ACG 2071 Final Study Guide • Financial Accounting vs. Managerial Accounting Ch. 1 (1 Question; Conceptual) o Managerial Internal Users Non-GAAP Divisional/departmental reporting as needed Future oriented Reports prepared as needed o Financial External Users Complies with GAAP Company-wide reporting Historical Reports prepared at the end of the accounting period • Cost Behavior- The way a cost reacts to changes in activity levels Ch. 2 (3 Questions; 1 Conceptual) o Cost Drivers- The activity levels that cause costs to change o 4 types of behavior: Variable, Fixed, Step, Mixed • Variable Cost- Any total cost that varies in proportion to a business activity. As the level of activity increases (decreases), the total cost increases (decreases). o Constant on a per unit basis o Varies in total • Fixed Cost- Cost that remains constant in total as the cost driver activity changes o Varies on a per unit basis o Constant in total o Discretionary Fixed Costs- Fixed costs that can be changed over the short run o Committed Fixed Costs- Fixed costs that cannot change in the short run • Step Cost- Cost that remains constant for a small range of activity, but then changes abruptly once outside of that range of activity • Mixed Cost- Cost that has both a fixed component and a variable component • Cost Estimation- Goal is to separate the mixed costs in to the variable and fixed components o 3 methods: Visual fit, Regression Analysis, High-Low Method (only one on the test) o Cost function 𝑦𝑦 = 𝑚𝑚𝑚𝑚 + 𝑏𝑏 y= total cost m= variable cost per unit x= activity level (# of units) b= total fixed cost • High-Low Method o Identify the highest and lowest levels of activity o Compute the variable cost per unit (the slope of the line) 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑏𝑏𝑉𝑉𝑉𝑉 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑝𝑝𝑉𝑉𝑉𝑉 𝑢𝑢𝑢𝑢𝑉𝑉𝑐𝑐 = 𝐶𝐶ℎ𝑉𝑉𝑢𝑢𝑎𝑎𝑉𝑉 𝑉𝑉𝑢𝑢 𝑐𝑐𝑐𝑐𝑐𝑐𝑉𝑉𝑉𝑉 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝐶𝐶ℎ𝑉𝑉𝑢𝑢𝑎𝑎𝑉𝑉 𝑉𝑉𝑢𝑢 𝑉𝑉𝑐𝑐 𝑐𝑐𝑉𝑉𝑡𝑡𝑉𝑉𝑐𝑐𝑦𝑦 o Calculate the fixed cost using either the high point or the low point 𝐹𝐹𝑉𝑉𝑚𝑚𝑉𝑉𝐹𝐹 𝐶𝐶𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 = 𝑇𝑇𝑐𝑐𝑐𝑐𝑉𝑉𝑉𝑉 𝐶𝐶𝑐𝑐𝑐𝑐𝑐𝑐 − 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑏𝑏𝑉𝑉𝑉𝑉 𝐶𝐶𝑐𝑐𝑐𝑐𝑐𝑐 o Complete the