Exam 4 Review Condensed Exam Question Overview o Chapter 1 1 question Financial vs managerial accounting o Chapter 2 3 questions o Chapter 3 3 questions Cost behavior high low method contribution margin vs gross margin Breakeven point target operating income Units and 1 conceptual question most likely on how different changes effect breakeven point o Chapter 4 1 question Applying overhead o Chapter 7 1 question Activity Based Costing o Chapter 8 5 questions o Chapter 5 4 questions 1 question for each decision each gone over separately in review Cash collections disbursements Accounts Receivable Payable cash budget financing and production Flexible budget variance price rate variance quantity variance NPV IRR payback period ARR 2 conceptual o Chapter 6 3 questions o Chapter 9 7 questions o Chapter 10 7 questions Conceptually know decentralization ROI also drawbacks RI transfer pricing Chapter 1 1 question o Financial vs Managerial Accounting Users Internal vs External Rules None vs GAAP Reporting Unit Organizational Units vs Whole organization Time Horizon Past results projected future vs past results Timing As needed vs end of accounting period Chapter 2 3 questions 1 conceptual o Cost Behavior 10 increase in volume results in 10 increase in total variable cost Variable costs Any total cost that varies in proportion to a business activity Fixed costs Does not change with activity level Discretionary Fixed Costs fixed costs that can be changed over the short run Committed fixed costs cannot be changed over the short run Fixed in total but changes on a per unit basis becomes cheaper as more units are used Like spreading the cost out over more units Step costs Fixed over only a small range of activity Total cost remains constant over step range but unit cost decreases as usage within step range increases Mixed costs Composed of both a fixed and variable cost component 1 Identify highest and lowest levels of activity based on activity 2 Compute variable cost per unit slope of the line change in cost change in activity variable cost 3 Calculate fixed cost by either high or low point Fixed costs total costs variable costs 4 Complete cost equation variable cost per unit x units fixed costs total costs o High Low Method o Contribution Margin vs Gross Margin COGS GAAP Format Sales Gross Profit Operating Income Contribution Margin Format Variable Expenses Sales Revenue contribution margin Fixed Expenses Selling and Administrative expense Operating Income Chapter 3 3 questions 1 conceptual o Breakeven Point and Target Operating Income Breakeven analysis Set Operating Income to 0 Sales VC FC Operating Income Sale price x vc per unit x FC operating income Breakeven point in units total fixed expenses contribution margin per Breakeven point in dollars total fixed expenses contribution margin Contribution margin ratio 1 VC sales Know what happens to breakeven point when variable costs etc increase unit ratio decrease Target operating income Set profit equation to target operating income and solve for variables Units required to meet target OI Total FC Target OI CM per unit What you have to earn in total CM per unit Dollars required to meet target OI total FC Target OI CM ratio What you have to earn in total CM ratio o Conceptual Question other possible topics Operating leverage Operating leverage contribution margin net operating income Higher operating leverage is riskier but can contribute to higher gains Higher fixed costs higher operating leverage Pricing Cost plus pricing Adds an amount to the cost of the product or service to cover the company s operating costs and contribute to its profit Cost Markup sales price What it costs you what you want to make in profit what you sell it for Target costing Starts with price consumers are willing to pay Find out price consumers are willing to pay profit you want to make amount you must be able to produce the product for Chapter 4 1 question o Applying Overhead o Predetermined overhead rate Budgeted total manufacturing overhead cost Budgeted total level of application base o Applied overhead predetermined overhead rate actual amount of application base o Disposing of under or over applied overhead o Underapplied overhead recorded less overhead than what incurred Results in a debit balance in manufacturing overhead control account Inventory cost too low needs to be increased o Overapplied overhead recorded more overhead than what incurred Inventory cost too high needs to be decreased o Small amount make adjustments to cost of goods sold Underapplied debit to COGS increased Overapplied credit to COGS decreased o Prorating Overapplied and Underapplied overhead Add balances of WIP inventory finished goods inventory and COGS Calculated percentage each represented of total Multiply percentage by under or overapplied amount o Costing technique that assigns costs to cost objects such as products or customers based on the activities those cost objects require o Like applying overhead but instead of having one cost driver for all activities you have a different and more relevant cost driver for each activity o Activity is an event that consumes resources Chapter 7 1 question o Activity Based Costing o Costs payment acquire resources sewing machine that are consumed by activities sewing to produce products jerseys etc o Unit level activities are performed for each individual unit of product providing electricity to sewing machine since amount used is proportionate to number of units sewn o batch level activities are performed all at once on groups of products cost to produce batch is same regardless of how many units are in batch o product level activities support the products or services a company provides activities performed for entire product line regardless of how many units or batches are produced o customer level activities performed for specific customers activities such as sales calls and processing sales orders o organization level activities are required to provide productive capacity and to keep business in operation no identifiable benefit but w out them there wouldn t be business such as factory space or paying CEO Activity rate total activity cost pool resources total activity driver Chapter 8 5 questions volume o Relevant vs irrelevant information for decision making Avoidable vs unavoidable costs Avoidable costs only occur with the implementation of a particular alternative Unavoidable costs incurred regardless irrelevant Sunk costs
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