Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

AUDIT > BEC - 2 > Flashcards

BEC - 2 Flashcards

(119 cards)

Start Studying
1
Q

Cost-volume-profit (CVP) is used to forecast profits at different levels of:

A

sales and production volume.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Contribution approach (direct costing) is used for

A

breakeven analysis. Used for internal decision making.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

The contribution approach equation is:

A

Revenue
Less: Variable costs (DM + DL + Var. mfg. O/H + Var. SG&A)
= Contribution margin
Less: Fixed costs (Fixed Mfg. O/H + fixed SG&A)
= Net Income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Unit contribution margin is the

A

unit sales price minus the unit variable cost.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

The contribution margin ratio is the

A

contribution margin expressed as a percentage of revenue.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Contribution margin ratio =

A

Contribution margin / Revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

The absorption approach is required for

A

financial reporting under U.S. GAAP.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

The absorption approach does not segregate

A

fixed and variable costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Equation for the absorption approach is:

A

Revenue
Less: Cost of goods sold (DM + DL + Var. Mfg O/H + Fixed mfg. O/H)
= Gross margin
Less: Operating expenses (Fixed + Var. SG&A, i.e. “period costs”)
= Net Income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

The difference between contribution and absorption approach is the treatment of

A

fixed factory overhead.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

For absorption costing (approach) the following three groups are all the same:

A

Product costs = COGS = (DM + DL + Variable and Fixed O/H)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Absorption method can calculate either

A

Gross margin or Operating Income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Contribution margin can calculate either

A

Contribution margin or Operating Income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Income is effected based on the number of units sold is

A

more or less than the number of units produced.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

If units produced exceed units sold, then

A

some units are added to ending inventory and income is higher under absorption costing than under variable costing. Creates less fixed O/H expensed under absorption, thus higher profit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

If units sold exceed units produced, then ending inventory

A

is less than beginning inventory and income is lower under absorption costing than under variable costing. Creates less inventory, more fixed O/H expensed under absorption, thus lower profit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

In order to compute the difference between variable costing net income and absorption costing net income, complete the following three steps:

A

1) Compute fixed cost per unit (Fixed manufacturing overhead / Units produced)
2) Compute the change in income (Change in inventory units x Fixed cost per unit)
3) Determine the impact of the change income.

No change in inventory: Absorption net income = variable net income.
Increase in inventory: Absorption net income > variable net income.
Decrease in inventory: Absorption net income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Absorption costing is effected by the level of

A

inventory and therefore effects net income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Variable costing net income is not effected by the level

A

of inventory.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Period costs are not

A

inventoriable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Breakeven point in units can be determined by dividing the unit

A

contribution margin into the total fixed costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

There are two approaches to computing breakeven in sales dollars:

A

1) Contribution Margin Per Unit

2) Contribution Margin Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Contribution margin per unit has two steps:

A

1) Compute the breakeven point in units.
2) Multiply those breakeven units by the selling price per unit.

Units price x Breakeven point (in units) = Breakeven point (in dollars)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Contribution Margin Ratio calculates breakeven by:

