Chapter 1 (1 question- 1 conceptual)• Managerial accounting: for internal users (managers) & non-GAAP• Financial accounting: for external users (investors) & complies with GAAPChapter 2 (3 questions- 1 conceptual)-Cost Behavior:• Variable costs: varies in total as the cost driver changes, but stays constant per unito Ex: fabric cost for store, coffee beans for Starbucks, hard drives for computer store• Fixed costs: fixed in total as the cost driver changes but varies per unito Ex: rent, depreciation, manager’s salary, advertising costs• Step costs: remains constant for small range of activity but changes abruptly once outside that rangeo Ex: costs of packages consisting of 100 cups (must buy an entire pack even for 1 more cup)o Can be variable (graph with small steps) or fixed (graph with long steps)• Mixed costs: has both a fixed and variable component o Ex: phone bill has a flat rate plus 10 cents per minute-Cost Estimations/Functions:Y = M X + B• Scatter graph (visual fit) method: eyeballing where a line would fit best using points on a graph• High-Low method: use highest and lowest data points based on activityo Slope (m)= change in cost ÷ change in activityo Plug in either the high or low point to find B (total fixed costs)o Plug in estimated # of units for X to find Y (total costs)• Regression analysis: uses statistical software to derive a cost function from all the historical data availableACG2071 FINAL STUDY GUIDETotal CostTotal Fixed Costs# of unitsVC per unit-Income Statement Formats:Chapter 3 (4 questions- 1 conceptual)-Cost-Volume Profit Analysis• Break-even point: when revenues equal expenses and income is equal to zeroo Equation Method: Sales – Variable Costs – Fixed Costs = 0 Sales($)X – VC per unit($)X – FC = 0 (X= units needed to break even) Units X sales price per unit = total sales needed to break eveno Contribution Margin Technique: Fixed Costs ÷ CM per unit = Break-even point in units Fixed Costs ÷ CM% = Break-even point in dollars• Margin of Safety: how much money we can drop before starting to lose moneyo Current Sales – Break Even Sales = Margin of Safety• Target operating income: o Sales – VC – FC = Target OIo FC + Target OI ÷ CM per unit = units that must be sold to earn target OIo FC + Target OI ÷ CM% = sales in dollars needed to earn target OI• Target net income:o Operating income = Net Income ÷ (1 – tax rate)• What if analysis: o If VC per unit decreases, CM increases, and break-even point decreasesGAAP FormatSales revenue- Costs of Goods SoldGross Margin- Sales & Administrative ExpensesOperating Income Contribution Margin FormatSales revenue- Variable CostsContribution Margin- Fixed CostsOperating Incomeo If VC per unit increases, CM decreases, and break-even point increaseso If SP (sales price) per unit decreases, CM decreases, and break-even point increaseso If SP per unit increases, CM increases, and break-even point decreaseso If FC increases, break-even point increases• Multiproduct CVP analysis:o (CM for Product 1)X + (CM for Product 2)X + (CM for Product 3)X – FC = OIChapter 4 (3 questions- 1 conceptual)• Direct costs: can be easily traced to product (VC)o Direct material: leather for car company, food in microwavable dinners, foam for sofao Direct labor: factory workers’ wages• Indirect costs: not easily traced back to product (VC & FC) o Manufacturing overhead: cleaning crew for factory, utilities costs, depreciation, factory property tax• Product costs: don’t show up on income statement until product is sold and becomes a period cost (VC & FC) o Prime costs (DM + DL) + Conversion costs (DL + M.OH)• Period costs: associated with selling of the product and administration of business (VC & FC)o S & A costs: advertising, shipping, commission, wages of security at store • Product cost flows:o Raw materials inventory Work in process Finished goods inventory CGS (on inc. statement)DM+ DL+ M.OHTotal Manufacturing Costs+ Beg. Work in Process- Ending Work in ProcessCosts of Good Manufactured+ Beg. Finished Goods Inventory- Ending Finished Goods InventoryCosts of Goods Sold• Applying overhead: o Predetermined Overhead Rate= Budgeted OH Cost ($) ÷ Budgeted Activity Base Levelo (Predetermined OH Rate) X (Amount Applied) = OH Costs Applied• Disposing of under or over applied overheado If M. OH has debit balance, there is under-applied OH and must increase CGS CGS XX M. OH Control XXo If M.OH has credit balance, there is over-applied OH and must decrease CGS M. OH Control XX CGS XXo When amount over or under applied is large, must prorate (allocate) amount to all accounts (WIP, FG, and CGS)Chapter 7 (1 question)• Activity Based Costing: make one allocation rate for each cost pool (unlike ch. 4’s general rate) o Individual Activity (Allocation) Rate = Activity Cost ÷ Activity Level/Units (all products together)o (Activity rate) X (Cost driver) = Allocated OH for that activity of that producto Total OH allocation ÷ # of units = OH cost per unito OH cost per unit + DL per unit + DM per unit = unit product costChapter 8 (5 questions- 1 question for each decision)• Special Order Pricing (must have excess capacity): o Compare incremental CM (amount firm would make from special order – relevant costs)o If the incremental CM is positive, then accept the special order• Outsourcing (“make or buy”): only use relevant informationo Compare OI of making product (include avoidable & opportunity costs) and OI of buying ito If OI of making it > OI of buying it, then make the product and vice versa• Allocating Constrained Resources: like cash, hours, or facilitieso Prioritize the activities based on highest CM per constrained resource CM per constrained resource= CM per activity ÷ hours requiredo Allocate as many constrained resources as you can towards the activity with the highest CM per constrained resource, then to the 2nd, etc. until resources are exhausted• Keep or Eliminating Operations:o Find the Segment Margin= CM – Direct (Avoidable) Fixed Costso If segment margin is negative, eliminate operationo If elimination leads to expansion of other segment: Incremental CM from expansion – segment margin of operation being eliminated If it is negative, do not eliminate• Sell “As Is” or Process Further: only use relevant information
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