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Final Review - Flashcards

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Class:ACC 312 - FUNDAMENTALS OF MANAGERIAL ACC
Subject:Accounting
University:University of Texas - Austin
Term:Spring 2010
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managerial accounting identifying, measuring, interpreting, analyzing and communicating info in the pursuit of an org's goals
balanced scorecard measures financial performance, internal ops, innovation and learning, and customer satisfaction
cost management system measure cost of resources eliminate non-value-added costs determine efficiency evaluate new activities
activity-based costing cost of activities are accumulated and then assigned to goods in accordance to how the activities are used in production of those goods
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product cost goods purchased or manufactured for sale expense --> COGS
period costs all costs that are not product costs selling, general, & admin
variable costs change in TOTAL in proportion to activity change remain the same PER UNIT
fixed costs stay the same IN TOTAL decline PER UNIT in proportion to activity increase
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product-costing system accumulates costs incurred during production and assigns those costs to org's final products
product costs are transferred from ____ to ____ inventory with a ____ to _____ and a ____ to _____ WIP FG credit to WIP debit to FG
job-order costing assigns costs to each job that are averaged over the units of production in the job to obtain the AVERAGE COST PER UNIT job-shop or batch operations
process-costing system accumulates all the production costs for a large # of units of output and averages them over all the units companies that produce large #s of identical units
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overhead application assigning MOH costs to production jobs
predetermined overhead rate apply MOH to WIP inventory
overhead is _____ at the ____ of the period, ____ ____ the period, and ____ overhead is measured at the ____ of the period budgeted at the beginning applied during actual OH is measured at the end
underapplied OH actual > applied
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overapplied OH applied > actual
normal costing DL & DM are added to WIP at actual amounts OH applied to WIP with a POHR
actual costing DM & DL are added to WIP at actual amounts actual OH is allocated to WIP using an actual overhead rate
two-stage allocation stage 1: cost distribution & service department cost allocation stage 2: overhead application
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equivalent units manufacturing activity that has been applied to a batch of physical units costs of DM and conversion are assigned to EQ
weighted-average method of process costing (steps) 1. analysis of physical flow of units 2. calculation of EQ units 3. computation of unit costs 4. analysis of total costs
computation of unit costs cost per EQ unit for DM = total DM cost/total EQ units
operation costing conversion activities are very similar but DM differ significantly POHR = budgeted conversion costs / budgeted cost driver
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activity-based costing stages 1: comprise activity cost pools 2: identify cost drivers for each pool
4 categories of activity cost pools unit - activity required for each unit of production batch - activity required for each batch product-sustaining - activities req to support entire product line but not preformed for every new unit facility level - req in order for entire prod process to occur
pool rate computation activity cost pool / cost driver quantity
total activity for product line computation pool rate x cost driver quantity
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product cost per unit computation activity cost per product line / product line production volume
criteria for selecting cost drivers 1) degree of correlation 2) cost of measurement 3) behavioral effects
2D ABC model cost assignment view - horizontal --> cost allocation process view - vertical --> emphasis on activities
cost ____ > cost ____ > cost ____ estimation behavior prediction
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cost behavior relationship between cost and activity
cost prediction forecast level of cost at particular activity
cost estimation determine cost behavior based on historical data
step-variable costs nearly variable but increase in small steps
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step-fixed costs fixed over a wide range but jump to a different amount outside that range
semivariable costs both fixed and variable component
curvilinear cost behavior pattern has a curved graph
relevant range range of activity within management expects the organzation to operate
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engineered cost definitive physical relationship to activity measure direct material
committed cost organization's ownership/use of facilities can be changed through major decisions that have long-term implications
discretionary cost result of a management decision --> ads and promo changed in the short-run easily
visual-fit method plot cost observations into a scatter diagram to visualize relationship between cost and level of activity
