# Test 1 - Flashcards

## Flashcard Deck Information

 Class: ACC 312 - FUNDAMENTALS OF MANAGERIAL ACC Subject: Accounting University: University of Texas - Austin Term: Spring 2015
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Mode:         ? pages 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. Variable2. Fixed3. 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 variableVisual Fit – a pretty pictureHigh-Low method – look belowRegression – think stats. High-Low Method Difference between cost / Difference between units produced = Variable CostFixed 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 point1. Find Sales Mix: Unit Contribution Margin / Total number of goods2. Find Weighted Contribution Margin: Use Sales Mix * Contribution Margin = Unit Contribution Margin then plug into Fixed Expense / Unit Contribution Margin3. 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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## List View: Terms & Definitions

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Back
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*