Becker BEC 2 Flashcards
(34 cards)
Contribution Margin Ratio
Contribution Margin Ratio = Contribution Margin / Revenue
Contribution Margin Per Unit
Contribution Margin Per Unit = (Sales per unit) - (Variable Costs per unit)
The ONLY Difference Between Absorption Costing and Variable (Direct) Costing
Under Absorption Costing, Fixed O/H is a PRODUCT cost Under Variable (Direct) Costing, Fixed O/H is a PERIOD cost
Relevant Range
Relevant Range is the range over which TOTAL Fixed Costs stay fixed and Variable Costs PER UNIT does not change.
Breakeven Point (in Units)
Breakeven Point (in Units) = Total Fixed Costs / Contribution Margin (per Unit)
Breakeven Point (in Dollars)
Breakeven Point (in Dollars) = Unit Price x Breakeven Point (in Units)
- OR -
Breakeven Point (in Dollars) = Total Fixed Costs / Contribution Margin Ratio
Sales (Units) Needed to Obtain a Desired Profit (formula)
Sales (units) = (Fixed Costs + Pretax Profit) / Contribution Margin (per unit)
Sales (Dollars) Needed to Obtain a Desired Profit (formula)
Sales (dollars) = Variable Costs + Fixed Costs + Pretax Profit
- OR -
Sales (dollars) = Fixed Costs + Pretax Profit / Contribution Margin Ratio
After the Breakeven Poin has been achieved, each additional unit sold will increase net income by ____.
After the Breakeven Point has been achieved, each additional unit sold will increase net income by THE AMOUNT OF THE CONTRIBUTION MARGIN PER UNIT.
Sales Price Per Unit (formula)
Sales Price Per Unit = (Fixed Costs + Variable Costs + Pretax Profit) / Number of Units Sold
Margin of Safety (definition)
Margin of Safety is the excess of sales over breakeven sales
Margin of Safety (in dollars) = Total Sales (in $) - Breakeven Sales (in $)
Target Cost (formula)
Target Cost = Market Price - Required Profit
Opportunity Costs
Opportunity Cost is the cost of foregoing the next best alternative when making a decision.
Implicit Costs are opportunity costs.
Learning Curve (definition)
Learning Curve analysis is based on the premise that as workers become more familiar with a specific task, the per-unit labor hours will decline as experience is gained and production becomes more efficient.
Sensitivity Analysis (“What If” Analysis)
Sensitivity Analysis is the process of experimenting with different parameters and assumptions regarding a model and cataloging the range of results to view the possible consequences of a decision.
It is a risk management tool that is used to test the effect of specific variables on overall profitability. Which variables are most sensitive to change and therefore have the biggest impact on the bottom line?
Linear Regression
Linear Regression is a method for studying the relationship between two or more variables.
One use of linear regression is to predict the value of a dependent variable (e.g. total cost (y)] corresponding to given values of the independent variables [e.g., fixed costs (a), variable cost per unit (B), and production expressed in units (x)].
Simple Linear Regression (formula)
Simple Linear Regression formula
y = a + Bx
Coefficient of Correlation (r)
The Coefficient of Correlation measures the strength of the linear relationship between the independent variable (x) and the dependent variable (y).
The coefficient of the correlation is “r.”
Coefficient of Determination (R-squared)
The Coefficient of Determination is the proportion of the total variation in the dependent variable (y) explained by the independent variable (x).
Its value lies between zero and one. The higher the coefficient of determination, the greater the proportion of the total variation in y that is explained by the variation in x.
e.g. An r-squared of 0.81 means that 81% of the change in total cost during a period can be attributed to change in volume.
Current Attainable Standards (definition)
Current Attainable Standards represent costs that result from work performed by employees with appropriate training and experience but without extraordinary effort. Provisions are made for normal spoilage and downtime.
Authoritative Standards are set by ____.
Authoritative Standards are set exclusively by management.
Efficient, but possibly less effective than Participative Standards
Participative Standards are set by ____.
Participative Standards are set by both managers and the individuals who are held accountable to those standards.
(Less efficient than Authoritative Standards, but possibly more effective)
Master Budgets (alternative terminology)
Master Budgets Static Budgets Annual Business Plans Profit Planning Targeting Budgets
Flexible Budget (definition)
Flexible Budget is a financial plan prepared in a manner that allows for adjustments for changes in production or sales and accurately reflects expected costs for the adjusted output.
A Flexible Budgets are used in conjunction with a Master Budget.
