Flashcards in Deck 3 Deck (20):
1
Goal of production report
Keep track of the flow of units and costs
2
Equivalent units under weighted average method (two steps) =
Units completed + WIP ending (percentage complete)
3
Equivalent units under FIFO (3 steps) =
(Beg. WIP x per. to be completed) + (units completed - beg WIP) + (End WIP x per. completed)
4
Most widely used method to allocate service costs is
Direct Method (total costs are directly allocated to production department)
5
Separable costs
Costs incurred after the split off point
6
Breakeven point in units =
Total Fixed costs / contribution margin per unit
7
Breakeven point in sales =
Total Fixed costs / CM ratio or Breakeven point in units x unit price
8
Margin of safety =
current sales = breakeven sales
9
Absorption costing will produce higher net income than variable costing when:
Production is greater than sales (This means inventory increased)
10
Breakeven analysis assumes that over the relevant range all variable costs and revenues are
Constant per unit and are linear
11
How is Fixed OH treated under variable costing (contribution approach, not GAAP) vs. Absorption costing (GAAP)?
VC: period cost and expensed; AC: product cost and inventoriable
12
Does contribution margin change with volume?
NO
13
Units sold to achieve profit =
(Fixed costs + pre tax Profit) / CM per unit
14
What is the relevant range?
Range over which cost relationships are valid (Fixed costs are fixed and variable cost per unit don't change)
15
What ratio is used to determine which product should be sold to a customer?
Use CM ratio (sell the product with the highest ratio)
16
Breakeven point is the point at which
Revenues equal total costs
17
Compute the change in income =
Change in inventory unites (produced vs. sold) x fixed cost per unit
18
Sales dollars needed to achieve profit =
(Fixed costs + pre tax profit) / CM ratio
19
Profit based on volume =
Units above the breakeven point x contribution margin per unit
20