DOC PREVIEW
UNT ACCT 2020 - Exam 3 Study Guide
Type Study Guide
Pages 10

This preview shows page 1-2-3 out of 10 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 10 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 10 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 10 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 10 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

I. Are costs/ benefits are relevant / irrelevant for a decision?II. Should we add or drop a segment?III. Should we make or buy a component?IV. Do we accept the opportunity to make a special order?V. How do we want to use a constrained resource?VI. Increase the constrained resource? At what cost?VII. Sell or continue to produce a component of joint product?VIII. Special Order SalesIX. Constrained resourcesX. Constrained Resource Increase?XI. Sell or continue to produce a component of joint product?I. Steps and PurposeXII. What Are Variances?XIII. Application of ConceptsXIV. ExamplesI. BudgetingXV. ExamplesExam # 3 Study Guide Chapters 7,9,10Chapter 7 (Master Budgets)I. Are costs/ benefits are relevant / irrelevant for a decision?- Which costs and benefits are relevant or irrelevant for a decision? o Relevant cost is something that is different between alternative and irrelevant costs are the same between alternatives. If something is unavoidable than it is irrelevant, Fixed costs. Sunk costs and future costs that we cannot change are irrelevant.- We’ve touched on this a bit, we only want to evaluate things that are different between the two to helpsimplify to two. Differential costs/benefits are relevanto Make sure you are evaluating costs for current decision at hand. - Using this differential approach saves us time instead of organizing a whole income statementII. Should we add or drop a segment?- This will look similar to chapter 5, but we will compare fixed cost savings to the contribution margin we will lose from that segment. We need to be saving enough money to make up for the lost contribution margin for the segment to be dropped.o Depreciation is a sunk cost, unless relevant. Regardless of what method, we will still see depreciation as irrelevant. o Why should we keep a segment if showing a loss? Common costs, when allocated, can alter the finding and amount of profitability. III. Should we make or buy a component?- Sometimes they need to decide if they should manufacture a component or outsource this component.Is it worth their while to make the component? When evaluating, we want to compare costs we could avoid by buying it. We compare avoidable and opportunity cost to the purchase price.o We only want to consider costs that we would NOT need to pay if we don’t make the component. ONLY VARIABLE, depreciation will not go away unless it had a resale value. IV. Do we accept the opportunity to make a special order?- Lets say a bike company could sell their product in bulk to another company at a lower offer. 5000 for 200 bikes is that worth it to us and will it cover our costs? WE want to compare the sales price for the ACCT 2020 1nd Editionspecial order to the incremental cost of supplying this order. We want to ignore unavoidable costs, so do not consider FIXED costs, only incremental. o Opportunity cost is considered. Not actually cash outlays, not in accounting information. For apple, it makes more sense to buy, so that they can devote more money to design. V. How do we want to use a constrained resource?- Company has a very large demand for its products, given the current level of resource, there’s no way we can saturate the demand. So which products do we emphasis? Whichever is most profitable per constrained resource and produce that product. Say employee resource is constrained, which product will employees work on first? Produce the product with the highest contribution margin per unit of the constrained resource. So, for example we would look at contribution margin / per labor hours. Focus onthis product UP TO DEMAND FOR THAT PRODUCT and then focus on the next most profitableVI. Increase the constrained resource? At what cost?- One obvious option is to allow overtime, is it worth it though? Is the money they will bring in greater than the increased cost? We should be willing to pay up to the contribution margin per unit of the constrained resourceVII. Sell or continue to produce a component of joint product?- This is about the option of using a raw material to produce both products or produce one. What’s the current selling price compared to the incremental profit of that product, once again not taking into consideration fixed costs. o (Incremental revenue-incremental cost)VIII. Special Order Sales- Special order sales need to assume that by lowering the sales to one person we do NOT lower the sales price to another person. Doesn’t affect the number or any other profits. Fixed expenses will exist regardless of special orders. Need to make sure they are in their current capacity, if not than the fixed expenses will also increase. - All we want to look at is the incremental cost, because fixed costs will not change. So look at the variable cost per unit compared to the price per unit offered by the customer. - (Variable expenses + extra fixed expenses) /# of units = minimum price/unito (100,000+50,000) / 10,000 = $15/unito Can also be (variable expense per unit + cost of extra fixed expenses per unitIX. Constrained resources- A constraint, or bottleneck, is a limited resource of some type that limits production, could be anything.A certain machine that has a max amount of hours or workers time, etc. allocation of the constrained resource is unaffected by fixed costs. o We are interested on the amount of time each product requires of the constraint. So in the example we see that in one minute we can produce one unit of product one and 2 units of product two. What generates more profit? Well if product two produces twice the units at a 15$than just one unit of product at 24$, so makes more sense to produce more of product 2. We first want to focus on product two. Make as many of product 2 as the demand will sustain. o So we produce 2200 units, the demand, for product 2 and the remaining minutes are used for product 1. This is how you maximize profit. X. Constrained Resource Increase?- In the previous problem, the constraint was machine A1, so should we increase the constraint to have more minutes available? Increased capacity of a constrained resource should lead to increased production and sales, this is all assuming that demand is there. o In the last problem, we saw that we had some demand left for product 1. The additional time would be used to make these. So we should be willing to pay UP TO the contribution margin for that product. o Always be willing to pay additionally for more increase of constraint equal to the


View Full Document

UNT ACCT 2020 - Exam 3 Study Guide

Type: Study Guide
Pages: 10
Download Exam 3 Study Guide
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Exam 3 Study Guide and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Exam 3 Study Guide 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?