question

Accounting

answer

the process of keeping the financial score for the entity

question

relevant cost:

answer

the cost that differs between two alternatives

question

sunk cost:

answer

cash already spent; irrelevant to decision making because cash does not exist, does not effect anything we do

question

break even is when revenue equals

answer

cost

question

differential analysis:

answer

analyzing the difference between two alternatives.

question

Traceable Fixed Cost

answer

A fixed cost that is able to be traced back to some sort of cost object or business segment

question

Common Fixed Cost

answer

A cost that cannot be traced back to a cost object or business segment.

question

relevant range:

answer

range in which costs are linear

question

market price:

answer

price paid by willing buyer/seller

question

Pricing

answer

company needs to produce and get an adequate return

question

cost plus pricing

answer

price is a markup on the cost (cost base + markup %)

question

Variable cost pricing does not cover FC,

answer

makes contribution to FC

question

importance of transfer pricing:

answer

allows manipulation and moving of profits to low tax environments.

question

Financial Accounting vs Managerial Accounting

answer

Financial: external users of financial statements; follow GAAP Managerial: internal users; no GAAP

question

The Rule Makers

answer

SEC: Securities and Exchange Commission IRS: Internal Revenue Service FASB: Financial Accounting Standards Board GAAS: Generally Accepted Auditing Standards GAAP: Generally Accepted Accounting Principles CPA: Certified Public Accountant AICPA: American Institute of Certified Public Accountants

question

Controller:

answer

typically the top accounting person in a company

question

The Security and Exchange Act of 1934

answer

created the Securities and Exchange Commission (SEC) authorized the SEC to set accounting rules SEC delegated the rule to a private non-profit industry group (now) FASB - Financial Accounting Standards Board

question

Entity

answer

organizational element about which accounting information is collected

question

all costs are

answer

historical

question

Objectivity

answer

arm's length negotiation: arm's length transaction is to ensure that both parties in the deal are acting in their own self interest and are not subject to any pressure or duress from the other party. both parties are on equal footing.

question

Going Concern

answer

company will be around long enough to use up assets and pay all liabilities

question

Revenue Recognition

answer

Earned: rendered goods and services Recognized: expectation of payment

question

Matching:

answer

match expenses with revenue in the period they occur

question

Consistency:

answer

follow the same procedures each accounting period so can compare financial statements

question

Conservatism:

answer

if multiple options exist, pick the least favorable

question

Materiality

answer

if you knew the fact, it could change your mind; 5% of something

question

Full Disclosure:

answer

"Full Monty" must disclose all relevant information

question

Assets:

answer

something of future economic value Are all assets shown on the balance sheet? Not all assets are on the balance sheet because some can not be objectively quantified.

question

Liability:

answer

something owed, not always on the balance sheet because they cannot always be quantified (such as product liability) contingent liabilities can also not be estimated. (A contingent liability is a potential liability...it depends on a future event occurring or not occurring.)

question

Stockholder's Equity:

answer

capital plus retained earnings

question

Capital:

answer

investment by the stockholders

question

Retained Earnings:

answer

Earnings retained in the business Ending RE = Beginning RE plus NIAT minus Dividends

question

Dividend:

answer

distribution of retained earnings to stockholders

question

Expense:

answer

expired asset

question

Revenue:

answer

rendered goods and/or services with the expectation of payment

question

Accounting process:

answer

recording, classifying, reporting, interpreting

question

Chart of Accounts:

answer

"Accountant's Bible" or "Index"--list of the names and account numbers for all accounts

question

General Journal:

answer

"Book of Original Entry"--shows the debits and credits for each accounting transaction

question

General Ledger:

answer

list of all transactions for the accounting period sorted by account number

question

Debit:

answer

entry on the left side of a general ledger account

question

Credit:

answer

entry on the right side of a general ledger account

question

Trial Balance:

answer

list of all accounts showing that the total debits equals the total credits

question

Adjusting Entry:

answer

reconciles a general ledger account to a backup schedule

question

Closing Entries:

answer

at end of period, all revenue and expense accounts closed to Retained Earnings

question

Reversing Entries:

