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ACCT Week 6 Notes

by: Rachel Whitbeck

ACCT Week 6 Notes ACCT 226 - 002

Rachel Whitbeck
GPA 4.0

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These notes cover what we went over in class from Tuesday, February 23 through Thursday, February 25. They include information on breaking even, variable costing, and segment reporting tools for ma...
Introduction to Managerial Accounting
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This 2 page Class Notes was uploaded by Rachel Whitbeck on Sunday March 20, 2016. The Class Notes belongs to ACCT 226 - 002 at University of South Carolina taught by Debbie Huguley Brumbaugh in Spring 2016. Since its upload, it has received 11 views. For similar materials see Introduction to Managerial Accounting in Accounting at University of South Carolina.


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Date Created: 03/20/16
ACCT 226 TR 10:05 Tuesday, February 23, 2016  Break even or target profit equations and formulas o Remember: break even is a target profit of ZERO o $ sales to breakeven  0 profit = contribution margin ratio x sales – fixed expenses OR  0 profit = fixed expenses + target profit ÷ contribution margin ratio o Unit sales to breakeven  0 profit = unit CM(Q) – fixed expenses OR  0 profit = fixed expenses + target profit/unit CM o Target profit analysis: same formula as break even but substitute targeting profit amount for zero  Margin of Safety: the excess of budgeted or actual sales dollars over the break-even sales dollars o A part of the sales dollars are going towards the increased variable expenses o If we increase sales, it means we’re increasing activity o Contribution margin is what’s left over from sales after expenses are covered o Actual sales divided by the break even sales  Operating leverage o Measure of how sensitive net operating income is to a percentage change in dollar sales o Degree of operating leverage = contribution margin ÷ net operating income o % change in net operating income = degree of operating leverage x % change in sales  Cost structure and profit stability o Cost structure: relative proportion of fixed and variable costs in an organization o Which cost structure is better—high variable costs and low fixed costs, or low variable costs and high fixed costs?  If we increase fixed expenses, it delays our profit  Exercise 5-9 o To find the impact of an increase in sales, just multiple the percent increase by the degree of operating leverage.  Sales mix o Relative proportions in which a company’s products are sold. o Goal: achieve the combination, or mix, that will yield the greatest profits o Most companies have many products, and often these products are not equally profitable Thursday, February 25, 2016 Chapter 6- Variable costing and segment reporting tools for management  Work in process and finished goods are asset accounts  Answer to first question on powerpoint- absorption  Absorption would have a higher net income  Absorption is used for external reporting, while variable costing is an internal method for management  Example o Using absorption costing, find the unit product cost for one item. o Consider direct materials, direct labor, and variable manufacturing overhead  DO NOT divide by number of units sold; divide the fixed manufacturing overhead by the number of units PRODUCED  Add DM, DL, VMOH to the FMOH/unit (which we got by using the step above) o For the variable costing method, just don’t include the average FMOH.  Only add DM, DL, and VMOH  This will be significantly less than the amount we got using the absorption method


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