Accounting 225 Final

Sales at breakeven

(FE)/(CMR)

ROI

(NOI)/av op assets

Maximizing CM (rank products in order in which they should be emphasized)

(VC-SP)=CM per unit then, unit CM/ minutes of constraint This gives you CM per unit of constraint

Incremental profit/loss

(incremental revenue, which is value after further processing-value at split off point)-incremental cost=

Minimum acceptable price

(lost CM on normal sales + VC on Special order)/# of units in special order

Segment breakeven $

(segment traceable FE)/(segment CM ratio)

Company breakeven $

(traceable FE + common FE)/(company contribution margin ratio)

Relevant benefit

A benefit that differs between alternatives in a decision. (differential revenue is a relevant benefit).

Avoidable cost

A cost that can be eliminated by choosing one alternative over another in a decision. (synonyms with differential and relevant cost)

Sunk cost

A cost that has already been incurred and that cannot be changed by any decision now or in the future. (ex: week 8 in the quarter, your tuition cost is a sunk cost, you cannot get that money back now).

Relevant cost

A difference in cost between any two alternatives. Can also be called avoidable cost, differential cost and incremental cost.

Differential cost (incremental cost)

A difference in cost between two alternatives

Differential revenue

A difference in revenue between two alternatives

Price Taker

A firm lacks monopoly power, prices for goods and services are decided in the market place, firms don't have control over prices

Manufacturing Overhead

All cost of manufacturing a product other than direct materials and direct labor (such as indirect materials, indirect labor, factory utilities, and depreciation of factory buildings and equipment)

Administrative costs

All costs associated with the general management of the company as a whole (depreciation of office buildings/equipment, secretarial salaries)

Selling Costs

All costs necessary to secure customer orders and get the finished product or service to the customer (such as sales commission, ads, and depreciation on delivery equipment and finished goods warehouses)

relevant, irrelevant

Avoidable costs are ________ costs. Unavoidable costs are ________ costs.

Yes!

Can irrelevant date be ignored by decision makers?

Segment Margin

Contribution margin-traceable fixed costs

Conversion Cost

Direct Labor + Manufacturing Overhead

Prime Cost

Direct Materials + Direct Labor

NO

Do you use allocated FC when calculating a segment?

Direct Labor

Labor costs that can be conveniently and physically traced to a product (such as assembly line workers in a plant)

Direct Materials

Materials that can be conveniently traced to a product (such as wood on a table).

ROI

NOI/Average op assets

Residual Income

Net operating income-(Average operating assets times rate of return)

Split-off point

Point in production where joint products become separate products

Net monetary advantage (benefit of further processing)

Sales of FP-Costs of further processing

Segment CM ratio

Segment CM/Segment Sales

Yes, they are irrelevant.

Should sunk costs be ignored when making decisions?

Dollar sales to break even

Total FE/CM ratio

13.95 which was the marginal cost

Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity?

yes

When the business is operating at capacity, the opportunity cost is the contribution margin

Out-of-pocket-costs

actual cash outlays for salaries, advertising and other operating expenses

Cost of capital

average rate of return a company must pay to it's long-term creditors and its shareholders for the use of their funds

Bottlenecks

determine the throughput of a supply chain. Recognizing this fact and making improvements will increase cash flow. A bottleneck (or constraint) in a supply chain means the resource that requires the longest time in operations of the supply chain for certain demand.

Postaudit

involves checking whether or not expected results are actually realized

opportunity cost on normal sales

unit cm (so Normal SP-Normal VC)