answer

reversing an accrual entry from a pervious period

question

Contra account:

answer

account used to keep the balance in another account visible

question

Accrual Basis vs. Cash Basis:

answer

Accrual basis: accounting based on transactions Cash basis: accounting based on cash in/cash out (i.e. Real World)

question

GAAP:

answer

Generally Accepted Accounting Principles

question

Controller:

answer

typically the top accounting person in a company

question

Income Statement:

answer

matches revenue with expense over a period of time (financial video) (aka the operating statement or the "the P&L"—profit and loss statement)

question

SG&A: (Income Statement)

answer

selling, general, and administrative expense

question

Cost of goods sold: (Income Statement)

answer

Definition: cost of what is not there Formula: beginning inventory plus net purchases minus ending inventory

question

Non-cash charges: (Income Statement)

answer

Definition: deduction on income statement but no cash paid out Examples: depreciation, amortization, depletion, gain or loss on asset sale

question

Balance Sheet:

answer

-shows assets equals liabilities plus stockholders equity at a point in time (financial snapshot) -Current: within 12 months or one operating cycle -Current assets: assets that will be used up or converted to cash within one year -Current liabilities: liabilities which are due within one year

question

Statement of Changes in Cash Position:

answer

difference between two balance sheets expressed in cash

question

Common stock versus Preferred stock

answer

common stock: basic stock ("common") stock of the company sold to stockholders, rights by state law preferred stock: hybrid stock (may possess bonk like characteristics) sold to specific investors; rights by contract.

question

Stock: Authorized versus Issued versus Treasury versus Outstanding

answer

-Authorized: stock authorized for sale by stockholders in the Article of Incorporation -Issued: sold or exchanged for value -Treasury: stock bought back by the company (i.e. in the treasury of the company) -Outstanding: Issued minus Treasury; stock held by investors; most important: vote and receive dividends (if any paid)

question

Fixed (plant) assets (aka PPE—property, plant, and equipment):

answer

assets with an estimated useful life of more than one year

question

Long term liabilities:

answer

liabilities due beyond more than one year

question

Book value of an asset vs. market value of an asset

answer

-Book value of an asset: original cost minus accumulated depreciation -Market value of an asset: value paid by a willing buyer and willing seller

question

Book value of a company vs. market value of a company

answer

-Book value of a company: common stockholders' equity -Market value of a company: value paid by a willing buyer and willing seller

question

Sales vs. revenue:

answer

there is no difference

question

Accrued:

answer

estimated

question

Gross revenue vs. net revenue

answer

Gross revenue (i.e. P x Q) (Sales returns and allowances) (Sales discounts) = Net revenue -Net revenue is most important because that is what you expect to collect

question

Gross accounts receivables versus net account receivables

answer

Gross accounts receivable (Allowance for doubtful accounts) =Net accounts receivable -Net accounts receivable is most important because that is what you expect to collect

question

Net Income:

answer

revenue minus expense

question

Expense:

answer

expired asset

question

Prepaid expense:

answer

paid cash but have not yet received the goods and services

question

Unearned revenue (aka customer deposits):

answer

received cash but have not yet rendered the goods and services

question

Depreciation, Amortization, and Depletion

answer

Definition - method of cost allocation of long term assets over the estimated useful life under the Matching Principle - does NOT represent wear and tear or loss of value

question

Formulas (Depreciation, Amortization, and Depletion)

answer

Depreciation: allocation of original costs over the estimated useful life of a tangible asset Amortization: allocation of original costs over the estimated useful life of an intangible asset Depletion: allocation of original costs over the estimated useful life of a natural resource asset

question

Depreciation, amortization or depletion versus accumulated depreciation, amortization, or depletion

answer

expense for the period (I/S) versus sum of depreciation across all periods since the asset was placed in service (contra asset account on the B/S).

