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FSU ACG 2071 - Final Study Guide

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Breakeven AnalysisCost-Volume-Profit Analysis (CVP)Applying OverheadActivity Based CostingDecision MakingThe Cash BudgetPro-Forma Balance SheetFlexible BudgetsDirect Materials VariancesDirect Labor VariancesCapital Budgeting DecisionsTime Value of MoneyNet Present Value (NPV)Internal Rate of Return (IRR)Payback PeriodAccounting Rate of Return (ARR)Centralized Vs. Decentralized OrganizationsPerformance MeasuresTransfer PricingACG 2071 Final Study GuideCh. 1 (1 Question; Conceptual)- Financial Accounting vs. Managerial Accountingo Managerial Internal Users Non-GAAP Divisional/departmental reporting as needed Future oriented Reports prepared as neededo Financial External Users Complies with GAAP Company-wide reporting Historical Reports prepared at the end of the accounting periodCh. 2 (3 Questions; 1 Conceptual)- Cost Behavior- The way a cost reacts to changes in activity levelso Cost Drivers- The activity levels that cause costs to changeo 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 basiso Varies in total- Fixed Cost- Cost that remains constant in total as the cost driver activity changeso Varies on a per unit basiso Constant in totalo Discretionary Fixed Costs- Fixed costs that can be changed over the short runo 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 componentso 3 methods: Visual fit, Regression Analysis, High-Low Method (only one on the test)o Cost functiony=mx+b y= total cost m= variable cost per unit x= activity level (# of units) b= total fixed cost- High-Low Methodo Identify the highest and lowest levels of activityo Compute the variable cost per unit (the slope of the line)Variable cost perunit =Change∈total costChange∈activityo Calculate the fixed cost using either the high point or the low point¿Costs=TotalCost −Variable Costo Complete the cost equation by showing that(Variable cost perunit ×Units)+¿Cost =TotalCost- Relevant Range- Normal level of operating activityo Cost behavior only works within this range- Contribution Margin vs. Gross MarginoOperating Income=Sales Revenue−Total ExpensesoGross Margin=Sales Revenue−COGS 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 profitoContribution Margin=Sales Revenue−TotalVariable ExpensesoContribution Margin per unit=Sales Price per unit−Variab≤Cost per unitoContribution Margin Ration=Contribution MarginSales Revenue=Contribution Margin per unitSales Price perunitCh. 3 (3 Questions; 1 Conceptual)Breakeven Analysis- Breakeven Point- Sales revenue is exactly equal to total expenses. There is no profit or losso 3 ways to calculate: Equation method, contribution margin technique, contribution margin ration technique- Equation MethodoS ales−Variable Expenses−¿ Expenses=Operating IncomeoSPx−VCx−FC=$ 0 Use this when solving for units Operating Income is set to “0” when using equation method SP= Sales Price VC= Variable Cost FC= Fixed Cost X= unitso When solving for dollars, use ratios Ex: S−.6 S−$ 4000=$ 0- S= Sales in dollars- Variable expenses are 60% of sales- Fixed expenses are $4000- Contribution Margin Techniqueo¿ ExpensesContribution Margin pe runit=Breakeven Point(¿Units)- Contribution Margin Ratio Techniqueo¿ ExpensesContribution Margin Ratio=Breakeven Point(¿ Dollars)- Margin of SafetyoCurrent Sales−Breakeven Sales=Margin of SafetyCost-Volume-Profit Analysis (CVP)- CVP- Helps managers assess the impact of various business decisions on company profits- Target Operating Incomeo 3 ways to calculate: Equation, Contribution Margin, Contribution Margin Ratio- Equation MethodoSales−Variable Expenses−¿ Expenses=Operating IncomeoSPx−VCx−FC=Target Operating Income Use this when solving for units Plug in target operating income SP= Sales Price VC= Variable Cost FC= Fixed Cost X= unitso When solving for dollars, use ratios Ex: S−.6 S−$ 4000=$ 20000- S= Sales in dollars- Variable expenses are 60% of sales- Fixed expenses are $4000- $20000 is the target operating income- Contribution Margin Techniqueo¿ Expenses+Target Operating IncomeContribution Margin per unit=Sales(¿units)¿reach target OI- Contribution Margin Ratio Techniqueo¿ Expenses+Target Operating IncomeContribution MarginRatio=Sales(¿ dollars)¿reachtarget OICh. 4 (1 Question)Applying Overhead- Predetermined Overhead Rateo Application Base- A measure that is correlated with overhead costs Common application bases:- Direct labor hours- Machine hours- Direct labor costs- Units of productionoPredetermined Overhead Rate=Budgeted ¿ tal manufacturing overhead cost¿Budgeted totallevel of application baseoApplied Overhead=Predetermined Overhead × Actual Amount of ApplicationBase- Underapplied Overhead- Not enough overhead cost was charged to products as they weremadeo If there is a debit balance in the overhead account, more overhead was incurred than was recorded in the Work in Process Inventory accounto The inventory cost is too low and needs to be increasedo To adjust for underapplied overheadCost of Goods Sold xxxManufacturing Overhead xxx- Overapplied Overhead- Too much overhead cost was charged to products as they were madeo If there is a credit balance in the overhead account, more overhead was recorded in the Work in Process Inventory account than was incurredo The inventory cost is too high and needs to be decreasedo To adjust for overapplied overheadManufacturing Overhead xxxCost of Goods Sold xxx- Prorating Underapplied and Overapplied Overheado This is done when the amount of under/overapplied overhead is largeo Prorate the accounts that contain overhead (work in process, finished goods, COGS)o Steps: Add together the ending balances of work in process, finished goods, and COGS Calculate the percentage of the total represented by each of the accounts Multiply each percentage by the


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