentage or contribution margin ratio Contribution margin revenues Contribution margin Contribution margin percentage x revenues Operating income contribution margin percentage x revenues xed costs Contribution margin percentage Contribution maroin per unit Selling price Change in contribution margin contribution margin percentage x change in revenues Revenues needed to earn target operating inmme Fixed mc rc 4 Tamar ooeratino income Contribution margin percentage Target net income target operating incor Margin of safety Budgeted revenues bre Margin of safety in units budget sales ql Degree of operating leverage Contribution margin operating income Breakeven point in bundles Fixed costs contribution margin per bundle Week 3 Notes Gross margin Revenues cost of goods sold Gross margin percentage Gross margin Revenues Contribution margin percentage per bundle Contribution margin per bundle revenue per bundle Breakeven revenues Fixed costs contribution margin for the bundle Number of bundles required to be sold to break even breakeven revenues revenues per bundle