question

Fiscal year vs. calendar year

answer

calendar year: accounting year ends December 31 fiscal year: accounting years ends on any other month

question

Cash discount vs. trade discount

answer

cash discount: prompt payment discount—to get customers to pay faster(interest expense on I/S) trade discount: reduction from retail price to get wholesale price (not on financial statements)

question

Periodic vs. perpetual inventory

answer

periodic: every so often, i.e. daily, weekly, monthly, quarterly, annually perpetual: every transaction (i.e. scanner)

question

Other Income and Expense

answer

-Interest income and interest expense -Capital gains and losses Gain: sale of non-operating asset at greater than book value Loss: sale of non-operating asset at less than book value (Only operating asset = inventory)

question

Dividend vs expense

answer

Dividend: distribution to stockholders from retained earnings (B/S) Expense: expired asset (I/S)

question

Tax Expense

answer

• Tax Expense - expense to company -appears on income statement - examples: income tax, employer payroll taxes, sales tax paid by company on its purchases

question

Freight In versus Freight Out

answer

•Normal assumption: buyer pays freight •FOB: "Free on Board" point at which title transfers: FOB Plant, FOB destination (Terms indicating that the buyer must pay to get the goods delivered) not to be confused with who ultimately bears the shipping cost •Freight In: cost of getting materials to the plant or warehouse part of inventory which is a current asset on B/S •Freight Out: part of SG&A - sales/marketing expense of getting product to the customer; deduction from gross profit on I/S

question

Financial Accounting vs Managerial Accounting

answer

Financial: external uses of financial statements; follow GAAP Managerial: internal uses; no GAAP

question

How can a company "make" money and not have any cash?

answer

The company keeps its books on the accrual basis which follows transactions but the Real World operates on the cash basis of cash in/cash out

question

Why does a company need to make a profit?

answer

To reward the stockholders for taking the investment risk

question

Does a not-for-profit entity need to make a "profit"?

answer

Yes, the cash donations to a not-for-profit must exceed the cash paid out for the entity in order to build reserves and to fund future activities.

question

What is the purpose of a for-profit and a not-for-profit entity? What is the purpose of a non-governmental entity?

answer

To satisfy a customer demand.

question

Who pays the corporation or business entity income taxes?

answer

The customer pays the taxes. Revenue must cover all expenses which includes taxes. An increase in taxes is an increase in expense which requires an increase in revenue for the company to make a profit.

question

What is the difference between a for-profit entity and a not-for-profit entity?

answer

Not-for-profit entity: pays no income taxes For profit entity: pays taxes and thereby subsidizes non-for-profit entities

question

Do taxes matter? Why?

answer

Yes. Taxes represent unavoidable cash out which makes the cash unavailable for reinvestment in the business.

question

Fair

answer

• in general usage - unit of emotional measure without objective reference e.g. "that's not fair!!", "do it for the children!" • in accounting - >estimate of value based on references to other objective values (e.g. fair value accounting) >auditors opinion after considering all management assertions in the financial statements (e.g. presents fairly) • in baseball - a ball hit on the ground between first and third base

question

"Capitalize It" versus "Expense It"

answer

Capitalize it - put the amount on the balance sheet (generally as an asset to be depreciated or amortized) Expense it - put the amount on the income statement

question

Annuity cash flow pattern

answer

same amount (in or out) in each period

question

USING A FINANCIAL CALCULATOR:

answer

bond problem use two step method to determine price discount or premium? J/E to buy J/E to sell J/E to receive interest payment assuming straight line amortization J/E to pay interest assuming straight line amortization mortgage problem monthly payment when interest only monthly payment when amortizing total interest paid savings if pay more than the required monthly payment loan (i.e. car loan, student loan) monthly payment total interest paid calculate savings if pay above the minimum amount loan amortization table amortize interest and principle for a loan J/E to make/receive an individual payment CAGR (compound annual growth rate) calculation (i.e. calculate" i") ROI (return on investment) (i.e. calculate "i")

question

Cost (aka Managerial) Accounting:

answer

use of financial and non-financial information to make economic decisions

question

Fundamental Assumption of Cost Accounting:

answer

costs are linear over the relevant range Why is this assumption important? - Allows costs to be projected/forecasted How big or small is the relevant range? - the relevant range is the range of activity that allows the relevant costs to be approximately linear

