ACCT 2120 1st EditionExam # 3 Study Guide Lectures: 7-9Lecture 7 (March 25th- 30th)Cost-Volume-Profit AnalysisWhat is considered cost behavior? How is this determined? How is this useful to managers performing cost-volume-profit analysis?Cost Behaviors:Fixed costs:o A cost that remains unchanged in amount when the volume of activity varies from period to period within a relevant range.Variable costs:o A cost that changes in proportion to changes in volume of activity. (Ex. The direct materials cost of a product).Mixed costs:o A cost that behaves like a combination of fixed and variable costs.Step-wise costs:o These are costs that remain fixed over limited ranges of volumes but changes by a lump sum when volume changes occur outside these limited ranges.Curvilinear costs:o A cost that changes with volume but not at a constant rate.The various Costs estimates are determined using:- Scatter Diagrams: this is a graph used to display data about past cost behavior and sales as points on a diagram.- High-Low Method: this procedure yields an estimated line of cost behavior by graphically connecting costs associated with the highest and lowest sales volume.- Least-Squares Regression: this statistical method for deriving an estimated line of cost behavior that is more precise than the high-low method and the scatter diagram.The Purpose of performing a Cost-Volume-Analysis…is to plan and include predictions of the volume of activity, the costs incurred, sales earned, and profits received.*Another common analysis used to reveal a company’s cost structure is the Break-Even Analysis.Break-Even Point: this is the output level at which sales equals fixed plus variable costs; where income equals 0.Break-even point in units = Fixed Costs Contribution Margin per unitBreak-even point in dollars = Fixed Costs Contribution Margin ratioLecture 9 (April 1st -6th) Master Budgets and PlanningWhat is the importance of budgeting? What is a master budget?*The goal of budgeting is to provide standards for evaluating performance and this can also affect the attitudes of employees evaluated by them.The budgeting process has three important guidelines: 1. Employees affected by a budget should be consulted when it is prepared.2. The goals reflected in a budget should be attainable.3. Evaluations should be made carefully with opportunities to explain any failures. Master Budget:- This is a comprehensive business plan that consists of specific plans for product units to be produced, expected sales, plant assets to be purchased, merchandise to be purchased, expenses to be incurred, and amounts of cash to be borrowed or loans to be repaid, along with a budgeted income statement and balance sheet.Lecture 3 (April 8th- 13th)Flexible Budgets and Standard CostsWhat is a flexible budget? What’s a variance analysis? What’s are standard costs? How is each used to better control and monitor business activities?Flexible Budget:- This is a budget prepared once a period is complete that helps managers evaluate past performance; it uses fixed and variable costs in determining total costs.Variance Analysis:- This is the process of examining differences between actual and budgeted revenues or costs and these are described in terms of price and quantity differences.o The price variance is the difference between actual and budgeted revenue or costs and is caused by the difference between the actual price per unit and the budgeted price per unit.o The quantity variance is the difference between actual and budgeted revenue or costs and is caused by the difference between the actual number of units and thebudgeted number of units.Standard Costs:- These are costs that should have been incurred under normal conditions to produce a product or component or to perform a