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account-classification method examination of ledger accounts that classifies each cost as variable, fixed or semi
engineering method how much material SHOULD be needed and how much it SHOULD cost
learning curve as labor time decline, labor costs decline too
experience curve learning-curve concept is applied to a broader set of costs than just labor
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cost-volume profit (CVP) analysis effects of changes in a org's volume of activity on its costs, revenues and profit categorize expenses - fixed or variable
break-even point revenues and expenses are equal
total contribution margin total sales revenue - total variable expenses
unit contribution margin amount that remains of each unit after variable expenses have been covered
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contribution margin ratio unit CM / unit selling price
equation approach sales - VC - FC = profit
safety margin budgeted sales revenue - break-even sales revenue
when _____ increase, the BEP will _____ fixed expenses increase equally
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if _____ increase, the _____ will fall variable expenses unit CM
total contribution margin TOTAL sales revenue - TOTAL variable costs
weighted-average unit contribution margin average of several products' unit CM weighted by the relative sales proportion
operating leverage ability of a firm to generate an increase in net income when sales revenue increases extent to which an org uses FC in its cost structure
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operating leverage factor percentage impact on net income of a given percentage change in sales revenue high FC = high OLF --> large % increase in net income from small % increase in sales revenue -- high BEP
after-tax net income after-tax net income = (before-tax income)(1 - t)
sales budget sales revenue = # of units x SP
production budget beg FG inv + planned production = budgeted sales + end FG used by manufacturing firms
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RM purchases budget beg RM + RM purchased = RM needed for prod + end ROM used by merchandising firms
DM price variance PQ (AP - SP) favorable when SP > AP
DM quantity variance SP (AQ - SQ) favorable when SQ > AQ
DL rate variance AH (AR - SR) favorable when SR > AR
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DL efficiency variance SR (AH - SH) favorable when SH > AH
standard-costing system standard costs of DM and DL are entered into the WIP inv
manufacturing cycle efficiency (MCE) processing time / (processing time + inspection time + waiting time + move time) high MCE as possible
aggregate (total) productivity total output / total input
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flexible budget not based on only 1 level of activity --> covers a wide range controlling OH costs
columnar flexible budget when OH costs can be divided into variable and fixed limited # of activity levels
formula flexible budget relationship between activity and total budgeted OH cost
variable-overhead spending variance AH (AVR - SVR) OR Actual Variable OH - (AH x SVR) favorable when standard > actual
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variable-overhead efficiency variance SVR (AH - SH) favorable when SH > AH
fixed-overhead budget variance actual fixed OH - budgeted fixed OH favorable when budgeted > actual
fixed-overhead volume variance budgeted fixed OH - applied fixed OH favorable when applied > budgeted
applied fixed OH POHR x standard allowed hours
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responsibility accounting measure the performance of people and depts to ensure goal congruence
4 types of responsibility centers cost - responsible for costs incurred revenue - responsible for revenue generated profit - responsible for both revenue and expenses (profit) investment - responsible for profit and invested capital used
transfer price price at which products are transferred between 2 subunits affects the profit of buying AND selling
return on investment (ROI) income / invested capital
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sales margin income / sales revenue measures % of each sales dollar that remains as profit after expenses
capital turnover sales revenue / invested capital # of sales dollars generated by every dollar of invested capital
how to improve ROI increase either/both sales margin and capital turnover
residual income (RI) investment center's profit - (inv. center's invested capital x imputed interest rate) dollar amount
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general transfer-pricing rule additional outlay cost per unit incurred because goods are transferred + opportunity cost per unit to the organization because of the transfer = transfer price = external market price
variable cost (in cost-based transfer pricing) set transfer price = standard variable cost not allowed to show any CM
full cost (in cost-based transfer pricing) equal to the product's variable cost plus an allocated portion of fixed OH full cost = variable cost + allowed fixed OH
3 characteristics of useful info 1) relevant - pertinent 2) accurate - precise 3) timely - available in time for a decision more accurate info takes longer time to produce
