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Test 1 - Flashcards

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Class:ACC 312 - FUNDAMENTALS OF MANAGERIAL ACC
Subject:Accounting
University:University of Texas - Austin
Term:Spring 2015
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Cost of Good manufactured The difference between total manufacturing cost (Direct material – raw material included, direct labor, and manufacturing overhead) and work-in-process inventory
Product cost Costs recorded at the time of purchase - think Cost of Goods Sold - costs you had to pay because you were making a product for resale
Period Costs Costs incurred during the period - think operating expenses
Opportunity Cost Cost of giving up the next best option
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Sunk Cost Cost incurred in the past – do not consider this when making a decision for the future
Marginal Cost The cost to make one more of an item
Average cost The cost of making that total batch divided by the expense
6 different kinds of graphs that can display costs

1. Variable

2. Fixed

3. Step-Variable 

4. Step 

5. Curvilinear 

6. Semi-Variable

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Cost Estimation Methods Accounting Classification – categorizing expenses between fixed, semi-variable, and variable
Visual Fit – a pretty picture
High-Low method – look below
Regression – think stats.
High-Low Method Difference between cost / Difference between units produced = Variable Cost
Fixed cost = Total Variable Cost - Units Produced * Variable Cost

* These numbers are based on high and low activity levels *

Break-Even Point Volume of Activity where revenues = expenses

Break Even Point Equation Break Even Point = Sales Revenue (Sales Price * Units) - Variable Expense (Unit Variable Expense * Units) - Fixed Expense = 0
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Unit Contribution Margin
Sales Price - Unit Variable Expense

Break Even Point (In units) BEP (in units)=  (Fixed Expense)/(Unit Contribution Margin)
Gross Margin v. Total Contribution Margin Gross Margin = Sales Rev – Variable Exp – Fixed Expense 

Total Contribution Margin = Sales Rev - Variable Exp
Contribution Margin Ratio Contribution Margin / Sales
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Break Even Point (in sales dollars) Fixed Expense / CM Ratio
Finding Target Profit Either use the break-even equation and instead of using a 0, use the net profit number or use the equation: 
(Fixed Expense + Target Profit) / Unit Contribution Margin
Safety Margin

The difference between sales revenue and break-even sales

Information needed to make a decision Accurate – precise; timely – available in time; and relevant – it has a bearing on the future and is different from competitors 
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When making a decision about a special order No excess capacity – look at variable cost of decision; With excess capacity – look at variable & opportunity cost

Remember: Fixed Costs are based on a total, not by unit

Calculating CVP – cost volume profit analysis When looking at two or more products, use a Sales Mix to calculate out the break-even point

1. Find Sales Mix: Unit Contribution Margin / Total number of goods
2. Find Weighted Contribution Margin: Use Sales Mix * Contribution Margin = Unit Contribution Margin then plug into Fixed Expense / Unit Contribution Margin
3. Take break-even point number and apply to sales mix.
Calculating Before Tax Net Income Target After Tax Net Income / (1 - Tax Rate)

*This formula can be applied to find the new break-even point or target profit*

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 Cost of Good manufacturedThe difference between total manufacturing cost (Direct material – raw material included, direct labor, and manufacturing overhead) and work-in-process inventory
 Product costCosts recorded at the time of purchase - think Cost of Goods Sold - costs you had to pay because you were making a product for resale
 Period CostsCosts incurred during the period - think operating expenses
 Opportunity CostCost of giving up the next best option
 Sunk CostCost incurred in the past – do not consider this when making a decision for the future
 Marginal CostThe cost to make one more of an item
 Average costThe cost of making that total batch divided by the expense
 6 different kinds of graphs that can display costs

1. Variable

2. Fixed

3. Step-Variable 

4. Step 

5. Curvilinear 

6. Semi-Variable

 Cost Estimation MethodsAccounting Classification – categorizing expenses between fixed, semi-variable, and variable
Visual Fit – a pretty picture
High-Low method – look below
Regression – think stats.
 High-Low MethodDifference between cost / Difference between units produced = Variable Cost
Fixed cost = Total Variable Cost - Units Produced * Variable Cost

* These numbers are based on high and low activity levels *

 Break-Even PointVolume of Activity where revenues = expenses

 Break Even Point EquationBreak Even Point = Sales Revenue (Sales Price * Units) - Variable Expense (Unit Variable Expense * Units) - Fixed Expense = 0
 Unit Contribution Margin
Sales Price - Unit Variable Expense

 Break Even Point (In units)BEP (in units)=  (Fixed Expense)/(Unit Contribution Margin)
 Gross Margin v. Total Contribution MarginGross Margin = Sales Rev – Variable Exp – Fixed Expense 

Total Contribution Margin = Sales Rev - Variable Exp
 Contribution Margin RatioContribution Margin / Sales
 Break Even Point (in sales dollars)Fixed Expense / CM Ratio
 Finding Target ProfitEither use the break-even equation and instead of using a 0, use the net profit number or use the equation: 
(Fixed Expense + Target Profit) / Unit Contribution Margin
 Safety Margin

The difference between sales revenue and break-even sales

 Information needed to make a decisionAccurate – precise; timely – available in time; and relevant – it has a bearing on the future and is different from competitors 
 When making a decision about a special orderNo excess capacity – look at variable cost of decision; With excess capacity – look at variable & opportunity cost

Remember: Fixed Costs are based on a total, not by unit

 Calculating CVP – cost volume profit analysisWhen looking at two or more products, use a Sales Mix to calculate out the break-even point

1. Find Sales Mix: Unit Contribution Margin / Total number of goods
2. Find Weighted Contribution Margin: Use Sales Mix * Contribution Margin = Unit Contribution Margin then plug into Fixed Expense / Unit Contribution Margin
3. Take break-even point number and apply to sales mix.
 Calculating Before Tax Net IncomeTarget After Tax Net Income / (1 - Tax Rate)

*This formula can be applied to find the new break-even point or target profit*

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