ACG2027 Final Exam Notes CHAPTER 1 2 Users of accounting information 3 CHAPTER 2 3 Cost Behavior 3 Variable Costs Cost Behavior 3 Fixed Costs Cost Behavior 3 Mixed Costs 3 Cost Estimation 3 High Low Method Cost Function 3 GAAP Format Income Statement 3 Contribution Format Income Statement 3 Cost Volume Profit Analysis 4 Target Operating Income 4 Breakeven Analysis 4 CHAPTER 4 4 Applying Overhead 4 CHAPTER 5 4 Production Budget 4 Cash Collection Cash Budget 4 Cash Disbursements Cash Budget 4 Financing needs Cash Budget 5 Accounts receivable Budgeted Balance Sheet 5 Accounts payable Budgeted Balance Sheet 5 CHAPTER 6 5 Flexible Budget Variance Variance analysis 5 Price Rate Variance D Materials and D Labor 5 Quantity Usage Efficiency Variance DM DL 5 CHAPTER 7 5 Activity Based Costing 6 CHAPTER 8 6 Special Orders 6 Outsourcing 6 Allocating constrained resources 6 Keeping vs eliminating operations 6 Sell as is vs process further 6 CHAPTER 9 6 Capital Budgeting 6 Net Present Value 6 Payback Period Even cash flows 7 Payback Period Uneven cash flows 7 Accounting Rate of Return 7 CHAPTER 10 7 Decentralization 7 Return on Investment 7 Residual Income 7 Transfer Pricing 7 1 ACG2027 Final Exam Notes CHAPTER 1 Users of accounting information Financial users are external Managerial users are internal Financial Accounting vs Managerial Accounting Financial Accounting focuses on the past Managerial Accounting focuses on the future CHAPTER 2 Cost Behavior The way total cost changes in response to changes in levels of activity Variable Costs Cost Behavior Cost per unit remains constant regardless of activity level but total costs do vary Fixed Costs Cost Behavior Cost per unit decreases with increased activity level but total costs remain constant Mixed Costs Costs that contain both fixed and mixed components Both total and unit costs will vary with changes in the level of activity Cost Estimation Understanding how a cost behaves and then predicting the level of cost that will be incurred High Low Method Cost Function Requires only two data points the lowest and the highest point of activity Identify the highest and lowest levels of activity 1 2 Compute the variable cost per unit the slope of the line 3 Calculate the fixed cost using either the high point or the low point such that 4 Complete the cost equation by showing that GAAP Format Income Statement GAAP statements are formatted by cost function Contribution Format Income Statement Contribution Format Income Statement Classifies expenses by behavior Sales Revenue Less variable expenses Contribution margin Less fixed expenses Operating Income CHAPTER 3 2 ACG2027 Final Exam Notes Cost Volume Profit Analysis Helps managers assess the impact of various business decisions on company profits Target Operating Income Total Fixed Costs Target OI Contribution Margin per unit Breakeven Analysis Breakeven Point is when sales revenue is exactly equal to total expenses Total fixed expenses Contribution margin per unit Breakeven point CHAPTER 4 Applying Overhead CHAPTER 5 Production Budget Predetermined Overhead rate Manufacturing overhead costs Level of production Applied overhead Predetermined overhead rate x Actual amount of application base Enter budgeted sales from the Sales Budget Calculate budgeted Ending Inventory units for the current period Add budgeted ending inventory units to Budgeted Sales Units to determine the number of units required during that period Subtract beginning inventory units from required units to determine the Production Budget Budgeted Sales Budgeted Ending Inventory Budgeted Beginning Inventory Productio n Budget Cash Collection Cash Budget Cash available to spend Cash disbursements Cash excess or cash needed Short term financing Ending cash balance Cash Disbursements Cash Budget p 149 p 237 p 250 p 253 3 Some cash disbursements cannot be found anywhere else in the master budget ACG2027 Final Exam Notes Purchased D L Man Overhead S A Total Cash Disbursements Financing needs Cash Budget Financing may be necessary to maintain minimum cash balance or to meet expenses Cash available to spend Cash disbursements Accounts receivable Budgeted Balance Sheet Account receivable is the balance of uncollected credit sales Accounts payable Budgeted Balance Sheet Accounts payable is the amount of unpaid purchases CHAPTER 6 Flexible Budget Variance Variance analysis Actual results Flexible budget Static budget Actual results Static budget variance Actual results Flexible budget Flexible budget variance Flexible budget Static budget Sales volume variance Price Rate Variance D Materials and D Labor Direct Materials price variance Quantity Usage Efficiency Variance DM DL Direct Materials quantity variance p 256 p 263 p 264 p 29 p 290 p 301 4 ACG2027 Final Exam Notes Sales Volume Variance Sales Budget Variance Direct CHAPTER 7 Activity Based Costing A costing technique that assigns cost to cost objects based on the activities they require p 357 CHAPTER 8 Special Orders See if there is excess capacity In this particular problem there is Find the relevant costs Relevant costs are variable costs opportunity costs DM DL p 427 Go line by line and separate it into per unit cost Find the additional revenue special order volume x price Find the additional expenses from the per unit costs Subtract additional revenue from additional costs 2000 6 1 25 1 73 1 10 1 40 2000 Outsourcing Is it more expensive to outsource or to make in house Create two lists one for Make and one for Buy For Buy total all the costs and multiply it by the volume Add the avoidable costs to the Make side p 432 p 440 Allocating constrained resources Determine which item is the most profitable and produce as much of it as the market allows Use remaining capacity to produce secondary items Keeping vs eliminating operations Determine if it is more financially feasible to shut down operations or to keep it running Sell as is vs process further Determine if an additional profit will be made from processing items further p p CHAPTER 9 Capital Budgeting Capital budgeting is the process of vaulting an organization s investment in long term assets also referred to as capital assets Most capital budgeting decisions focus on cash flows rather than income Cash flows can include the following p Purchase Cost Sales Revenue Direct Material Costs Direct Labor Costs Cost Savings Maintenance Cost 5 ACG2027 Final Exam Notes p Net Present Value Net Present value is a discounted cash flow technique
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