ACCT 2020 1nd Edition Final Exam Study Guide Chapters 1 7 9 12 8 I Chapter 1 Managerial Accounting II Three primary functions of managers o Planning Establish goals specify how goals will be achieved Develop budget o Controlling How are things going 1000 dollar revenue goal 2 weeks into the month revenue only 200 Either they are doing something wrong or they have made an improper goal The controlling function gathers feedback to ensure plans are being followed Feedback in the form of performance reports that compare actual results to projected goals o Decision Making What should we be selling Who should we be serving How should we execute Chapter 2 Managerial Accounting Cost Concepts What are the three manufacturing costs o Direct materials Raw materials that become an integral part of the product and that can be conveniently traced directly to it Ex Flour for the loaf of bread o Direct labor Those labor cost that can be easily traced to the individual units of the product Ex Wages paid to bakers o Manufacturing overhead Costs that cannot be easily traced to the specific units produced basically everything else If it relates to the manufacturing of the product Manufacturing Overhead also can be split into several costs Indirect material used to support production like lubricants and cleaning supplies for machines or equipment Indirect labor wages paid to laborers not directly involved in production ex supervisors janitors etc The building the lighting the desks the utilities o Products costs Include direct materials direct labor and manufacturing overhead What are nonmanufacturing costs o Period costs Include all selling costs and administrative costs Selling costs costs necessary to secure the order and delivery of the product Administrative costs all executive organizational and clerical costs What are variable costs and what are their characteristics o Variable costs vary in total in direct proportion to changes in the level of product produces In some cases you total texting bill if not on plan is bases on how many texts you send 1text 10ct so 5texts 50cents The cost per unit remains constant What are fixed costs and what are their characteristics o Fixed costs remain constant and total regardless of changes in the level of activity A monthly cellphone contract that is unlimited would be constant In this case cost per unit varies inversely with changes in activity If you talk 1 minute then my cost per minute is 60 min If I talk 10 minutes then my cost per minute is 10 min fixed costs often having a relevant range For example if a company needs 1020 square feet and the only options are 1000sqft 2000sqft or 3000sqft they must take the available option of 2000sqft This creates different thresholds which has a flat relative range If they needed 2500sqft they would then need to go to the 3000sqft range Activity level does NOT affect these costs What are prime conversion costs o Prime costs vary directly with the amount of product produced Direct materials Direct Labor while conversion costs are those required to turn raw materials into sellable goods Labor overhead Hi low method o Portion that s mixed vs portion variable o Find the month with the highest and lowest with activity o Change in cost 9800 7400 2400 6 hr Change in activity 850hrs 450hrs 400hr What are a traditional a contribution income statement o Traditional is generally for external reporting you have Sales COGS gross margin selling admin net operating income while the Contribution format explicitly tells us what the constitution margin is and is used primarily used internally by management Sales variable expenses contribution margin fixed expenses net operating income What are direct indirect costs o Direct costs can be easily and conveniently traced to a unit of product or other cots object Ex room service drinks directly related to guest salary of the head chef is a direct cost to the hotel s restaurant Room cleaning supplies in relation to the housecleaning department towels used in the gym are a direct cost for the gym Indirect costs cannot be easily and conveniently traced to a unit of product or other cost object Ex salary of the Head chef is indirectly related to one particular customer cost of cleaning supplies for a particular hotel guest flowers for the reception related to a particular guest wages of the doorman related to a particular guest fire insurance indirectly relates to the hotel s gym What are opportunity costs sunk costs o Opportunity Cost is the potential benefit that is given up when one alternative is selected over another For example if you were not attending college you could be earning 15 000 yr your opportunity cost of attending would be 15 000 o Sunk Costs have already been incurred and cannot be changed now or in the future These costs should be ignored when making decisions Suppose you had purchased gold for 400 an ounce but now it is selling 250 ounce So you should consider what you could possibly get for it in the future because you can t change the past III Chapter 3 Cost Volume Profit Relationships What is contribution margin o The percent of sales that end up being part of the contribution margin o Contribution margin Sales variable expenses What is contribution ratio o Contribution margin ratio is the percent of sales that end up being part of the contribution margin o Overall CM Ratio Total CM Total Sales Understand what happens to contribution margin as sales revenue increases o An increase in the contribution margin ratio determines how much the operating income will also increase assuming the fixed expenses stay the same How do fixed costs react as revenue increases o Fixed costs remain unchanged if at same activity range Breakeven calculations sales units o The breakeven point is when the fixed expenses the contribution margin o 0 200 x Q 80 000 80 000 200 x Q 80 000 200 Q 400 Q Target profit analysis sales units 1 Equation method o Profit unit CM x q fixed expenses Our goal is to solve for the sales quantity Suppose management wants to know how any bikes must be sold to earn a target profit of 100 000 o 100 000 200 x Q 80 000 100 000 80000 200 x Q Q 100 000 80 000 200 Q 900 2 Formula Method we can calculate dollar sales needs to attain a target profit net operating income o o Uses the following equation Target profit fixed expenses CM per unit What is margin of safety o Margin of safety MOS total sales break even sales o Can also be expressed as a percentage o Margin of