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2 criteria of relevant info 1) cost or benefit must involve a future event 2) different from competing alternatives
sunk costs costs that have already been incurred IRRELEVANT
opportunity cost potential benefit given up when the choice of one action precludes a different action RELEVANT
joint production process results in 2+ products --> joint products
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split-off point point in joint production process where joint products are identifiable as separate products
joint cost total cost + joint processing = joint cost IRRELEVANT
sales-value method joint cost is allocated between the join products in proportion to their sales value at the split-off point
separable processing cost cost incurred after split-off point
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how to avoid unitized fixed costs include a fixed cost in its total amount, not as a per-unit cost
how to avoid allocated fixed costs identify which costs will be avoided if a particular alternative is selected
4 influences that govern prices 1) customer demand 2) actions of competitors 3) costs 4) political, legal, and image-related issues
price takers products' prices are determined totally by the market
Generated by Koofers.com
total revenue curve relationship between total sales revenue and quantity sold shows trade-off between higher price and higher sales quantity
demand curve relationship between total cost and quantity produced and sold decreases throughout its range because decrease in price = increase in sales quantity
marginal revenue curve shows change in total revenue that accompanies a change in quantity sold decreasing throughout its range to show that total revenue increases at a declining rate as sales quantity increases
total cost curve relationship between total cost and quantity produced and sold increases throughout its range RATE of increase in total cost declines as quantity increases from 0 to c units RATE of increase in total cost increases as quantity increases from c units upward
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marginal cost curve shows change in total cost that accompanies change in quantity produced and sold declines as quantity increases from 0 to c units increases as quantity increases beyond c units
elastic price increase has large negative impact on sales volume
inelastic price changes have little or no impact on sales volume
cross-elasticity extent to which a change in a product's price affects the demand for other substitute products
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cost-plus pricing price = cost + (markup % x cost)
cost-plus pricing is based on: (4 choices) 1) absorption manufacturing cost - price must cover all costs and a normal profit margin 2) variable manufacturing cost 3) all costs - vc and fc of manufacturing, selling and administrative functions 4) all variable costs
ROI pricing used to determine the profit margin average invested capital x target ROI = target profit
target profit (equation) target profit = average invested capital x target ROI
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cost-plus pricing based on total costs markup % on total costs = target profit / (annual volume x total cost per unit)
cost-plus pricing based on total variable costs markup % on total variable cost = (target profit + total annual fixed cost) / (annual volume x total variable cost per unit)
general formula for cost-plus pricing markup % applied to cost base = (profit req. to achieve target ROI + total annual costs not included in cost base) / (annual volume x cost base per unit used in cost-plus formula)
target cost = target cost = target price - target profit
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time changes (equation) hourly labor cost + annual volume/annual labor hours + hourly change to cover profit margin
material changes (equation) material cost incurred on job + (material cost incurred on the job x (material handling & storage costs/annual costs of mat used))
padding the budget underestimating revenue or overestimating costs
budgetary slack difference between revenue or cost projection provided and a realistic estimate of either
Generated by Koofers.com
CVP analysis equation SP(x) = VC(x) + FC + Operating income before tax
assumptions of CVP analysis 1) total revenue is linear - price will not change as sales volume varies within relevant range 2) total expenses is linear - total fixed & unit variable remain unchanged as activity varies 3) multiproduct orgs, sales mix is constant over relevant range
no excess capacity the division can sell all of its production opportunity cost is incurred when product is transferred instead of sold to external market = forgone CM from the lost sale
excess capacity total demand for product from all sources (internal subdivisions and external market) is less than the production capacity NO opportunity cost to the company because the product can still satisfy all of its external demand
Generated by Koofers.com
value engineering cost-reduction and process-improvement technique that utilizes information collected about a product's design and production processes and then examines various attributes of the design and processes to identify candidates for improvement efforts
Generated by Koofers.com

