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ACG 2071 Exam 3 1 conceptual question vs Chapter 1 Financial Accounting External Users Complies with GAAP Company Wide Reporting Historical Reports prepared at the end of the Accounting Period Chapter 2 3 questions 1 conceptual Managerial Accounting Internal Users Non GAAP Divisional Departmental Recording Future Oriented Reports Prepared as Needed Variable costs a cost that changes in total as the cost driver activity changes Even though the ingredient price stays consistent its total cost changes cost ingredient 0 50 0 50 cookies 100 500 x x x Total costs 50 250 The total costs varies Fixed costs a cost that remains constant in total as the cost driver activity changes Insurance will remain a constant price but when you allocate it to how many cookies are sold it varies Rent cost per cookie 0 30 1 00 0 50 of cookies 5 000 1 500 3 000 Rent 1 500 1 500 1 500 Total cost remains fixed Step costs costs that remain constant for a small range of activity but change abruptly once beyond that range A box of 500 bowls at 50 per box If you need 5 200 bowls so you need 10 4 boxes since you can t purchase a fraction of the box you need to round up to suffice your needed amount of bowls so you order 11 boxes therefore this is a step cost Mixed costs costs that have both a fixed component and a variable component A phone bill you are required to pay a flat fee every month just to have the company s services then you pay additional charges for every minute of long distance calling you make the bill will be a combination of your flat fixed portion and your additional variable charges High low method a cost estimation technique that uses the equation of a line y mx b and a data set s highest and lowest volume points to separate a mixed cost into its fixed and variable components Difference or Change in the Cost and Activity Select the two data points based on the highest and lowest activity Cost 600 2 200 1 600 800 Activity 1 600 800 0 70 Income statement formats vs GAAP Format Sales COGS DM DL V OH F OH GM S A Fixed Variable Operating Income Sales Contribution Margin Format VC CM FC Operating Income F OH F S A DM DL V OH V S A DM Direct Materials V OH Variable Overhead F OH Fixed Overhead DL Direct Labor V S A Variable Selling Administration Expenses F S A Fixed Selling Administration Expenses 4 questions 1 conceptual Chapter 3 Breakeven analysis calculating the point at which revenues are equal to expenses so income is equal to zero There are two different ways to calculate breakeven point Easiest way it s basically a shortcut in the Equation Method The Equation Method sales variable exp fixed exp operating income 1 80x 1 20x X 4 000 1 20 X 3 333 number of cookies needed to breakeven 3 00x 4 000 0 4 000 Op Income is equal to 0 at breakeven point 0 Contribution Margin Fixed Expenses CM per unit 4 000 1 20 Breakeven Point in units 3 333 number of cookies needed to breakeven Margin of safety the amount of sales that can be drop before losing money overall The difference between current sales and breakeven sales Breakeven Sales Margin of Safety Current Sales 15 000 10 000 5 000 Target operating income finding the number of units that must be sold to earn a specific operating income Calculate by using The Equation Method or The Contribution Margin Technique 3 00x 4 000 20 000 1 80x 1 20x 4 000 20 000 1 20x 20 000 4 000 X 24 000 1 20 X 20 000 number of cookies needed to have desired op inc Using 20 000 as the target operating income What if analysis Changes in Sale Price per Unit finding a new breakeven point using the equation method substituting for the New price needed to sell product needed sell price Sales Variable Expenses Fixed Expenses Operating Income 2 60x 1 80x 4 000 0 0 80x 4 000 0 0 80x 4 000 x 4 000 0 80 x 5 000 cookies New total amount of products needing to be sold to breakeven Changes in Variable Costs per Unit finding how the breakeven point would be affected if there is a change in New total amount of products needing to be sold to breakeven Changes in Fixed Expenses finding how the breakeven point would be affected if there is a change in the fixed the variable costs per unit Sales Variable Expenses Fixed Expenses Operating Income 3 00x 1 40x 4 000 0 1 60x 4 000 0 1 60x 4 000 x 4 000 1 60 x 2 500 cookies A lower variable cost per unit costs Sales Variable Expenses Fixed Expenses Operating Income 3 00x 1 80x 4 500 0 1 20x 5 000 0 1 20x 5 000 x 4 500 1 20 x 3 750 cookies A higher fixed cost New total amount of products needing to be sold to breakeven Multiproduct CVP analysis formula for whenever a ratio is involved with your data CM CM fixed expenses operating income Say you sell three times more of one product for every one sold of the other product 3 1 ratio sales variable expenses sales variable expenses fixed expenses operating income For Cookies For Milk 1 20 3x 1 40 x 4 000 0 3 60x 1 40x 4 000 0 5x 4 000 0 5x 4 000 x 800 milk cartons 3x 2 400 cookies Chapter 4 2 questions 1 conceptual Cost flows through inventory accounts conceptual Balance Raw materials materials purchased for production that have not yet been used Work in Process products that have been started but not yet finished and Finished Goods products that have been completed but not yet sold Each acct has a basis of Beginning Costs added during the period during the period Looking at the Cost flows through inventory accounts in their T Accounts Predetermined overhead rate a rate used to allocate overhead costs to products as they re being made Work In Process Inventory Beg Bal Used DM DL OH Ending Balance Raw Materials Inventory Beg Bal Used Purchases Ending Balance Finished Goods Inventory Beg Bal Sold transferred Ending Balance Estimated Total Overhead Costs Estimated Total Activity Level Predetermined Overhead Rate Costs removed COGS Sold Ending balance Chapter 7 1 question Activity based costing a costing technique that assigns costs to cost objects such as products or customers based on the activities those cost objects require Make sure you understand what data to use so you don t get tripped up on the layout on the test Activity Rate Method Total Activity Cost Total Activity Cost Driver Activity Allocation Rate Housing Construction Example Read From Left to Right Total Cost Driver Activity 2 000 machine hours 1 000 design eng hours 2 000 mgmt hours Activity Allocation Rate 45 per machine hour 150 per eng design hour 2 500 per …

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