A

Dividing total fixed costs by the contribution margin ratio

Total fixed costs / Contribution margin ratio = Breakeven point in dollars or,
Breakeven units x Selling price per unit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Breakeven point occurs when
sales equal total costs (variable costs plus fixed costs).
26
Calculation to meet a specific volume or target profit (before taxes):
Sales = Variables costs + (Fixed costs + Net Income before taxes) Sales = (Fixed cost + Profit) / Contribution margin ratio
27
To calculate target profit before tax:
Target profit after tax + Tax
28
To calculate the breakeven point in sales:
Variable costs + Fixed costs + Target profit before taxes.
29
If after-tax target NI is $60,000 and tax is 40%, then EBT:
$60,000 / ( 1 - .40 ) = $100,000.
30
Margin of safety is expressed in dollars as follows:
Total sales (in dollars) - Breakeven sales (in dollars) = Margin of safety (in dollars).
31
Margin of Safety can be expressed as a percentage, as follows:
Margin of safety in dollars / Total Sales = Margin of Safety Percentage.
32
Target costing is a technique used to establish the product cost allowed to ensure both
profitability per unit and total sales volume.
33
Target costing is the first step in establishing
cost controls to ensure ongoing profitability.
34
The target cost of the product is the market price minus
required profit.
35
Kaizen Method is when a product has to be
redesigned to provide for the reduction of costs throughout the life cycle of a product.
36
Marginal analysis focuses on the relevant
revenues and costs that are associated with a decision.
37
Incremental costs (are relevant costs) are the additional
costs incurred to produce an additional amount of the unit over the present. Therefore, these will change.
38
Sunk costs are
unavoidable, as they were incurred in the past.
39
Opportunity costs are the
cost of foregoing the next best alternative. These are relevant costs.
40
Controllable costs are costs that can be authorized at a specific level
of management. They are relevant if they change based on decision making.
41
Uncontrollable costs are authorized at a
different level. Not relevant because they cannot be changed.
42
**Marginal Costs are the sum
of the costs for a one-unit increase in activity. Includes all variable costs AND any avoidable fixed costs. These are relevant costs.
43
Special order decisions are short-term decisions and differ when the company is operating
1) below capacity, | 2) at full capacity.
44
If there is excess capacity, accept the special order if the
selling price per unit is greater than the variable cost per unit.
45
If the company is operating at full capacity, the opportunity cost is
the contribution margin that would have been produced if the special order were not accepted. Contribution Margin / Size special order = Opportunity Cost per Unit. The Opportunity Cost per Unit is added to relevant costs and compared to selling price.
46
Special order decisions does not include
fixed costs, unless the special order will change total fixed costs.
47
Acceptance of special orders should also consider the following 6 things:
1) Effect on regular priced sales and other long-term pricing issues, 2) future sales with customer? 3) Exceed plant capacity and complexities 4) Pricing of special order 5) Impact on income tax, 6) Effect on machinery
48
Make or buy decision is similar to special order and should be selected based on the
lowest-cost alternative.
49
Sell or process further can include joints costs. Joint costs cannot be traced to a product, and are considered
sunk costs, which are not relevant to decisions of whether to sell or to process further.
50
Sell or process further can include separable costs, or costs incurred after split-off. Separable costs are
relevant costs to decisions when determining to sell or process further.
51
The decision to sell or process further relies on:
1) If the incremental revenue exceed the incremental cost, the organization should process further. 2) If the incremental cost exceeds the incremental revenue, the organization should sell at the split-off point.
52
Relevant costs should be used to determine whether to keep or
drop a business segment, i.e. product line.
53
When deciding whether to keep or drop, fixed costs must be identified as either
avoidable relevant or unavoidable.
54
To keep a segment is done when
the lost contribution margin "Cost" exceeds avoidable fixed costs "Benefit". **Consider a cost ONLY if it will change.
55
To drop a segment is done when:
the lost contribution margin "Cost" is less than avoided fixed costs "Benefit". **Consider a cost ONLY if it will change.
56
Contribution margin equals
sales less variable costs.
57
Sensitivity analysis experiments with different parameters and assumptions to obtain
a range of results. Sensitivity models often use probabilities to approximate reality.
58
Forecasting analysis is an extension of
sensitivity analysis, and uses previous time period information.
59
Forecasting analysis predict
future values of a dependent variable.
60
Slope =
Change in Total Cost / Change in Total Volume. Also equals Variable Cost per Unit.
61
For regression analysis, total cost =
total fixed costs + (variable costs per unit x volume).
62
The coeffcient of correlation (r) measures the
strength of a relationship. +1.0 is a perfect direct relationship.
63
The coefficient of determination (R^2) is the
proportion of the total variation in the total cost explained by the volume. It is measured between 0 and 1.
64
The higher the R^2, the greater
the proportion of the total variation in total cost explained by variation in volume. Higher R^2 the better fit of the regression line.
65
If a single aircraft takes 20 hours to build, yet two aircrafts take 32 hours to assemble, then the learning rate is
80% or 32/40.
66
High-low method estimates the
fixed and variable portions of cost.
67
High-low is completed by the following four steps:
1) Note the low and high units and total cost. 2) Calculate difference between low and high for both units and total cost. 3) Divide the numbers to calculate variable dollar per unit. 4) For either high units and cost or low units and cost, multiple variable dollar per unit by the number of units and subtract total from total cost to obtain total fixed costs.
68
Tactical plans (single-use plan) are short term and cover periods
up to 18 months. Apply to specific circumstances during a specific time frame. Example = Annual Budget
69
Ideal standards represent the costs that result from perfect
efficiency and effectiveness in job performance. Generally NOT historical; but forward looking.