question

Check and balance:

answer

organizing the work so people naturally check on each other

question

6 Principles of Internal Control

answer

-Assignment of responsibility -Segregation of duties -Documentation -Physical controls -Independent verification -H/R controls

question

Product cost:

answer

cost held in inventory (current asset on B/S) until sold

question

Period cost:

answer

expense in period on the income statement

question

Manufacturing Costs:

answer

Direct Material, Direct Labor, Overhead

question

Inventory accounts:

answer

Raw Materials, WIP (Work in Process), Finished Goods

question

Job cost vs process costing:

answer

trace to specific job/product vs average over a batch

question

Direct:

answer

directly traceable & easily measured

question

Indirect:

answer

not directly traceable or not easily measured

question

Manufacturing Overhead:

answer

all indirect costs

question

Cost of Goods Sold:

answer

Definition: cost of what is not there Formula: beginning inventory plus net purchases minus ending inventory

question

Cost of Goods Manufactured and Sold statement

answer

(know format)

question

Overtime:

answer

time over 8 work hours in the day or 40 work hours in a week

question

Labor "Fringe" Benefits:

answer

cost of all employer paid benefits including employer payroll taxes

question

ABC - Activity Based Costing

answer

multiple activity pools and drivers: -job cost allocation methodology (3 costs, one driver) on steroids -may include non-manufacturing costs and drivers -not all costs may be included limitation: -cost of data collection -requires support of upper management

question

Value Chain -

answer

-all the processes and procedures which add value to product or service in the customers eyes Valued added - add value in the customer's eyes Non Value Added - don't add value in the customer's eyes

question

JIT

answer

"Just in time inventory" -trade off of reduced inventory levels versus stock out and additional costs of expedited delivery Just in time (JIT) is an inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs.

question

Cost behavior:

answer

how costs react to changes in the level of activity fixed vs variable costs: change or does not change in regard to a cost object total vs unit costs

question

Total vs unit costs

answer

Unit: Total: Variable Cost: No Change Up or Down Fixed Cost: Down or Up No Change

question

basic assumption of cost accounting:

answer

"costs are linear over the relevant range" allows forecasting of costs

question

Anderson's three rules for cost allocation

answer

-just because you can does not mean that you should -when in doubt do not allocate -"what difference does it make?" (in behavior)

question

Pre-determined overhead rate:

answer

Formula: projected overhead costs divided by expected activity base Rational: method of allocating indirect costs to cost object (product)

question

Overhead (T chart)

answer

Overhead (Expense) Actual Applied Under Over

question

Under applied:

answer

actual overhead > applied overhead Actual overhead costs > projected and/or actual activity base < projected activity base Increases cost of goods sold and lowers gross profit

question

Over applied:

answer

applied overhead > actual overhead Actual overhead costs projected activity base Decreases cost of goods sold and increases gross profit but may lose bids due to non-competitive overhead rates

question

Responsibility Accounting

answer

allocating accounting information to those people who are accountable for controlling it

question

Controllable versus non-controllable costs

answer

costs which the assigned manager can control or influence significantly or not. Note: un-controllable costs are costs that are beyond the control of anyone in the organization. .

question

Static budget:

answer

planning budget with projected level of activity

question

Flexible Budget:

answer

planning budget updated for the actual level of activity

question

Be able to calculate the eight DM, DL, VOH, and FOH variances using the standard cost template

answer

1) rate or price variances - what was paid 2)efficiency or budget variances - what was used 3) variances - compares actual to standard or budgeted 4) volume variance - i) calculation variance - applies fixed costs as if they were variable costs ii) reflects the difference between the standard activity base achieved and the standard activity based used in calculating the predetermined fixed overhead rate 5) reference point for favorable or unfavorable description- effect on net income

question

Variable costing versus Absorption costing

answer

Variable costing - COGS consists of variable manufacturing costs only; fixed manufacturing costs are treated like period costs (expensed in period); not GAAP Absorption costing - COGS consists of both variable and fixed manufacturing costs; all manufacturing costs fully allocated to product per GAAP What is "absorbed"? fixed manufacturing overhead into inventory

question

Differential Costs, Incremental Costs, Relevant Costs

answer

Costs that differ between two alternatives

question

Sunk cost:

answer

cash already spent; irrelevant to decision making *cost that has already been incurred and cannot be recovered.

