UT Knoxville ACCT 200 - Chapter 11
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ACCT 200 Outline of Last Lecture I. Budgeting BasicsII. Incremental budgetingIII. Zero Based budgetingIV. Standards versus ActualsV. Variance analysisOutline of Current Lecture I. CostsII. Cost FormulaIII. High Low MethodIV. Contribution Income StatementV. Break Even PointVI. Target ProfitCurrent LectureI. Costsa. Variable cost—stay the same on a per unit basis but change in total pending levelof production (vary in total)b. Fixed cost—stay the same in total (fixed in total) but change on a per unit basis pending the number of items producedc. **If fixed costs are $500,000, and we produce 10,000 units, then fixed cost per unit is $50/unitd. **biggest example of fixed cost is depreciation on factory buildingse. Mixed cost—do not stay the same on either a per unit OR total basisThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.i. Have bot a fixed and variable componentII. Cost Formulaa. Total Cost = (Variable Cost/unit x units) + Fixed CostIII. High Low Methoda. Variable cost/unit = Change in cost / Change in volume = (highest total cost – lowest total cost) / (highest units – lowest units)b. Fixed cost in total = total cost – variable costIV. Contribution Income Statementa. Contribution Margin (CM) contributes to covering fixed cost. Once fixed costs are covered, the rest is profit.b. CM income = sales – variable costsc. When comparing income statements, Topline number (sales revenue) is always the same and the bottom line number (income from operations) is always the samed. CM ratiofor each dollar increase in sales, this amount will go to covering fixed costs and profite. Change in profit = change in unit volume x unit CMf. Change in profit = change in sales dollars x CM ratioV. Break Even Pointa. Break even point $0 profit, just enough to cover fixed costsb. Break even = total fixed costs/ unit CMc. Break even= fixed costs in total/(revenue/unit – variable cost/unit)d. Helps new companies know how much they need to sell to make a profitVI. Target Profita. TP = (total fixed costs + TP)/unit CMb. ***Slide 15 on Professor Martin’s notes is an exam

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