Summer 2014 ACG 2071 Exam 1 30 questions Friday May 23 2014 3 35 5 35 102 HCB Chapter 1 2 Conceptual Questions Users of accounting information Internal Users within organization managers External Users outside of organization investors creditors Financial accounting vs managerial accounting Financial external users has to comply with GAAP company wide reporting historical summarizes at the end of the accounting period Managerial internal users non GAAP divisional departmental reporting as needed not during a specific time period more future oriented Uses of managerial accounting information Assist with the 1 planning 2 controlling 3 evaluating 4 decision making functions of management Chapter 2 9 Questions Mix of Conceptual Cost behavior refers to the way a cost behaves or reacts to changes in activity level Variable costs vary in total constant on per unit basis Ex cost activity 1000 units 4 300 0 06 unit 2000 units 8 600 0 06 unit 3000 units 12 900 0 06 unit Changes in total as the cost driver activity changes Changes in direct proportion to changes in cost driver activity i e as activity increases by 10 we would expect a 10 increase in cost Fixed costs constant in total decreases on per unit basis does not change in total as the cost driver activity changes Ex 1000 units 12 000 600 unit 2000 units 12 000 300 unit 3000 units 12 000 200 unit Step costs change but for every so many units They remain constant for a small range of activity but then changes abruptly once outside of that range of activity Basically stays constant until a certain amount then abruptly changes Ex 25 for every 100 cups Cost does not increase for every cup but rather for every 100 cups so if you needed 125 cups you would half to buy 200 cups since you can not buy a portion of the package Mixed costs have a fixed and variable component Fixed component remain constant variable component varies as the cost driver activity varies Ex An old cell phone bill 25 per month 0 10 per long distance minute Cost estimation cost functions a way to separate mixed costs into the variable and fixed components via a scatter graph the high low method or regression analysis cost function y mx b equation of a line used to estimate or predict future costs at various levels of activity y total cost m variable cost per unit x activity level or of units b total fixed costs Scatter graph visual fit method the line cost function is placed through the data where the user thinks it fits best The user is basically eye balling where they think the line should be drawn High low method the line cost function is placed so that the data point at the highest and lowest activity points are connected The variable cost per unit of cost driver activity is then calculated followed by the fixed costs line is placed through the points with the highest and lowest ACTIVITY level When using the high low method 1 pick the highest and lowest two data points based on activity 2 find the variable costs cost activity 3 find the fixed costs by plugging in either the high points of the cost and activity OR the low points of the cost an activity in y mx b and solve for b 4 estimate future costs using your cost function you found Regression analysis use of statistical data software in order to derive a cost function from all historical data available best method for determining the cost function because it uses all of the data and removes subjectivity Income statement formats GAAP format vs contribution margin format GAAP Sales Cost of Goods Sold Gross Margin Selling and Administrative Expenses Operating Income Contribution Margin Format Sales Variable Costs Contribution Margin Fixed Costs Operating Income Chapter 3 10 Questions 2 Conceptual Cost volume profit analysis Sales Variable Costs Fixed Costs Operating Income Breakeven analysis the point at which revenues equal expenses and incoming is equal to zero there is no profit or loss can be calculated via the equation method the contribution margin technique or the contribution margin sales technique contribution margin technique Sales VC FC 0 contribution margin technique fixed expenses CMper unit ex Sales 300 100 FC 4000 o o o VC 1 80 60 40 CM 1 20 Sales VC FC 0 S 6S 4000 0 4S 4000 0 S 4000 4 S 10 000 Businesses like the break even point to be lower not higher Margin of safety the difference between the break even point and the current level of sales Tells how much the sales can drop before we start to lose money Current sales Break even sales Margin of safety Margin of safety Current sales of sales Target operating income calculates the of units sold to achieve a certain operating income Sales VC FC Operating Income Plug in target Op Inc Target net income a particular operating income less income taxes if a target net income is desired we can translate that into a target operating income any time you have a net income transform is into operating income Net income 1 tax rate Operating Income if a problem gives a tax rate its is probably looking for how many units you have to sell to reach a target net income What if analysis based on changes in sales price per unit If sales price goes down CM per unit goes down SO you need to sell more to reach the B e point and vice versa based on changes in variable costs per unit If the variable cost per unit goes down CM goes up SO you can sell less to reach the B e point based on changes in fixed expenses If fixed costs go up everything else remains constant but you will have to sell more to B e because the B e point goes up Multiproduct CVP analysis products you sell more of weigh heavier when determining the VC of operating expenses CMproduct 1 CMproduct 2 CMproduct 3 FC Op Inc Pricing higher the price lower the demand Cost plus pricing a markup is added to the cost of producing the product or providing a service so that the company can cover its operating costs and earn profit Cost Markup Sales price Sales Price Cost Cost Markup Markup Markup Cost Margin Margin Sales Gross Margin sales COGS Markup sales COGS Target costing an approach to pricing in which the company does research to determine the price that customers are willing to pay The company will then determine the max cost that can be incurred to produce the product or provide the service at the market price Sales COGS gross margin Gross margin GM Sales Chapter 4 9 Questions Mix of Conceptual Cost classifications Product cost COGS DM DL OH Prime costs DM DL Conversion costs DL OH OH indirect manufacturing
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