question

Opportunity Cost:

answer

the cost of the road not taken

question

Traceable fixed costs:

answer

fixed costs that can be traced to a particular product or business segment (think "direct fixed costs")

question

Common fixed costs:

answer

fixed costs that cannot be traced directly to a particular product or business segment and are common to all (think "indirect fixed costs").

question

Variance:

answer

compares actual result to standard or projected result.

question

Favorable versus Unfavorable Variance

answer

depends on reference point Revenue: Expense: Favorable: Actual > Standard S > A Un-Favorable: S > A A > S

question

Price is the value exchanged

answer

between a willing buyer and a willing seller

question

Target Cost:

answer

target cost: target cost is the maximum amount of cost that can be incurred on a product and with it the firm can still earn the required profit margin from that product at a particular selling price. given a specific price target: price - margin = target cost

question

Design to Cost:

answer

manufacturing a product to a specific cost target

question

Cost Plus:

answer

price is a markup on cost

question

T & M:

answer

Time and Materials - labor price and/or materials price includes allocation of both overhead and margin

question

Transfer Pricing:

answer

price established between related parties; usually not a market price due to the relationship between the parties (aka related parties)

question

Mark up versus Margin

answer

Price (Cost) = Margin

question

Mark Up %

answer

= margin/cost

question

Margin %

answer

= margin/revenue

question

Short term pricing versus long term pricing

answer

Short term: covers variable costs and contributes to covering fixed costs aka variable pricing, contribution margin Long term: covers all costs (fixed and variable) Companies must price for the long term but can take advantage of specific opportunities in the short term with short term pricing

question

Hurtle Rate

answer

required minimum rate of return

question

WACC -Weighted average cost of capital

answer

1) economic cost of liability and equity components weighted for their presence in the capital structure 2) frequently approximated by "10%" or the incremental borrowing rate 3) Risk Adjust Rate of Return arbitrarily defined (higher) rate of return due to the uncertainties of the cash flows

question

Focus is on after tax rate of return on invested cash

answer

considers the time value of money (DCF: discounted cash flow) use cash not accounting data • accounting data based on transactions • accounting data has non-cash elements • NCF = NIAT + non-cash charges NPV versus IRR NPV: at assumed discount rate PV of Cash Flows In (PV of Cash Flows Out) Net Present Value Decision Rule: Do project if NPV > 0 IRR - discount rate that where NPV = 0 Decision Rule: Do project if IRR > Hurtle Rate profit (loss) versus rate of return profit / loss are accounting concepts RoR (aka DCF) is a finance concept very possible to have profitable project that does not meet minimum ROR criteria basic assumptions of DCF analysis all cash flows occur at the end of the period all cash flows immediately reinvested at the discount rate Reinvestment Rate Fallacy - that all cash flows will actually be reinvested and earn the discount rate

question

Annuity:

answer

same cash flow over multiple periods ordinary annuity: cash flow at the end of the period (most common) annuity due: cash flow at the beginning of the period (e.g. leases and lottery)

question

What is the relationship between NPV/IRR and profitability?

answer

Two different concepts: 1)Profit/loss is an accounting concept based on accrual accounting. 2)NPV is a financial concept based cash in/cash out and recognizes the time value of money

question

Performance Ratios: ROS ROE Debt/Equity

answer

ROS: Return on Sales- Formula: NIAT/Net Sales Rule of Thumb: Measure of efficiency: how much of the net revenue is getting to the stockholders via net income. Range for best managed companies is 5% to 10%. Sometimes called the key profitability ratio: ability to attract and retain investment capital. ROE: NIAT/Total Stockholders Equity. Measure of efficiency: what are the stockholders getting on their (accounting) investment. Range 15% to 20% and above would be a very well-managed company. Influenced heavily and favorably by the amount of debt. Debt/Equity Ratio: Total Liabilities/Total Equity. Measure of risk. Who is more at risk--stockholders or creditors? Stockholders want greater than 1; creditors want less than 1. Much greater than 2 can mean trouble servicing debt. May be higher due to seasonality and type of business.

