ACG2071 Ch. 5, 6, 8

Traceable Fixed Cost

a fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated

Common Fixed Cost

a fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments

Responsibility Accounting

a manager should be held responsible for the items and only the items he has control over

The cost of unsold units is computed on the ______ budget

ending finished goods inventory

Absorption costing can lead managers to mistakenly believe that fixed manufacturing overhead cost will ______ ______ ______ as the number of units produced increases

increase in total

What costs make up the manufacturing cost per unit under variable costing?

Direct Labor Variable Manufacturing Overhead Direct Materials

CM at break even point=

BE Point in dollars - (BE unit sales X Variable expenses per unit)

To prepare a budgeted balance sheet as of Dec. 31, 2012, data is needed from the:

Balance sheet as of Dec. 31, 2011

CM Ratio=

CM / Sales

Degree of operating leverage=

CM / net operating income

Change in CM=

CM Ratio X Change in sales

Variable Costing Net Income=

CM X # of units sold - total fixed costs

CVP

Cost Volume Profit

Unit Production Cost under Absorption Costing=

DM per unit + DL per unit + VMO per unit + FMO per unit

% change in net operating income=

Degree of operating leverage X % change in sales

______ expenses are deducted from the segment CM to compute the divisional segment margin

Fixed

Dollar Sales to Break even=

Fixed expenses / CM Ratio

Unit Sales to break even=

Fixed expenses / Unit CM

Margin of Safety %=

Margin of safety in dollars / total budgeted (or actual) sales

The amount of goods for resale to be purchased from suppliers during the period is shown on the ______ ______ budget.

Merchandise purchases

3 Common mistakes made by companies when assigning costs to segments include:

Omitting Costs Inappropriately assigning traceable fixed costs Randomly allocate common fixed costs

Profit=..... using the CM Ratio Change in profit=..... using the CM Ratio

Profit = CM Ratio X Sales - Fixed expenses or Change in Profit = CM Ratio X Change in Sales - Change in FE

Absorption Costing Income Statement

Sales CGS Gross Margin Selling and Administrative Expenses Net Operating Income

Dollar Sales for a segment to break even=

Segment traceable FE / Segment CM Ratio

segment Margin=

Segments CM - Traceable FC represents the margin available after a segment has covered all of its own traceable costs

Unit Contribution Margin (CM)=

Selling Price Per Unit - Variable Expenses per Unit

Margin of Safety in dollars=

Total budgeted (or actual) sales - BE Sales

Variable Expense Ratio=

VE / Sales

When preparing a CM income statement, CGS consist of only ______ manufacturing costs

Variable

A ______ costing income statement focuses on fixed and variable expenses, while a(n) ______ costing income statement focuses on period and product costs

Variable, absorption

Self-imposed or Participative budget

a budget that is prepared with the full cooperation and participation of managers at all levels

Cash Budget

a detailed plan showing how cash resources will be acquired and used

Production Budget

lists the number of units that must be produced during a period in order to satisfy both sales and inventory needs

When a company does not use self-imposed budgeting. Top managers initiate the budgeting process by issuing profit targets and direct ______-level managers to prepare budgets that meet those targets.

lower

Variable Costing

only those manufacturing cost that vary with output are treated as product costs. Expensed at its entirety each period

Variable costing treats fixed manufacturing overhead as a ______ cost

period

Fixed manufacturing overhead is a ______ cost under Variable costing and a _____ cost under absorption costing

period, product

Budgets are used for 2 distinct purposes, ______ and ______

planning and control

In a manufacturing company, the ______ budget is prepared right after the sales budget

production

Sales Mix

refers to the relative proportions in which a company's products are sold

GAAP and IFRS rules:

require that the same method be used for both internal and external segment reporting require segmented financial data be included in annual reports

Sales budget

schedule showing the expected sales for the budget period

A manager who wants to submit a budget that is easy to attain will try to put budgetary ______ into his or her budget

slack

A Master Budget lays out...

the company's sales, production, and financial goals

What is the purpose of CVP?

to estimate how profits are affected by the following 5 factors: Selling Prices Sales volume Unit variable costs total fixed costs mix of product sold

Absorption Costing

treats all manufacturing costs as product costs, regardless of whether they are variable or fixed. required for external reports according to GAAP. IFRS explicitly requires companies to use absorption costing. Most companies use it for both external and internal reports

Under absorption costing, fixed manufacturing overhead costs flow to the income statement when:

units are sold

Variable selling costs are incurred on:

units sold

Segment CM equals segment rev. minus the ______ expenses for the segment

variable

Dollar Sales to attain a target profit=

(TP + Fixed expenses) / CM Ratio

Unit sales to attain the target profit=

(Target Profit + Fixed Expenses) / Unit CM

Dollar Sales for company to break even= (when company is segmented)

(Traceable FE + Common FE) / Overall CM Ratio

Direct Materials Budget

a detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories

Planning

involves developing goals and preparing various budgets to achieve those goals

Control

involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change

Continuous or Perpetual Budget

is a 12 month budget that rolls forward one month as the current month is completed

Operating Leverage

is a measure of how sensitive net operating income is to a given percent change in dollar sales