B2

Question 1

Is the contribution approach GAAP?

Answer 1

No; it only treats variable overhead as a product cost; fixed overhead is seen as a period expense

Question 2

Contribution Approach Formula

Answer 2

Revenue

CM

Net Income

Question 3

Is the absorption approach GAAP?

Answer 3

Yes

Question 4

The only difference between absorption approach and contribution approach?

Answer 4

• the treatment of fixed manufacturing overhead

* the difference will be in COGS

Question 5

Quick way to calculate fixed manufacturing overhead left in inventory

Answer 5

• find the fixed overhead rate per unit

* multiply it by the number of units still sitting in EI

Question 6

Production Greater than Sales vs. Sales Greater than Production

Answer 6

P>S = absorption costing will show a higher profit 
P<S = absorption costing will show lower profit since fixed overhead from prior period is now being expensed in addition

Question 7

Tendency for managers using the absorption costing

Answer 7

*stockpile inventory

Question 8

Total sales dollars at the BEP

Answer 8

= (total fixed costs)/(CM ratio)

Question 9

BEP in units

Answer 9

= (total fixed costs)/(CM per unit)

Question 10

Amount of profit following the break-even point

Answer 10

= units sold multiplied by the contribution margin

Question 11

Margin of Safety

Answer 11

excess sales over breakeven sales

• expressed as a dollar or a percentage
• *(Margin of Safety $)/(Total sales)

Question 12

Target Cost =

Answer 12

Market Price - required profit

Question 13

Implications of Target Costing

Answer 13

1. compromised quality in order to achieve cost level

2. increased marketing and downstream costs

Question 14

Relevant Costs

Answer 14

• change as a result of selecting different alternatives

* incremental costs always change

Question 15

Are opportunity costs relevant costs?

Answer 15

Yes

Question 16

Are controllable costs relevant costs?

Answer 16

Yes

Question 17

Are marginal costs relevant costs?

Answer 17

Yes

Question 18

Special Order Decisions

Answer 18

*accept if rev > relevant costs

• Excess capacity
• *SP > VC
• Full capacity
• *SP > VC + opportunity cost
• OPPORTUNITY COST = CONTRIBUTION MARGIN
• (CM in $)/size of special order

Question 19

Make vs. Buy

Answer 19

Relevant costs to make < cost to buy = make

Question 20

Sell or Process Further

Answer 20

if incremental revenue > incremental cost = process further

• joint costs are ignored
• separable costs = relevant

Question 21

Keep or Drop a Segment

Answer 21

1. keep the segment if the lost contribution margin exceeds avoided fixed costs
2. drop the segment if the lost contribution margin is less than avoided fixed costs

*CONSIDER THE NONFINANCIAL IMPACT!!!

Question 22

Sensitivity Analysis

Answer 22

(delta TC)/(delta volume)

Question 23

Linear Regression Formula

Answer 23

y = A + Bx

y = TC
A = FC
B = VC/unit

Question 24

Coefficient of Correlation vs. Coefficient of Determination

Answer 24

Correlation: -1;0;1 (strength of linear relationship)
Determination: 0;1 (how much of a change in y can be explained by a change in x)

Question 25

Learning Curve Rate

Answer 25

*a percentage expression of the decrease in average time as production double (% that still remains) 32 hours vs 40 hours = learning curve of 80%

Question 26

High-Low Method

Answer 26

* find the highest and lowest X value * calculate slope * use the highest or lowest value to find the y intercept

Question 27

Tactical plans are also known as

Answer 27

single use plans (apply to specific circumstances during a specific time frame)

Question 28

Two Things Budgets should Include

Answer 28

* management participation | * budget guidelines

Question 29

Ideal Standards vs. Currently Attainable Standards

Answer 29

Ideal * implied emphasis on continuous quality improvement * demotivation of employees Attainable * use with flexible budgets * reasonable * best standard is the standard that leads to the accomplishment of strategic goals

Question 30

Authoritative vs. Participative Standards

Answer 30

Authoritative *set by management, quick, workers might not accept Participative *all individual, more likely to accept, time consuming