question

Diagnostic Ratios: Current ratio Working capital Gross profit percentage Quick ratio DSO = Days Sales Outstanding A/R Turn NCF Asset turnover

answer

Current Ratio: Current Assets/Current Liabilities. Measure of short term solvency (i.e. capacity to pay bills). Assets expected to turn to cash in the next year compared to liabilities due within that year. Want 1 to 2. May be higher depending on season of the year. Much above 2 may mean dead inventory or uncollectible accounts in current assets. If cash, pay dividend or buy productive assets. Quick Ratio: (Cash + Investments + A/R)/Current Liabilities). Measure of liquidity. How fast can raise cash. Generally less than 1 in companies with significant inventories but the closer to 1 the better. Higher than 1even better. Days Sales in Receivables (AKA "DSO" and/or Average Collection Period). Average Net Receivables Outstanding for Period/Average Daily Net Sales for Period. Measure of liquidity: how fast sales are turning into cash. Should not be much more than 1.5 times credit terms. Should be calculated on a rolling 12 month basis. Calculation of ratio on less than 12 months data may be distorted by seasonality factors. (A/R Turn = 365/Days Sales in Receivables = Net Revenue/Ave A/R): Days Sales in Inventory. Average Inventory for Period/Average Daily Cost of Goods Sold for Period. Measure of liquidity: how fast turning inventory into cash. Should be as low as possible but not so low that goods are out of stock. Ideally, inventory should be sold before it is paid for. (Inventory Turnover = 365/Days Sales in Inventory = Ave cost of goods sold/Ave inventory) Gross Profit Percentage: Gross Profit/Net Revenue. Applies to companies with inventory or an identifiable cost of goods sold. Reflects pricing policy. Look for trends over time. Varies by company within industry and across all industries. Net Cash Flow (NCF): Net Income After Tax plus Non-Cash Charges (e.g. Depreciation, Depletion, Amortization). Tells how much cash the income statement is generating by assuming the income statement reflects a cash basis not an accrual basis. Starting point for the Statement of Changes in Cash Position. Very important in capital budgeting. Working Capital: Current Assets minus Current Liabilities. Popular term. Want to be greater than 0. Asset Turnover: Net Sales/Average Total Assets Rule of Thumb: increasing over time A/R Turn: 365/DSO Rule of Thumb: As high as possible

question

Valuation: Book value & Book value per share EBITDA

answer

EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. Sometimes called "Operating Cash Flow"--shows cash generated by the core business. Quick estimate of company worth since it shows how much a cash the core business is generating. "Rule of Thumb" looks to buy companies that are selling for 4 or less times EBITDA; look to sell companies at 5 or more times EBITDA. Book Value and Book Value per Share: Stockholders Equity less Preferred Stock; Stockholders Equity less Preferred Stock/Number of Common Shares. The value of the company according to the accounting books. Accountants measure of value. Historic "Rule of Thumb": value of stockholders equity when all assets sold and all liabilities paid will be 1 to 2 times book value. Currently, the S&P 500 stocks trade at about 3 times book value.

question

SIT =

answer

Seasonality, Industry, Trend

question

Solvency versus Liquidity

answer

Solvency: capacity to pay bills (e.g. debt/equity, current ratio) Liquidity: ability to pay bills (e.g. quick ratio, DSO)

question

Tax Pass Through

answer

• Tax Pass Through - taxes collected on behalf of a governmental entity and passed through to the entity - neither a revenue nor an expense - may appear on balance sheet as liability if not yet paid -examples: sales taxes, excise taxes, employee payroll taxes

question

Unit contribution margin:

answer

unit selling price - unit variable cost

question

CM

answer

Revenue - VC

question

Gross Profit

answer

Revenue - COGS

question

Break Even units: Break Even $:

