Managerial Accounting Exam #3

How do you calculate Contribution Margin Weighted Average?

(CM1 x SM1) + (CM2 x SM2)....etc (if needed)

Estimating a Cost Equation for a Mixed Cost

To separate the fixed and variable components of Mixed Costs. Total Cost = Total fixed costs + (variable costs per unit X activity)

Relevant Range

the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid. Can also be thought of as a period of time given enough time, all costs are variable costs.

Degree of Operating Leverage

A measure of how much a company uses fixed costs in relation to variable costs (higher use of fixed costs lead to higher operating leverage)

How do you calculate Break Even Point Sale $?

BEPslae$ = FC/CM%

How do you calculate Break Even Point units?

BEPunits = FC / CM

How do you calculate Degree of Operating Leverage

CM/NI

How do you calculate in Net Income

Change in net income = change in SR x DOL

Mixed Costs

Costs that contain both a variable- and a fixed-cost element and change in total but not proportionately with changes in the activity level.

is a higher DOL good or bad?

Depends on the situation. Sales go up, revenue goes up. Sales go down, leverage goes down.

Contribution Margin

Difference between sales price (revenue) and variable cost.

How do you calculate Fixed Cost in Hi/Low?

FC = TC-VC(X)

How do Variable costs change in total and per unity?

In total it changes in direct proportion to the activity level. per variable costs remain the same.

How do fixed costs change in total and per unit?

In total it remains the same. Per unit it decreases with income in activity level

How do you calculate Margin of Safety

MOS = Actual - BEP

How do you calculate Margin of Safety %

MOS% = MOS / Actual

How do you calculate Point of Indifferance

SP(Q) - VC(Q)=SP(Q)-VC(Q) - FC OR POI= change in FC/change in VC

How do you calculate Contribution Margin?

SP(revenue) - VC

How do you calculate profit?

SP(revenue)(Q) - VC(Q) - FC

How do you calculate total cost?

TC = FC+VC(x) or a+b(x)

How do you calculate Target Profit Sales$?

TPsales$ = (FC + TP)/ CM%

How do you calculate Target Profit Units?

TPunits = (FC+TP) / CM

How do you calculate variable cost in the Hi/Low Method?

VC = (Yh - Yl)/(Xh-Xl)

Point of Difference

a unique product characteristic or benefit that sets it apart from a competitor

Step Costs

costs that are fixed over a range of activity and then increase in a step-like fashion when a capacity limit is reached

Margin of Safety

difference between your actual or budgeted sales and the break 0 even point. Can be calculated as # of units, # of sales $, or % of total sales $.

Weighted - average contribution margin

the contribution margin per composite unit for a company that provides multiple goods or services; also called contribution margin per composite unit

Break-Even Point

the level of sales at which profit is zero