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Flashcards in BEC 2.2 Deck (37):
1

Contribution Approach

Not GAAP

Revenue
Less: Variable Costs
= Contribution Margin
Less: Fixed Costs
= Net Income


Variable Costs = DM + DL + Variable Mfg. O/H + Var. SG & A

Fixed Costs = Fixed Mfg. O/H + Fixed SG & A

2

Contribution Margin Ratio

Contribution Margin / Revenue

3

Absorption Approach

GAAP
- segregate costs between product and period

Revenue
Less: Cost of Goods Sold
=Gross Margin
Less: Operating Expenses
= Net Income

4

Contribution Approach vs. Absorption Approach

- The difference between the two is the treatment of FIXED Factory Overhead. SG &A are period costs under both and are treated the same and expensed in its entirety.
- Under Absorption approach only way FIXED factory overhead is expensed is by the per unit when the items are sold and therefore included under cost of goods sold.
- Under Contribution Approach 100% of the fixed factory overhead is expensed immediately

5

Profit after break-even

For every unit sold after break-even multiply by the contribution margin to get profit after break-even

6

Number of units to sell to break-even

Total fixed costs / Contribution margin per unit

7

Contribution margin ratio

Contribution margin / Sales
- if for $$ or per unit use Cm per unit and sales price per unit

8

Break-even point in $$

Total fixed costs / Contribution margin ratio

OR

BE units x sales price per unit

9

Required Sales volume for target profit

Sales = Fixed cost + Profit / Contribution Margin ratio

10

Tax considerations

Earnings before tax x (1 - T) = Net income after tax

11

Margin of Safety

Total sales - Break-even in sales = Margin of safety(in dollars)

12

Margin of Safety percentage

Margin of safety( in dollars) / Total sales

13

Controllable vs. Uncontrollable costs

Controllable costs are authorized at THIS level of management and are relevant because they can be change, uncontrollable costs are authorized by a higher level of management and cannot change and are therefore irrelevant

14

Special Orders

Excess capacity- accept order if Selling price exceeds relevant costs(variable costs)

Full capacity - accept order if sales price exceeds relevant costs(variable costs) + opportunity costs

*Opportunity cost per unit = CM in $$(forgo) / Size of special order

15

Opportunity costs

Cost of foregoing the next best alternative

- It is the Contribution Margin that would have been produced

16

Make vs. Buy

If the relevant costs to make including opportunity costs are less than the outside purchase price than make it

-fixed costs should be ignored here since they are uncontrollable/unavoidable

17

High-Low method

For flexible budgeting
- take the highest and lowest amounts
- subtract the differences
- take the dependent variable / independent variable
- then plug in VC x volume to find fixed costs

18

Production Budget

Sales budget drives all other budgets like production budget

Budgeted Sales
+ Desired Ending Inventory
- Begininning Inventory
= Budgeted Production

19

Direct Materials Used

Begininning Inventory
+ Purchases at cost
- Ending Inventory
= Direct materials used

20

Cost of Goods Sold

Cost of Goods Manufactured
+ Beginning finished goods inventory
- Ending finished goods inventory
= Cost of Good Sold

21

Cost of Goods Manufactured

Direct Materials Used(from formula if not given)
+ Direct Labor
+ Overhead Applied(fixed and variable)
= Cost of goods manufactured

22

Standard Quantity allowed

Actual output x the standard allowed per unit

23

Direct Materials Variance

Price Variance:
Actual quantity purchased x Actual Price
vs.
Actual quantity purchased x Standard Price

Usage Variance:
Actual Quantity used x Standard Price
vs.
Standard quantity allowed x Standard price

24

Direct Labor Variance

Rate Variance:
Actual hours x Actual price
vs.
Actual hours x Standard rate

Efficiency Variance:
Actual hours x Standard rate
vs.
Standard hours allowed x Standard rate


25

ABA BSA

Actual, Budget Based upon Actual, Budget based upon standard(hours allowed), Applied

PG 47 - great example

favor the right side

26

PURE DADS

Price variance( for DM)
Usage(quantity) variance(for DM)
Rate variance(for DL)
Efficiency variance(for DL)

Difference x Actual
Difference x Standard

P D x A
U D x S
R D x A
E D x S

27

Standard Costing

Step 1: Calculated overhead rate = Budgeted overhead costs / Estimated cost driver

Step 2: Applied overhead = Standard cost driver for actual level of activity x Overhead rate(from step 1)

28

3 way variance

Spending, Efficiency, Volume

29

2 way variance

Two bv or not to bv

30

Calculating the difference in variance alanlysis

SAD

Standard minus actual = difference

31

Sales price variance

= [ Actual sales price / unit - Budgeted sales price / unit] x Actual sold units

32

Sales volume variance

= [Actual sold units - Budgeted sales units] x Standard contribution margin per unit

33

Types of responsibility segments(measures managers can be help accountable for)

CRPI

Cost
Revenue
Profit
Investment

34

Financial scorecards are "pointed AT US"

Accurate and Timely

Understandable and Specific accountability

35

Allocation of common costs

Not controllable - factory rent long term lease

36

Contribution reporting

Shows you variable/ controllable costs vs. uncontrollable costs

Step 1: Calculate contribution margin = Selling price - variable costs

Step 2: Controllable margin = Contribution margin - Controllable fixed costs

37

Balanced scorecard

FICA - gathers information on multiple dimensions of the business

Financial
Internal business processes
Customer satisfaction
Advancement of innovation and HR issues - retention of key employees