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Flashcards in Deck 4 Deck (20):
1

Units needed to achieve profit above break even level =

Pretax profit / CM per unit

2

Accounting profit =

Total revenue - total explicit costs

3

Explicit vs. implicit costs

Explicit - out of pocket costs; implicit - opportunity costs

4

The relevance of a particular cost to a decision is determined by

The potential effect on the decision

5

What costs are relevant to maximizing profit?

Separable costs after the split off point

6

The minimum price for a special order is

The sum of the VC plus CM from next best alternative

7

Definition and example of sunk costs

Costs that have occurred in the past and are unavoidable; research and development

8

Definition of relevant costs

Costs that will change under different alternatives

9

Definition of Incremental costs

Additional costs incurred to produce an additional amount of the unit

10

Decision rule for accepting special orders, accept if:

Price > VC per unit

11

Decision rule for make vs. buy decisions; make if:

Relevant costs (avoidable costs) < outside purchase price

12

Sell or process further decisions; process further if:

Incremental revenue > incremental costs

13

Incremental revenue =

Final selling price - selling price at split-off point

14

Keep or drop a segment decisions; Keep the segment if:

Contribution margin for the segment > Avoidable FC

15

The most accurate method to classify costs of an object as fixed or variable is

Regression analysis

16

Regression analysis

Model that estimates the dependent variables based on changes in the independent variable

17

Linear regression equation

Y= a + bx (Y is total costs, x is units produced, a is fixed costs, and b is VC/unit)

18

R squared vs. R

R: coefficient of correlation ( -1 to 1); R squared: coefficient of determination (0-1)

19

Net joint costs to be allocated =

Joint costs less NRV of byproduct

20

Which budget is the last budget to be produced?

Cash budget