Question 31

Another name for the master budget

Answer 31

static budget (one level of activity)

Question 32

Master Budget Components

Answer 32

*operating budgets and financial budgets for a single level of sales volume

Question 33

Flow of Master Budget

Answer 33

1. Sales budgets 2. production budgets 3. cash budgets

Question 34

Production Budget Formula

Answer 34

Unit Sales Desired Ending Inventory = units to produce

Question 35

Direct Materials to be Purchased Budget

Answer 35

Materials needed for production Desired Ending Inventory = materials to be purchased

Question 36

Direct Materials Usage Budget in $

Answer 36

Beginning inventory at cost + purchases at cost = direct materials used

Question 37

Direct Labor Budget

Answer 37

Budgeted production x hours x hourly wage

Question 38

Selling and Administrative Expense Budget is dependent upon

Answer 38

sales volume and the sales budget

Question 39

Cash Budgets and their Three Sections

Answer 39

1. cash available (A/R and cash sales) 2. cash disbursements (Cash purchases and A/P payments; cash operating expenses (NOT DEPRECIATION) 3. financing

Question 40

Cash Budget Format

Answer 40

Beginning cash Cash collections from sales = computed ending cash = working capital loans to maintain cash requirements

Question 41

When are the pro forma financial statements created?

Answer 41

last

Question 42

Major limitations of a flexible budget

Answer 42

*highly dependent on the accurate identification of fixed and variable costs and the determination of the relevant range

Question 43

Variances must also show ______ to be considered complete

Answer 43

FAVORABLE OR UNFAVORABLE

Question 44

Controllable vs. Uncontrollable Variance

Answer 44

variable costs vs. fixed costs

Question 45

Direct Materials Variance

Answer 45

APAQ - SPAQ (units purchased) (PRICE) | SPAQ - SPSQ (units used in production) (USAGE)

Question 46

Direct Labor Variance

Answer 46

APAQ - SPAQ (RATE) | SPAQ - SPSQ (EFFICIENCY)

Question 47

Net Overhead Variance

Answer 47

actual overhead vs. applied overhead (1 v 4)

Question 48

Overhead Variance Numbers

Answer 48

1. Actual Overhead 2. Budget based on Actual Hours 3. Budget based on Standard Hours 4. Overhead Applied 1. Actual Overhead 2. Budgeted FOH + Actual worked x Standard VOH rate 3. Budgeted FOH + Standard allowed x VOH rate 4. Standard Total OH rate per DLH x Standard DLH allowed

Question 49

Two-Way Variance

Answer 49

1 v 3 | 3 v 4

Question 50

Three-Way Variance

Answer 50

1 v 2 (spending) 2 v 3 (efficiency) 3 v 4 (volume variance)

Question 51

Key to Difference for Volume

Answer 51

STANDARD HOURS ALLOWED (number of units x standard rate) ***not the actual number of hours worked***

Question 52

Sales Price Variance

Answer 52

(Actual SP - Budgeted SP) x quantity sold

Question 53

Sales Volume Variance

Answer 53

(Actual Quantity - Budgeted Quantity) x CM

Question 54

Market Share Variance

Answer 54

[Actual Market Share - Budgeted Market Share] x actual industry units x budgeted contribution margin per unit * building or losing market share * want to maintain market share

Question 55

Market Size Variance

Answer 55

the effect the size of the entire market for the product has on the contribution margin for the firm

Question 56

Types of Responsibility Segments

Answer 56

Cost (lowest responsibility) Revenue Profit Investment (highest responsibility)

Question 57

Financial Scorecards Design

Answer 57

A ccurate and T imely U nderstandable S pecific accountability by segment

Question 58

Are common costs controllable?

Answer 58

No

Question 59

Contribution Reporting for Managers

Answer 59

1. SP - VC = CM 2. CM - CFC = controllable margin CFC = controllable fixed costs

Question 60

Balanced Scorecard

Answer 60

``` "FICA" F inancial I nternal business processes C ustomer satisfaction A dvancement of innovation and human resource development ```