What is absorption approach

it is US GAAP and does not segregate fixed and variable costs.

What is contribution approach

it is NOT gaap uses variable costing (also called direct costing.

What is Unit Contribution Margin equation

Sale Price per unit less Variable cost per unit

What is the Contribution Margin Ratio equation

=contribution margin divided by Revenue

also (Sales less Variable Cost) divided by sales

Is absorption approach a product cost or a period cost?

Product cost. all fixed factory overhead is treated as a product cost and is included in inventory values

Is contribution approach (variable costing) a Product Cost or a Period Cost?

Period Cost. all fixed factory overhead is treated as a period cost and is expensed in the period incurred even if not sold

what is the equation for the Break even in units

=Total fixed costs divided by Contribution margin per unit

what is the equation for the break even point in dollars

=unit price X breakeven point in units

also = Total fixed costs divided by Contribution Margin Ratio

what is the equation for the sales in units

=(Fixed cost + pretax profit) divided by Contribution Margin per unit

What is the equation for the sales in dollars

= Variable costs + Fixed Costs + Pretax Profit

What is the equation for Contribution Margin Ratio including pretax profit?

Sales = (Fixed Cost + Pretax profit) divided by Contribution margin ratio

What is the selling price per unit

=(fixed costs + Variable costs + Pretax profit) divided by number of units sold

What is the Margin of Safety in dollars

=Total sales in dollars less Breakeven sales in dollars

What is the margin of Safety %

= Margin of safety in dollars divided by Total Sales

What is the equation for Target Cost?

=Market Price less required profit

Breakeven analysis assumes that over the relevant range:

a. Unit revenues are nonlinear

b. Unit variable costs are unchanged

c. Total costs are unchanged

d. Total fixed costs are nonlinear

b. Unit variable costs are unchanged.

the following are incorrect because they are linear a & d

c is incorrect because total costs are based on the number of units

For special order decisions, Presumed excess capacity, why would we accept?

Accept if price is > Variable cost per unit

For special order decisions, Presumed Full capacity, why would we accept?

Accept if price > Variable cost per unit + opportunity cost per unit

The equation Y =a+bX what do the variables stand for?

Y = the dependent variable. Total cost X = the independent variable. Total Units a = the Y axis intercept, it is the total fixed costs b = The slope of the regression line. (Δ Y over Δ X)