answer

Rev - VC = FC BE units x sales price (revenue)

question

BE Units:

answer

FC / Unit CM

question

BE $:

answer

FC / CM ratio

question

CM ratio:

answer

CM / REVENUE or net sales - VC / net sales or Unit CM / Unit selling price

question

GP %:

answer

GP / REVENUE

question

Required Sales in Units:

answer

(FC + Target Net Income / CM Unit)

question

Required Sales in dollars:

answer

(FC + Target Net Income / CM ratio)

question

Target Selling Price:

answer

Cost + (markup % x cost) or total cost per unit + desired ROI

question

Net Income:

answer

Sales - VC - FC (CM - FC)

question

Target Cost:

answer

Market Price - Desired profit

question

Desired profit=

answer

market price x rate of return

question

Target Selling Price per unit:

answer

Total unit cost + (Total unit cost x markup %)

question

Rate Charged Per labor hour:

answer

Total Cost/ Total Hours + Profit Margin

question

Material Loading Charge:

answer

Materials price x materials loading charge%

question

material loading charge %

answer

(Total Material Loading Charges/Total Invoice Cost) + Profit Margin%

question

Minimum Transfer Price(no excess capacity)=

answer

VC + Opportunity Cost

question

CM (with limited resources)=

answer

Machine hours x CM per unit of limited Resources

question

CM per Unit of Limited Resources=

answer

CM per unit/machine hours required

question

Weighted Average CM Ratio =

answer

(CM ratio x sales mix %) + (CM ratio x sales mix %)

question

Weighted Average Unit CM =

answer

(Unit CM x Sales Mix%) + (Unit CM x Sales Mix%)

question

Sales Mix %=

answer

Actual Units/Total Units

question

Profit Margin % =

answer

Net Profit / Revenue (Net Profit = Revenue - Costs)

question

Degree of Operating Leverage:

answer

CM/NI

question

Total cost labor and materials =

answer

Labor charge + materials price + material loading charge

question

Minimum Transfer Price (excess capacity)=

answer

VC

question

Markup%=

answer

Desired ROI per unit/Total unit cost or Gross Profit Margin = Sales Price - Unit Cost Markup Percentage = Gross Profit Margin/Unit Cost = then to get the sales price: Selling Price = Cost X Markup Percentage + Cost

question

Gross profit margin

answer

revenue - cogs / revenue

question

Cost-plus pricing means that:

answer

Selling price = Variable cost + (Markup percentage + Variable cost) Selling price = Cost + (Markup percentage X Cost) Selling price = Manufacturing cost + (Markup percentage + Manufacturing cost) Selling price = Fixed cost + (Markup percentage X Fixed cost)

question

Selling price - cost =

answer

Markup (profit)

question

Cost + markup (desired ROI per unit)=

answer

Target Selling Price

question

Desired ROI per unit=

answer

Desired ROI percentage x amount invested / units produced or total cost per unit x markup %

question

Mark up versus Margin

answer

Price (Cost) Margin

question

Mark Up % =

answer

margin/cost

question

Margin % =

answer

margin/revenue

question

Short term pricing versus long term pricing

answer

Short term: covers variable costs and contributes to covering fixed costs aka variable pricing, contribution margin (must have excess capacity to do job.) Long term: covers all costs (fixed and variable) Companies must price for the long term but can take advantage of specific opportunities in the short term with short term pricing

question

Fixed Cost definition

answer

a cost that does not change in relation to the cost object

question

Variable cost definition

answer

a cost that changes in relation to the cost object

question

Income at break even is

answer

zero.

question

Contribution Margin covers

answer

Fixed Costs

question

Cost behavior is how

answer

VC and FC react to level of activity

question

Difference between gross profit and contribution margin

answer

CM= Sales - VC only takes VC into consideration GP= Sales - COGS (VC and FC) takes into consideration both FC and VC

question

premium:

answer

paid more than face value

question

discount:

answer

paid less than face value

question

If you mix up period costs and product costs

answer

net income can be overstated

Managerial Accounting Flashcards

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