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Summer 2014 ACG 2071 - Exam 1Summer 2014 ACG 2071 - Exam 130 questions Friday May 23, 2014 3:35-5:35 102 HCBChapter 1 (2 Conceptual Questions)Users of accounting information- Internal Users- within organization, managers- External Users- outside of organization, investors & creditorsFinancial accounting vs. managerial accountingFinancial- external users, has to comply with GAAP, company wide reporting, historical/ summarizes at the end of the accounting periodManagerial- internal users, non-GAAP, divisional/departmental reporting as needed/ not duringa specific time period, more future orientedUses of managerial accounting informationAssist with the 1.) planning 2.) controlling 3.) evaluating 4.)decision making functions of managementChapter 2 (9 Questions- Mix of Conceptual)Cost behavior- refers to the way a cost “behaves” or reacts to changes in activity levelVariable costs- vary in total, constant on per unit basisEx. Δ costΔ activityChanges in total as the cost driver activity changesChanges 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 changesEx. 1000 units 2000 units 3000 units$4,300 $8,600 $12,900$0.06/ unit $0.06/unit $0.06/unit1000 units 2000 units 3000 units$12,000 $12,000 $12,000$600/unit $300/unit $200/unitStep 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 packageMixed 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 minuteCost estimation (cost functions)- a way to separate mixed costs into the variable and fixed componentsvia 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 andlowest ACTIVITY levelWhen using the high low method: 1.) pick the highest and lowest two data points based on activity2.) find the variable costs Δ costΔ activity3.) 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 b4.) estimate future costs using your cost function you foundRegression 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: Contribution Margin FormatSales Sales- Cost of Goods Sold -Variable CostsGross Margin Contribution Margin- Selling and Administrative Expenses -Fixed CostsOperating Income Operating IncomeChapter 3 (10 Questions- 2 Conceptual)Cost-volume-profit analysisSales- Variable Costs- Fixed Costs= Operating IncomeBreakeven 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 techniqueocontribution margin technique: Sales- VC- FC = 0ocontribution margin technique: fixed expenses/ CMper unitoex. Sales 300 100% FC=4000-VC -1.80 -60%CM 1.20 40%Sales- VC-FC= 0S-.6S-$4000=0.4S-$4000=0S=$4000/.4S=$10,000*Businesses like the break-even point to be lower not higherMargin 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 moneyCurrent sales-Break-even sales Margin of safety/ Current sales = ____% of salesMargin of safetyTarget operating income- calculates the # of units sold to achieve a certain operating incomeSales – VC - FC= Operating Income Plug in target Op IncTarget 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 incomeNet 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 incomeWhat-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 expensesCMproduct 1+ CMproduct 2+ CMproduct 3- FC= Op IncPricing- higher the price, lower the demandCost-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 profitCost+ Markup= Sales priceSales Price- Cost/ Cost = Markup %Markup %= Markup/ CostMargin% = Margin/ SalesGross Margin= sales- COGSMarkup= sales- COGSTarget 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


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