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