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 managerial accountingidentifying, measuring, interpreting, analyzing and communicating info in the pursuit of an org's goals
 balanced scorecardmeasures financial performance, internal ops, innovation and learning, and customer satisfaction
 cost management systemmeasure cost of resources
eliminate non-value-added costs
determine efficiency
evaluate new activities
 activity-based costingcost of activities are accumulated and then assigned to goods in accordance to how the activities are used in production of those goods
 product costgoods purchased or manufactured for sale
expense --> COGS
 period costsall costs that are not product costs
selling, general, & admin
 variable costschange in TOTAL in proportion to activity change
remain the same PER UNIT
 fixed costsstay the same IN TOTAL
decline PER UNIT in proportion to activity increase
 product-costing systemaccumulates costs incurred during production and assigns those costs to org's final products
 product costs are transferred from ____ to ____ inventory with a ____ to _____ and a ____ to _____WIP
FG
credit to WIP
debit to FG
 job-order costingassigns costs to each job that are averaged over the units of production in the job to obtain the AVERAGE COST PER UNIT

job-shop or batch operations
 process-costing systemaccumulates all the production costs for a large # of units of output and averages them over all the units

companies that produce large #s of identical units
 overhead applicationassigning MOH costs to production jobs
 predetermined overhead rateapply MOH to WIP inventory
 overhead is _____ at the ____ of the period, ____ ____ the period, and ____ overhead is measured at the ____ of the periodbudgeted at the beginning
applied during
actual OH is measured at the end
 underapplied OHactual > applied
 overapplied OHapplied > actual
 normal costingDL & DM are added to WIP at actual amounts

OH applied to WIP with a POHR
 actual costingDM & DL are added to WIP at actual amounts

actual OH is allocated to WIP using an actual overhead rate
 two-stage allocationstage 1: cost distribution & service department cost allocation

stage 2: overhead application
 equivalent unitsmanufacturing activity that has been applied to a batch of physical units

costs of DM and conversion are assigned to EQ
 weighted-average method of process costing (steps)1. analysis of physical flow of units
2. calculation of EQ units
3. computation of unit costs
4. analysis of total costs
 computation of unit costscost per EQ unit for DM = total DM cost/total EQ units
 operation costingconversion activities are very similar but DM differ significantly

POHR = budgeted conversion costs / budgeted cost driver
 activity-based costing stages1: comprise activity cost pools

2: identify cost drivers for each pool
 4 categories of activity cost poolsunit - activity required for each unit of production

batch - activity required for each batch

product-sustaining - activities req to support entire product line but not preformed for every new unit

facility level - req in order for entire prod process to occur
 pool rate computationactivity cost pool / cost driver quantity
 total activity for product line computationpool rate x cost driver quantity
 product cost per unit computationactivity cost per product line / product line production volume
 criteria for selecting cost drivers1) degree of correlation

2) cost of measurement

3) behavioral effects
 2D ABC modelcost assignment view - horizontal --> cost allocation

process view - vertical --> emphasis on activities
 cost ____ > cost ____ > cost ____estimation
behavior
prediction
 cost behaviorrelationship between cost and activity
 cost predictionforecast level of cost at particular activity
 cost estimationdetermine cost behavior based on historical data
 step-variable costsnearly variable but increase in small steps
 step-fixed costsfixed over a wide range but jump to a different amount outside that range
 semivariable costsboth fixed and variable component
 curvilinear costbehavior pattern has a curved graph
 relevant rangerange of activity within management expects the organzation to operate
 engineered costdefinitive physical relationship to activity measure

direct material
 committed costorganization's ownership/use of facilities

can be changed through major decisions that have long-term implications
 discretionary costresult of a management decision --> ads and promo

changed in the short-run easily
 visual-fit methodplot cost observations into a scatter diagram to visualize relationship between cost and level of activity
 account-classification methodexamination of ledger accounts that classifies each cost as variable, fixed or semi
 engineering methodhow much material SHOULD be needed and how much it SHOULD cost
 learning curveas labor time decline, labor costs decline too
 experience curvelearning-curve concept is applied to a broader set of costs than just labor
 cost-volume profit (CVP) analysiseffects of changes in a org's volume of activity on its costs, revenues and profit