cost equation by showing that (𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑏𝑏𝑉𝑉𝑉𝑉 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑝𝑝𝑉𝑉𝑉𝑉 𝑢𝑢𝑢𝑢𝑉𝑉𝑐𝑐 × 𝑈𝑈𝑢𝑢𝑉𝑉𝑐𝑐𝑐𝑐)+ 𝐹𝐹𝑉𝑉𝑚𝑚𝑉𝑉𝐹𝐹 𝐶𝐶𝑐𝑐𝑐𝑐𝑐𝑐 = 𝑇𝑇𝑐𝑐𝑐𝑐𝑉𝑉𝑉𝑉 𝐶𝐶𝑐𝑐𝑐𝑐𝑐𝑐 • Relevant Range- Normal level of operating activity o Cost behavior only works within this range • Contribution Margin vs. Gross Margin o 𝑂𝑂𝑝𝑝𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐𝑉𝑉𝑢𝑢𝑎𝑎 𝐼𝐼𝑢𝑢𝑐𝑐𝑐𝑐𝑚𝑚𝑉𝑉 = 𝑆𝑆𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐 𝑅𝑅𝑉𝑉𝑡𝑡𝑉𝑉𝑢𝑢𝑢𝑢𝑉𝑉 − 𝑇𝑇𝑐𝑐𝑐𝑐𝑉𝑉𝑉𝑉 𝐸𝐸𝑚𝑚𝑝𝑝𝑉𝑉𝑢𝑢𝑐𝑐𝑉𝑉𝑐𝑐 o 𝐺𝐺𝑉𝑉𝑐𝑐𝑐𝑐𝑐𝑐 𝑀𝑀𝑉𝑉𝑉𝑉𝑎𝑎𝑉𝑉𝑢𝑢 = 𝑆𝑆𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐 𝑅𝑅𝑉𝑉𝑡𝑡𝑉𝑉𝑢𝑢𝑢𝑢𝑉𝑉 − 𝐶𝐶𝑂𝑂𝐺𝐺𝑆𝑆 o Contribution Margin- Difference between sales revenue and variable expenses. In other words, it is the amount that remains to cover fixed expenses and provide a profit o 𝐶𝐶𝑐𝑐𝑢𝑢𝑐𝑐𝑉𝑉𝑉𝑉𝑏𝑏𝑢𝑢𝑐𝑐𝑉𝑉𝑐𝑐𝑢𝑢 𝑀𝑀𝑉𝑉𝑉𝑉𝑎𝑎𝑉𝑉𝑢𝑢 = 𝑆𝑆𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐 𝑅𝑅𝑉𝑉𝑡𝑡𝑉𝑉𝑢𝑢𝑢𝑢𝑉𝑉 − 𝑇𝑇𝑐𝑐𝑐𝑐𝑉𝑉𝑉𝑉 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑏𝑏𝑉𝑉𝑉𝑉 𝐸𝐸𝑚𝑚𝑝𝑝𝑉𝑉𝑢𝑢𝑐𝑐𝑉𝑉𝑐𝑐 o 𝐶𝐶𝑐𝑐𝑢𝑢𝑐𝑐𝑉𝑉𝑉𝑉𝑏𝑏𝑢𝑢𝑐𝑐𝑉𝑉𝑐𝑐𝑢𝑢 𝑀𝑀𝑉𝑉𝑉𝑉𝑎𝑎𝑉𝑉𝑢𝑢 𝑝𝑝𝑉𝑉𝑉𝑉 𝑢𝑢𝑢𝑢𝑉𝑉𝑐𝑐 = 𝑆𝑆𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐 𝑃𝑃𝑉𝑉𝑉𝑉𝑐𝑐𝑉𝑉 𝑝𝑝𝑉𝑉𝑉𝑉 𝑢𝑢𝑢𝑢𝑉𝑉𝑐𝑐 − 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑏𝑏𝑉𝑉𝑉𝑉 𝐶𝐶𝑐𝑐𝑐𝑐𝑐𝑐 𝑝𝑝𝑉𝑉𝑉𝑉 𝑢𝑢𝑢𝑢𝑉𝑉𝑐𝑐 o 𝐶𝐶𝑐𝑐𝑢𝑢𝑐𝑐𝑉𝑉𝑉𝑉𝑏𝑏𝑢𝑢𝑐𝑐𝑉𝑉𝑐𝑐𝑢𝑢 𝑀𝑀𝑉𝑉𝑉𝑉𝑎𝑎𝑉𝑉𝑢𝑢 𝑅𝑅𝑉𝑉𝑐𝑐𝑉𝑉𝑐𝑐𝑢𝑢 =𝐶𝐶𝑐𝑐𝑢𝑢𝑐𝑐𝑉𝑉𝑉𝑉𝑏𝑏𝑢𝑢𝑐𝑐𝑉𝑉𝑐𝑐𝑢𝑢 𝑀𝑀𝑉𝑉𝑉𝑉𝑎𝑎𝑉𝑉𝑢𝑢𝑆𝑆𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐 𝑅𝑅𝑉𝑉𝑡𝑡𝑉𝑉𝑢𝑢𝑢𝑢𝑉𝑉=𝐶𝐶𝑐𝑐𝑢𝑢𝑐𝑐𝑉𝑉𝑉𝑉𝑏𝑏𝑢𝑢𝑐𝑐𝑉𝑉𝑐𝑐𝑢𝑢 𝑀𝑀𝑉𝑉𝑉𝑉𝑎𝑎𝑉𝑉𝑢𝑢 𝑝𝑝𝑉𝑉𝑉𝑉 𝑢𝑢𝑢𝑢𝑉𝑉𝑐𝑐𝑆𝑆𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐 𝑃𝑃𝑉𝑉𝑉𝑉𝑐𝑐𝑉𝑉 𝑝𝑝𝑉𝑉𝑉𝑉 𝑢𝑢𝑢𝑢𝑉𝑉𝑐𝑐 Breakeven Analysis Ch. 3 (3 Questions; 1 Conceptual) • Breakeven Point- Sales revenue is exactly equal to total expenses. There is no profit or loss o 3 ways to calculate: Equation method, contribution margin technique, contribution margin ration technique • Equation Method o 𝑆𝑆𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐 − 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑏𝑏𝑉𝑉𝑉𝑉 𝐸𝐸𝑚𝑚𝑝𝑝𝑉𝑉𝑢𝑢𝑐𝑐𝑉𝑉𝑐𝑐 − 𝐹𝐹𝑉𝑉𝑚𝑚𝑉𝑉𝐹𝐹 𝐸𝐸𝑚𝑚𝑝𝑝𝑉𝑉𝑢𝑢𝑐𝑐𝑉𝑉𝑐𝑐 = 𝑂𝑂𝑝𝑝𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐𝑉𝑉𝑢𝑢𝑎𝑎 𝐼𝐼𝑢𝑢𝑐𝑐𝑐𝑐𝑚𝑚𝑉𝑉 o 𝑆𝑆𝑃𝑃𝑚𝑚 − 𝑉𝑉𝐶𝐶𝑚𝑚 − 𝐹𝐹𝐶𝐶 = $0 Use this when solving for units Operating Income is set to “0”
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