B1: Corporate Governance and Operations Management Flashcards Preview

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Flashcards in B1: Corporate Governance and Operations Management Deck (30):
1

Cost Objectives

Resources or Activities that serve as the basis for management decisions "PIE"

Product Cost
Income Determination
Efficiency

2

Prime Costs

Direct Materials +
Direct Labor

3

Conversion Costs

Direct Labor +
Overhead Applied

4

Product Costs

Inventoriable Costs that are NOT expensed until the product is SOLD

DM + DL + Mfg. O/H APPLIED

"These costs are IN THE FACTORY"

5

Period Costs

INCOME STATEMENT ONLY

Selling, General, & Administrative (SG&A) Expenses + Interest Expense

"These costs are IN THE OFFICE"

6

Application of Overhead When Traditional Costing is Used

Step 1:
Budgeted Overhead Costs / Estimated Cost Driver = Calculated Overhead Rate

Step 2:
ACTUAL Cost Driver x Calculated Overhead Rate = Applied Overhead

7

Calculating Cost of Goods Manufactured (COGM)

WIP, BB
+ DM used
+ DL
+ Mfg. O/H
____________
Mfg. Costs Available
- WIP, EB
____________
COGM

8

Calculating Direct Materials Used (DM Used)

RM, BB
+ Purchases
+ Freight/Transportation-In
- Returns
______________________
Materials AFS
- RM, EB
______________________
Raw/Direct Materials Used

9

Calculating Cost of Goods Sold (COGS)

Finished Goods (FG), BB
+ COGM OR Net Purchases
_______________________
COG AFS
- FG, EB
_______________________
COGS

10

Calculating Equivalent Units - Weighted Average Method

Two-Step Process
Step 1:
Units Competed during the Period xxx
Step 2:
Ending WIP x % Completed + xxx
______
x,xxx

11

Calculating Equivalent Units - FIFO Method

Three-Step Process
Step 1:
Beginning WIP x % to be completed xx
Step 2:
Units Completed - Beginning WIP + xx
Step 3:
Ending WIP x % Completed + xx
_______
x,xxx

12

Joint Products

Two or more Products that are generated from a common input

13

By-Products

Relatively small value, result from manufacturing of main product

14

Split-Off Point

Joint products are recognized as individual products

15

Joint Product Costs

Producing products UP TO the split-off point

16

Separable Costs

Costs incurred AFTER split-off point

17

Break-even in units

Total FC / Contribution Margin (CM) per unit

18

Break-even in dollars (CM per unit)

Unit Price x Break-even point in units

19

Break-even in dollars (CM ratio)

Total FC / CM ratio (CM / Sales)

20

Margin of Safety

Sales - Break-even Sales

21

Pre-tax Profit

After-tax Profit / (1 - tax rate)

22

After-tax Profit

Pre-tax Profit x (1 - tax rate)

23

Difference between Absorption costing and Variable Costing methods

When production is greater than sales, absorption costing income is greater than variable costing income

When Sales is greater than production, absorption costing income is lower than variable costing income

24

Units sold to achieve profit

(FC + Profit) / (CM per unit)

25

Algebraic Formula for Percent Increase in Sales

S - (VC% x S) - FC = Sx

26

Break-even Analysis Assumes....

All VC and Revenues are constant on a per unit basis and linear over a relevant range. FC in total are constant

27

Absorption Costing

Revenue
- COGS (DM + DL + Fixed and Variable O/H)
___________________________________
Gross Margin
- Operating Expenses
___________________________________
Net Income

28

Contribution (aka Variable or Direct) Costing

Revenue
- Variable Costs (DM + DL + Variable O/H + Variable SG&A)
___________________________________
Gross Margin
- Fixed Costs (Fixed O/H + Fixed SG&A)
___________________________________
Net Income

29

Absorption Approach vs. Contribution Approach

Treatment of FIXED factory overhead.
Absorption: Product Cost = COGS
Contribution: Period Cost = Expensed in period incurred

30

Based on potential sales of 500 units per year, a new product has estimated traceable costs of $990,000. What is the target price to obtain a 15% profit margin on sales?

$990,000 / .85 = $1,164,700 sales
$1,164,700 / 500 units = $2,329 per unit