ACC 213 Exam 2

True or false: Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits.

False: Only requires knowledge about the change in sales, not the previous ones

is operating leverage constant

NO

VE ratio

VE/sales

linear cost behavior

cost behavior said to be linear when a straight line is a reasonable approximation for the relation between cost and activity

activity measure aka

cost driver

The contribution margin income statement allows users to easily judge the impact of a change in ______ on profit. cost, location, selling price, organizational structure, volume. (Pick 3)

cost, selling price, volume

activity based costing

costing method based on activities that is designed to provide managers with cost info for strategic and other decisions that potentially affect capacity and therefore fixed and variable costs

when computing bulk sale DO NOT include ______ in equation

fixed expenses: not affected by bulk sale

_____ operating leverage means a small increase in unit sales can produce much larger percentage increase i ==n net operating income

high

higher FC=_____ operating leverage

higher

why will managers work so hard for even a small increase in sales volume?

if a company is near the break even point a small increase in sales volume could cause huge increase in profits

operating leverage

measure of how sensitive net operating income is to a given percentage change in unit sales

where is operating leverage the highest

near break even point

ABC 5 levels of activity

unit level, batch level, product level, customer level, org sustaining

duration or transaction drivers more commonly used

transaction: duration more accurate but more effort

True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.

true

The equation that should be used in setting a target selling price for a special order bulk sale that does not affect a company's normal sales is: selling price per unit =

variable cost per unit + desired profit per unit

profit=

(sales-variable expenses)-fixed expenses

how to find CM ratio if info not given

1-VE ratio

what does CM ratio represent

CM as a percentage of sales

CM ratio

CM/Sales

duration driver

a measure of the amount of time required to perform an activity

account analysis method

account classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves

Under activity-based costing, overhead includes

all direct costs

incremental analysis

analytical approach that focuses only on those costs and revenues that change as a result of a decision

segment

any part or activity of an org about which managers seek cost, revenue, or profit data

activity based management

approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects

engineering approach

based on industrial engineer's evaluation of the inputs that are required to carry out a particular activity and the prices of those inputs

organization sustaining

carried out regardless of any of the other 4

customer level

carried out to support customers but not related to any specific product

Using the contribution margin ratio, the impact on net income for a change in sales dollars is ______. Multiple choice question.

change in sales dollars × contribution margin ratio

as profits and sales increase, operating leverage _________

decreases

target profit analysis

estimating the level of sales needed to achieve desired target profit

When the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision is being made using _________ analysis

incremental

The contribution margin statement is primarily used for

internal decision making

ABC used for _______ reporting and absorption used for _______ reporting

internal, external

what are first stage allocations usually based on

interviews w employees that have first hand knowledge

break even point

level of sales where profit = 0

downside of using the high low method

only uses 2 data points

Activity based costing provides managers with information that affects

only variable costs

2 types of MO not assigned using ABC

organization sustaining costs and unused capacity costs

batch level

performed each time batch is handled/processed, regardless of how many units in batch

unit level

performed each time unit is produced

second stage allocation

process by which activity rates are used to apply costs to products and customers in ABC

first stage allocation

process by which overhead costs are assigned to activity cost pools in ABC

most common reports made with ABC data (2)

product and customer profitability reports

product level

related to specific products, must be carried out no matter how many units produced and sold/batches run

cost structure

relative proportion of fixed and variable costs in an organization

CVP analysis estimates how profits are affects by what 3 things:

selling prices, sales volume, unit variable cost, total fixed costs, product mix.

high low method

separating mixed costs into its fixed and variable elements by analyzing the change in cost between the high and low activity levels

least squares regression method

separating the mixed costs into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors

transaction driver

simple count of the number of times and activity occurs

which has greater stability? which has greater profits in better years? higher FC and lower VC: or :higher VC and lower FC

stability-higher VC lower FC profits-higher FC and lower VC

benchmarking

systematic approach to identifying the activities with the greatest potential for improvement

margin of safety

the excess of budgeted or actual dollar sales over the break even dollar sales

r^2

the measure of goodness of fit of the least squares regression analysis

The profit graph allows users to easily identify ______.

the profit at any given sales volume, the sales volume required to reach the break even point

sales mix

the relative proportion in which a company's products are sold

why are net incomes different for absorption and variable costing

they account for fixed manufacturing overhead differently, absorption its a product cost and under variable its a period cost

o prepare a CVP graph, lines must be drawn representing total revenue, ___________ and ___________

total expense, total fixed expense

two most common types of activity measures

transaction drivers and duration drivers