70
Currently attainable standards represent costs that result from work performed with appropriate training and experience but
without extraordinary effort.
71
Authoritative standards are set exclusively by
management. They can be implemented quickly and will likely include all costs.
72
Participative standards are set by both
managers and individuals who are held accountable to those standards.
73
A master budget, or annual business plan, documents specific
short-term operating performance goals for a period, normally one year or less.
74
A master budget generally comprises operating budgets
and financial budgets.
75
Limitations of the Annual Plan - Master budgets are
confined to one year at a single level of activity.
76
Operating budgets describe
resources needed. Includes sales budgets and production budgets.
77
Financial budgets define
detail sources and uses of funds to be used. Includes cash budget.
78
The sales budget is the
foundation of the entire budget process (first budget prepared).
79
Sales forecasts are derived from input received from
numerous organizational resources. The sales budget is based on sales forecast.
80
Production / inventory budgets are made
for each product based on amount that will be produced.
81
The production budget is made up of the amounts spent for:
direct labor, direct materials, and factory overhead.
82
**Budgeted production is calculated by taking
Budgeted sales + desired ending inventory - beginning inventory = Budgeted production.
83
Safety stock of 30% of estimated sales. June estimated sales = 40,000 July estimated sales = 30,000. The following steps are completed to determine Budgeted Production for the month of June:
Step 1: Sales for each month x the safety stock % will equal the beginning inventory required. Step 2: Budgeted sales for June + Desired ending inventory (July sales x safety stock %) - Desired beginning inventory (June sales x safety stock %) = Budgeted production for June, which dictates material and labor needed.
84
Direct materials budgets is driven by
production.
85
The formula to determine direct materials to be purchased in a period is as follows:
Units of direct materials needed for a production period + Desired ending inventory at the end of the period - Beginning inventory at the start of the period = Units of direct materials to be purchased for the period
86
Cost of direct materials to be purchased is as follows:
Units of direct materials to be purchased for the period x cost per unit = Cost of direct materials to be purchased for the period
87
Direct materials usage budget:
Beginning inventory at cost + Purchases at cost - Ending inventory at cost = Direct materials usage (cost of materials used)
88
Factory overhead budget =
IM + IL + "Factory" costs.
89
Cost of goods manufactured represents the sum of the budgets for each element of manufacturing as follows:
1) Direct labor 2) Direct material (used) 3) Factory overhead (applied) - can be variable and fixed Note: The above noted items are product costs.
90
Cost of goods sold considers COGM in relation to beginning and ending inventories of finished goods as follows:
Cost of Goods Manufactured + Beginning FG inventory - Ending FG inventory = Cost of goods sold (on Income Stmt)
91
Selling and administrative expenses represent the
fixed and variable nonmanufacturing expenses anticipated during the budget period.
92
Cash budgets are divided into three major sections:
1 ) Cash available 2 ) Cash disbursements 3 ) Financing (if cash shortfall)
93
Comparison of actual results to the annual business plan is the
"first and the most basic level" of control and evaluation of operations.
94
Variances can be calculated by using
actual vs standard price or quantity.
95
DM Price Variance =
AQ^purchased x (AP - SP)
96
DM Quantity Variance =
SP x (AQ^used - SQ^allowed)
97
DL Rate Variance =
AH^worked x (AR - SR)
98
DL Efficiency Variance =
SR x (AH^worked - SH^allowed)
99
Standard is more favorable than
actual. SAD = Standard - Actual = Difference.
100
PURE =
``` Price Variance (for DM). Usage (quantity) variance (for DM). Rate variance (for DL) Efficiency variance (for DL) ```
101
DADS stands for:
Difference x Actual | Difference x Standard
102
Line up your DADS with
PURE.
103
Manufacturing overhead variance and a net debit balance is
underapplied and is an unfavorable variance.
104
Manufacturing overhead variance and a net credit
is overapplied and is a favorable variance.
105
The sum of all three variances equals the net balances
in the overhead account.
106
Sales and contribution margin variance analysis can be used to evaluate the effectiveness of an entity's identification of
target markets and its strategies to capture those markets.
107
Sales price variance =
[Actual SP / Unit - Budgeted SP / Unit] x Actual sold units
108
Sales Volume variance =
[Actual sold units - Budgeted sales units] x Standard contribution margin per unit (SP - VC)
109
Sales mix variance =
[Actual product sales mix ratio - Budgeted product sales mix ratio] x Actual sold units x Budgeted contribution margin per unit of that product
110
Product sales quantity variance =
[Actual sold units of product - Budgeted sales units of product] x Budgeted product sales mix ratio x Budgeted contribution margin per unit of that product.
111
Financial scorecards have four types of responsibility segments - CRPI:
1 ) Cost SBU 2 ) Revenue SBU 3 ) Profit SBU 4 ) Investment SBU SBU = Strategic business units. 1 - 4 goes from lowest to highest responsibility.
112
Financial scorecards are pointed AT US. AT US stands for:
Accurate and Timely Understandable Specific Accountability (by segment)
113
Feedback must be
accurate and timely to be effective.
114
Reports must be tailored to the audience receiving them to ensure they are:
understood.
115
Common costs are not
controllable. An example would be factory rent due to long-term lease.
116
The contribution margin is
a controllable cost (SP - VC)
117
The controllable margin equals
contribution margin less controllable fixed costs.
118
The balanced scorecard gathers information on multiple dimensions of an organization's
performance via critical success factors.
119
A list of critical success factors (4) are classified as: FICA
1 ) Financial - profit - pointed AT US 2) Internal business processes - efficient production. Non-financial. 3) Customer satisfaction - market share - non-financial. 4) Advancement of innovation and human resource development (learning and growth) - retention of key employees - Non-financial.

AUDIT (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions