Managerial Final Exam Study Guide Sudano Chapter 1 Accounting as a Tool of Management Users of accounting information o Internal Users users who are within the organization such as managers or o External Users users who are outside of the organization such as investors accountants and creditors Financial accounting vs managerial accounting o Managerial Accounting Mainly for internal use Not driven by GAAP Can be any format Looks at the past present and mostly Future Not just financial data includes quality Prepared anytime anywhere for any purpose Can measure anything in any way All about relevance Very detailed Divisional departmental reporting as needed o Financial Accounting Mainly for external use Driven by GAAP Looks at the previous year ONLY financial data Prepared quarterly or annually Measures everything in dollars All about verifiability Not so detailed Company wide reporting Historical Reports prepared at the end of the accounting period Uses of managerial accounting information o All types of organizations need managerial accounting Service Firms Manufacturing Companies Merchandising Companies Non Profit Organizations o Four Functions of Management Planning Control Evaluating Decision Making o Approach to developing a competitive advantage Product Differentiation VS Low Cost Production o Approach to market share Build Hold Harvest Divest o Monitoring Strategic Performance Supply Chain Management Balanced Scorecard Enterprise Resource Planning Systems ERP Just In Time Inventory JIT Chapter 2 Cost Behavior and Cost Estimation Cost behavior refers to the way a cost behaves or reacts to changes in activity levels o Cost Driver Activity levels that drive costs to change o Relevant Range You can only analyze costs across reasonable range of values Represents the normal range of operating activity o Variable costs Cost that do change increase as you produce more units Per Unit It changes when the cost driver activity changes They change in direct proportion to changes in the cost driver activity o Fixed Costs Costs that do not change as you produce more units Total The cost remains constant at the cost driver activity changes Discretionary fixed costs fixed costs that management has the ability to change in the sort run Ex advertising Committed fixed costs fixed costs that the company cannot change in the sort run Ex Leasing equipment rent of a factory In the long run almost every fixed cost can be labeled as discretionary We only make this distinction in the SR o Step costs a cost that remains constant fro a small range of activity but then changes abruptly once outside of that range of activity o Mixed costs a cost that has both a fixed component and a variable o Scatter graph visual fit Second Best method With visual fit analysis the line cost function is placed through the data where the user thinks it fits the best They are basically eye balling where the line should be drawn Find where activity is 0 this will be on the y axis at the start of the estimated fixed costs Draw a line and select a second data point Calculate the variable cost per machine hour slope of the line by dividing change in cost by change in activity between the two data points You come out with a price per machine hour and then can estimate future cost by using the cost function Y units Fixed Cost Price per machine hour component Cost estimation cost functions o High low method Worst Method The line is placed through the data so that the data points at the highest and lowest activity points are connected The variable cost per unit of cot driver activity is then calculated and then the fixed cost Select the two data points based on the highest and lowest activity Calculate the variable cost per machine hour by dividing the change in cost by the change in activity between the two points Calculate the fixed cost by substituting the variable cost per machine hour into the cost function Y mx b Solve for b Y money and x activity o Regression analysis Best Method Least Squares Regression uses statistical software in order to derive a cost function from all of the historical data available not just two points Cannot calculate on exam just conceptual questions Income statement formats GAAP format vs contribution margin format o Contribution Margin Format Sales Revenue Variable Expenses Contribution Margin Contribution Margin Fixed Expenses Operating Income o GAAP Format Sales Revenue COGS Gross Profit Gross Profit Selling and Administrative Expenses Operating Income o Contribution separates Variable and Fixed Expenses while GAAP separates COGS and Selling and Administrative Expenses Chapter 3 Cost Volume Profit Analysis and Pricing Decisions Cost volume profit analysis looking at cost volume and profit Solve for the breakeven point in both units and dollars Find out how much profit you think you ll have at a certain number of units o Formulas to Know Op Income Sales Variable Costs Fixed Costs Op Income Sales Price x VC per unit x Fixed Costs To solve for breakeven point in units set operating income to 0 To solve for a given operating income plug in that operating income into the equation o Breakeven analysis Break even point The point at which revenues equal expenses and income is equal to zero No profit or loss The point can be expressed as the level of sales in units or dollars that is needed to earn 0 income Three techniques to calculate Equation Method o Sales Variable Exp Fixed Exp Op Income Contribution Margin Technique o Contribution Margin per unit Sales Price VC per unit o Contribution Margin goes towards contributes to fixed costs then towards profit o Contribution margin can be thought of as CM per unit or as a total Contribution Margin Ratio Technique o CM Ratio CM Sales Price Formulas to Memorize o Units Op Income FC CM per unit o Sales in Op Income FC CM Ratio o Margin of safety the difference between their current sales and their break even sales Can be calculated in number of units revenues or as a percent Current Sales Breakeven Sales Margin of Safety o Target operating income set a target operating income Sales Variable exp fixed exp operating income Plug in the number for the operating income you pre determined to find out how many units you must sell to meet the target operating income o Target net income Operating Income Income Taxes Net Income 1 Tax Rate Operating Income o What if analysis Changes in Sales Price per Unit Sales Variable Exp Fixed Exp Op Income A decrease in the selling
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