Managerial Accounting CHAPTERS 19,20,21 – Flashcards
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Cost Behavior
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refers to the manner in which a cost changes as the related activity changes
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3 cost behavior classifications
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variable costs fixed costs mixed costs
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Fixed cost
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remains constant in total dollar amount as the level of activity changes. goes down if production sales go up and vice versa
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Relevant range of production
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management decisions focus on a narrow range of activity, 40-80% of a factory's productive capacity
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Variable Costs
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remains constant with changes in the activity level and total variable costs vary in total to direct proportion to changes in production activity
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Mixed Costs
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characteristics of both a fixed cost and a variable cost
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High low method
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difference in total costs / difference in activity index
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Contribution Margin
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(sales - variable costs) the excess of sales revenue over variable costs
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Contribution margin ratio
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contribution margin$ / sales$
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operating profit
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sales- variable costs = contribution margin - fixed costs = ?
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Breakeven
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fixed costs / contribution margin per unit
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breakeven in sales
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breakeven units X selling price
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margin of safety
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current sales revenue - sales at the breakeven point, how far can sales drop before the company loses money
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Where should management spend most of their time on products?
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products with the highest contribution margin
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A company expects a 15% increase in sales, what is its effect on Variable, Fixed, and Mixed costs?
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Variable costs = increase Fixed costs = no change Mixed costs = increase
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UPS truck budgeting -gasoline -costs what is the best activity index
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miles driven
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Absorption costing
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reporting the costs of manufactured products, (direct labor, direct materials and factory overhead) as products
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Variable costing
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product cost is direct material, direct labor, and variable manufacturing overhead costs. treats fixed costs as period costs
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budget
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formal statement of management's plan for the future expressed in financial terms
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flexible budget
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allows for adjustments in activity levels
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zero based budgeting
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requires all levels of management to estimate sales, production, and other operating data as if the operations were being initiated for the first time
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continuous budgeting
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a variant of fiscal year budgeting where by a twelve month projection into the future is maintained at all times
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static budgeting
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a plan for a single level of production
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budgeted production
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+ beginning sales + desired ending inventory - beginning finished goods inventory = required production units
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sales budget
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the first budget customarily prepared as part of an entity's master budget
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budgeted cost of goods manufactured
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+ Beginning work in process inventory + Materials used + Direct Labor + Factory Overhead - ending work in process inventory = budgeted cost of goods manufactured
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minimum cash balance
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+ cash receipts - cash disbursements = estimated cash balance
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What are budgeted sales for the month?
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budgeted sales = anticipated sales (add sales for specific product then multiply by price)
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management accountants usually provide for a minimum cash balance in their cash budgets to...
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provide a safety buffer for variation in estimate
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What ratio indicates the percent of each sales to cover fixed costs and profit?
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contribution margin
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What is the difference between current sales revenue and sales at the breakeven point
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margin of safety
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What are 2 examples of variable costs?
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1. Direct Labor 2. Direct Materials
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What cost has the characteristic of a fixed cost and a variable cost?
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mixed cost