categorize expenses - fixed or variable
 break-even pointrevenues and expenses are equal
 total contribution margintotal sales revenue - total variable expenses
 unit contribution marginamount that remains of each unit after variable expenses have been covered
 contribution margin ratiounit CM / unit selling price
 equation approachsales - VC - FC = profit
 safety marginbudgeted sales revenue - break-even sales revenue
 when _____ increase, the BEP will _____fixed expenses

increase equally
 if _____ increase, the _____ will fallvariable expenses

unit CM
 total contribution marginTOTAL sales revenue - TOTAL variable costs
 weighted-average unit contribution marginaverage of several products' unit CM weighted by the relative sales proportion
 operating leverageability of a firm to generate an increase in net income when sales revenue increases

extent to which an org uses FC in its cost structure
 operating leverage factorpercentage impact on net income of a given percentage change in sales revenue

high FC = high OLF --> large % increase in net income from small % increase in sales revenue -- high BEP
 after-tax net incomeafter-tax net income = (before-tax income)(1 - t)
 sales budgetsales revenue = # of units x SP
 production budgetbeg FG inv + planned production = budgeted sales + end FG

used by manufacturing firms
 RM purchases budgetbeg RM + RM purchased = RM needed for prod + end ROM

used by merchandising firms
 DM price variancePQ (AP - SP)

favorable when SP > AP
 DM quantity varianceSP (AQ - SQ)

favorable when SQ > AQ
 DL rate varianceAH (AR - SR)

favorable when SR > AR
 DL efficiency varianceSR (AH - SH)

favorable when SH > AH
 standard-costing systemstandard costs of DM and DL are entered into the WIP inv
 manufacturing cycle efficiency (MCE)processing time / (processing time + inspection time + waiting time + move time)

high MCE as possible
 aggregate (total) productivitytotal output / total input
 flexible budgetnot based on only 1 level of activity --> covers a wide range

controlling OH costs
 columnar flexible budgetwhen OH costs can be divided into variable and fixed

limited # of activity levels
 formula flexible budgetrelationship between activity and total budgeted OH cost
 variable-overhead spending varianceAH (AVR - SVR) OR Actual Variable OH - (AH x SVR)

favorable when standard > actual
 variable-overhead efficiency varianceSVR (AH - SH)

favorable when SH > AH
 fixed-overhead budget varianceactual fixed OH - budgeted fixed OH

favorable when budgeted > actual
 fixed-overhead volume variancebudgeted fixed OH - applied fixed OH

favorable when applied > budgeted
 applied fixed OHPOHR x standard allowed hours
 responsibility accountingmeasure the performance of people and depts to ensure goal congruence
 4 types of responsibility centerscost - responsible for costs incurred

revenue - responsible for revenue generated

profit - responsible for both revenue and expenses (profit)

investment - responsible for profit and invested capital used
 transfer priceprice at which products are transferred between 2 subunits

affects the profit of buying AND selling
 return on investment (ROI)income / invested capital
 sales marginincome / sales revenue

measures % of each sales dollar that remains as profit after expenses
 capital turnoversales revenue / invested capital

# of sales dollars generated by every dollar of invested capital
 how to improve ROIincrease either/both sales margin and capital turnover
 residual income (RI)investment center's profit -
(inv. center's invested capital x imputed interest rate)

dollar amount
 general transfer-pricing ruleadditional outlay cost per unit incurred because goods are transferred
+
opportunity cost per unit to the organization because of the transfer
=
transfer price = external market price
 variable cost (in cost-based transfer pricing)set transfer price = standard variable cost

not allowed to show any CM
 full cost (in cost-based transfer pricing)equal to the product's variable cost plus an allocated portion of fixed OH

full cost = variable cost + allowed fixed OH
 3 characteristics of useful info1) relevant - pertinent

2) accurate - precise

3) timely - available in time for a decision

more accurate info takes longer time to produce
 2 criteria of relevant info1) cost or benefit must involve a future event

