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ACC-427: Cost Accounting > Test 4 > Flashcards

Test 4 Flashcards

1
Q

What does a Cost-Volume Profit (CVP) Analysis study?

A

the relations among revenues, costs, and volumes and their effect on profit to help managers make a decision

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2
Q

What is the Profit Equation?

A

Operating Profit = Total Revenues (RV) - Total Costs (TC)

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3
Q

TRUE/FALSE: Both Total Revenues and Total Costs are likely to be affected by changes in output.

A

TRUE

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4
Q

What is the formula for profit?

A

(P - V) * X - F

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5
Q

When Units go up, profit goes ____________ and when Units go down, profit goes __________.

A

Up
Down

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6
Q

How do you get to the Contribution Margin? What about the Unit Contribution Margin?

A

Sales - Variable Costs = Cont. Margin

Price Per Unit - Var. Cost Per Unit = Cont. Margin

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7
Q

What does a CVP analysis help to answer?

A
  1. What volume is required to break even (earning zero profit)?
  2. What volume is required to achieve a target profit?
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8
Q

What is CVP used for?

A
  1. Computing break-even point
  2. Determining optimal sales volume
  3. Determining optimal pricing policies
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9
Q

What is the formula for finding the UNIT break-even point?

A

Fixed Costs / Contribution Margin per unit

Cont. Margin per unit = (P - V)

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10
Q

What is the formula for finding the SALES DOLLARS break-even point?

A

Fixed Costs / Contribution Margin Ratio

Cont. Margin Ratio = ((P - V)/P)

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11
Q

What is the formula for finding the UNIT target point?

A

(Fixed Costs + Target Profit) / Contribution Margin per unit

Cont. Margin per unit = (P - V)

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12
Q

What is the formula for finding the SALES DOLLARS target point?

A

(Fixed Costs + Target Profit) / Contribution Margin Ratio

Cont. Margin Ratio = ((P - V)/P)

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13
Q

What does Operating Leverage describe?

A

the extent to which an organization’s cost structure is made up of fixed costs

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14
Q

What does Operating Leverage measure?

A

the sensitivity of a firm’s profit to changes in volume

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15
Q

What are some characteristics of HIGH Operating Leverage firms?

A

-Have high proportion of fixed costs and low proportion of variable costs

-Have high contribution margin

-Have high break-even point

-Once the break-even point is reached, profit increases at a high rate

-A small change in market demand will result in larger swings in profit (positive or negative)

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16
Q

What are some characteristics of LOW Operating Leverage firms?

A

-Have low proporation of fixed costs and high proportion of variable costs

  • Have low contribution margin

-Have a low break-even point

-Once the break-even point is reached, profit increases at a low rate

  • A small change in market demand will result in small swings in profit
  • More flexible and better at withstanding economic downturns
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17
Q

What is a Fixed Product Mix?

A

when managers define a package or bundle of products and then compute the break-even or target volume for a package

18
Q

What is the Weighted-Average Contribution Margin?

A

assumes a constant product mix

this method calculates a weighted average contribution margin per unit of all of the products considered

19
Q

In looking at Multi-Product Analysis with Fixed Product Mix and Weighted-Average Contribution Margin, both methods _____________.

A

Give the same results!

20
Q

What is Differential Analysis?

A

the process of comparing revenues and costs of one or more alternative actions and comparing these estimates to the status quo

21
Q

For which decisions are Differential Analysis applicable?

A

Both SHORT and LONG-run Decisions

22
Q

What is the Short-Run?

A

period of time which capacity will be unchanged (fixed), usually one year

23
Q

What are Differential Costs?

A

costs that DIFFER among ONE OR MORE alternatives

*THESE CHANGE IN RESPONSE TO ALTERNATIVE COURSES OF ACTION!

24
Q

Can Differential Costs be both Variable and Fixed Costs?

A

YES!

25
Q

What are Sunk Costs?

A

costs incurred in the PAST that CANNOT be changed by present or future decisions

26
Q

What is the Full (product) Cost?

A

the sum of the FIXED and VARIABLE manufacturing costs to sell a unit

27
Q

What does the Full Cost include?

A
  1. variable costs of producing and selling the product
  2. a share of the organization’s fixed costs
28
Q

What is a Special Order?

A

an order that will not affect other sales and is usually a short-run occurrence

29
Q

What costs do decision-makers focus on when deciding whether or not to accept a special order?

A

Differential Costs

NOT FULL COSTS!

30
Q

When is a Special Order usually accepted?

A

When idle capacity is adequate for the job

31
Q

What does a Product Life Cycle cover?

A

the time from initial R&D to the time at which support to the customer ends

32
Q

What does Life-Cycle Costing (or cradle-to-grave costing) track costs from?

A

from the START to FINISH for each product

33
Q

What is the formula for Target Price?

A

Desired Profit Margin - Target Costs

34
Q

What is Predatory Pricing?

A

the practice of setting a selling price below cost with the intent to harm competition by driving out competitors out of the marketing or by creating a barrier to entry for new competitors

35
Q

What is Dumping?

A

occurs when a company exports its product to consumers in another country at an export price below its domestic price

36
Q

What is Price Discrimination?

A

the practice of selling identical goods or services to different customers at different prices

37
Q

What is Peak-Load Pricing?

A

the practice of setting prices highest when the quantity demanded for the product approaches the physical capacity to produce it (and lower at other times)

e.g., airline tickets

38
Q

What is Price Fixing?

A

represents the agreement among business competitors to set prices at a particular level

e.g., OPEC

39
Q

TRUE/FALSE: Make-or-Buy Decisions are SENSITIVE to volume.

A

TRUE

40
Q

What must be considered in Make vs Buy Decisions?

A

the relevant costs include the variable manufacturing costs that can be SAVED

the fixed overhead that may be ELIMINATED

and the purchase price of the parts under consideration

41
Q

What happens if a product line is DROPPED?

A

Direct Fixed costs to a division will GO AWAY with the disposal of the division

Allocated Fixed costs will NOT be eliminated if the division is closed

42
Q

TRUE/FALSE: Financial statements prepared in accordance with GAAP do routinely provide differential cost information.

A

FALSE - they do NOT routinely provide differential cost information

ACC-427: Cost Accounting (6 decks)

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