2) different from competing alternatives
 sunk costscosts that have already been incurred

IRRELEVANT
 opportunity costpotential benefit given up when the choice of one action precludes a different action

RELEVANT
 joint production processresults in 2+ products --> joint products
 split-off pointpoint in joint production process where joint products are identifiable as separate products
 joint costtotal cost + joint processing = joint cost

IRRELEVANT
 sales-value methodjoint cost is allocated between the join products in proportion to their sales value at the split-off point
 separable processing costcost incurred after split-off point
 how to avoid unitized fixed costsinclude a fixed cost in its total amount, not as a per-unit cost
 how to avoid allocated fixed costsidentify which costs will be avoided if a particular alternative is selected
 4 influences that govern prices1) customer demand
2) actions of competitors
3) costs
4) political, legal, and image-related issues
 price takersproducts' prices are determined totally by the market
 total revenue curverelationship between total sales revenue and quantity sold

shows trade-off between higher price and higher sales quantity
 demand curverelationship between total cost and quantity produced and sold

decreases throughout its range because
decrease in price = increase in sales quantity
 marginal revenue curveshows change in total revenue that accompanies a change in quantity sold

decreasing throughout its range to show that total revenue increases at a declining rate as sales quantity increases
 total cost curverelationship between total cost and quantity produced and sold

increases throughout its range

RATE of increase in total cost declines as quantity increases from 0 to c units

RATE of increase in total cost increases as quantity increases from c units upward
 marginal cost curveshows change in total cost that accompanies change in quantity produced and sold

declines as quantity increases from 0 to c units

increases as quantity increases beyond c units
 elasticprice increase has large negative impact on sales volume
 inelasticprice changes have little or no impact on sales volume
 cross-elasticityextent to which a change in a product's price affects the demand for other substitute products
 cost-plus pricingprice = cost + (markup % x cost)
 cost-plus pricing is based on: (4 choices)1) absorption manufacturing cost - price must cover all costs and a normal profit margin

2) variable manufacturing cost

3) all costs - vc and fc of manufacturing, selling and administrative functions

4) all variable costs
 ROI pricingused to determine the profit margin

average invested capital x target ROI = target profit
 target profit (equation)target profit = average invested capital x target ROI
 cost-plus pricing based on total costsmarkup % on total costs =

target profit /

(annual volume x total cost per unit)
 cost-plus pricing based on total variable costsmarkup % on total variable cost =

(target profit + total annual fixed cost) /
(annual volume x total variable cost per unit)
 general formula for cost-plus pricingmarkup % applied to cost base =

(profit req. to achieve target ROI +
total annual costs not included in cost base)
/
(annual volume x cost base per unit used in cost-plus formula)
 target cost =target cost = target price - target profit
 time changes (equation)hourly labor cost
+
annual volume/annual labor hours
+
hourly change to cover profit margin
 material changes (equation)material cost incurred on job
+
(material cost incurred on the job
x (material handling & storage costs/annual costs of mat used))
 padding the budgetunderestimating revenue or overestimating costs
 budgetary slackdifference between revenue or cost projection provided and a realistic estimate of either
 CVP analysis equationSP(x) = VC(x) + FC + Operating income before tax
 assumptions of CVP analysis1) total revenue is linear - price will not change as sales volume varies within relevant range
2) total expenses is linear - total fixed & unit variable remain unchanged as activity varies
3) multiproduct orgs, sales mix is constant over relevant range
 no excess capacitythe division can sell all of its production

opportunity cost is incurred when product is transferred instead of sold to external market = forgone CM from the lost sale
 excess capacitytotal demand for product from all sources (internal subdivisions and external market) is less than the production capacity

NO opportunity cost to the company because the product can still satisfy all of its external demand
 value engineeringcost-reduction and process-improvement technique that utilizes information collected about a product's design and production processes and then examines various attributes of the design and processes to identify candidates for improvement efforts
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