Acc 213 Exam 2

Front 1

a powerful tool that helps managers understand the relationships among cost, volume, and profit

Back 1

cost-volume-profit (CVP) analysis

Front 2

CVP analysis focuses on how profits are affected by what five factors?

Back 2

1. Selling prices
2. Sales volume
3. Unit variable costs
4. Total fixed costs
5. Mix of products sold

Front 3

the level of sales at which profit is zero

Back 3

break-even point

Front 4

a graphical representation of the relationships between an organization's revenues, costs, and profits on the one hand and its sales volume on the other hand

Back 4

cost-volume-profit (CVP) graph

Front 5

a ratio computed by dividing contribution margin by dollar sales

Back 5

contribution margin ratio (CM ratio)

Front 6

a ratio computed by dividing variable expenses by dollar sales

Back 6

variable expense ratio

Front 7

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

Back 7

incremental analysis

Front 8

estimating what sales volume is needed to achieve a specific target profit

Back 8

target profit analysis

Front 9

a special case of target profit analysis in which the target profit is zero

Back 9

break-even analysis

Front 10

the excess of budgeted (or actual) dollar sales over the break-even dollar sales

Back 10

margin of safety

Front 11

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

Back 11

operating leverage

Front 12

The relative proportions in which a company's products are sold. Is computed by expressing the sales of each product as a percentage of total sales

Back 12

sales mix

Front 13

T/F?

One of the assumptions underlying CVP analysis is that selling price is constant. The price of a product or service will not change as volume changes

Back 13

False

Front 14

Three Assumptions Underlying CVP Analysis?

Back 14

1. Costs are linear and can be accurately divided into variable and fixed elements
2. In multi-product companies, the sales mix is constant
3. In manufacturing companies, inventories do not change

Front 15

a costing method that includes only variable manufacturing costs - direct materials, direct labor, and variable manufacturing overhead - in unit product costs

Back 15

variable costing

Front 16

T/F?

Because absorption costing includes all manufacturing costs in product costs, it is frequently referred to as the full cost method

Back 16

True

Front 17

T/F?

Variable costing is sometimes referred to as direct costing or marginal costing

Back 17

True

Front 18

T/F?

Under absorption and variable costing, variable and fixed selling and administrative expenses are always treated as period costs

Back 18

True

Front 19

Absorption and Variable Costing

Units produced = Units Sold

Back 19

No change in inventories

Front 20

Absorption and Variable Costing

Units Produced is greater than Units Sold

Back 20

Inventories increase

Front 21

Absorption and Variable Costing

Units Produced is less than Units Sold

Back 21

Inventories decrease

Front 22

T/F?

Variable costing income statements are clear and easy to understand

Back 22

True

Front 23

T/F?

Under absorption costing, fixed manufacturing overhead costs appear to be variable with respect to the number of units sold

Back 23

False

Front 24

T/F?

A manager can use variable costing income statements for internal reports

Back 24

True

Front 25

Seven Advantages of Variable Costing and the Contribution Approach?

Back 25

1. Data required for CVP analysis can be taken directly from a contribution format income statement
2. Profit for a period is not affected by changes in inventories
3. Managers often assume that unit product costs are variable costs.
4. The impact of fixed costs on profits is emphasized
5. Data makes it easier to estimate the profitability of products, customers, and other business segments
6. Ties in with cost control methods such as standard costs and flexible budgets
7. Variable costing net operating income is closer to net cash flow than absorption costing net operating income

Front 26

Advantages of Variable Costing and the Contribution Approach

T/F?

The total amount of fixed costs appears explicitly on the income statement, highlighting the whole amount of fixed costs must be covered for the company to be truly profitable

Back 26

True

Front 27

T/F?

Under Lean Production, goods are produced to customers' orders and the goal is to eliminate finished goods inventories entirely and reduce work in process inventory to almost nothing

Back 27

True

Front 28

Three Ways that Activity-Based Costing differs from Traditional Cost Accounting?

Back 28

1. Nonmanufacturing as well as manufacturing costs may be assigned to products
2. Some manufacturing costs may be excluded from product costs
3. Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity

Front 29

T/F?

Commissions paid to salespersons, shipping costs, and warranty repair costs can be easily traced to individual products

Back 29

True

Front 30

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

Back 30

activity-based costing (ABC)

Front 31

T/F?

Manufacturing overhead includes costs such as the factory security guards' wages, the plant controller's salary, and the cost of supplies used by the plant manager's secretary

Back 31

True

Front 32

a simple count of the number of times an activity occurs

Back 32

transaction drivers

Front 33

Three Requirements for Activity-Based Costing (ABC) System?

Back 33

1. Top managers must strongly support the ABC implementation
2. Ensure that ABC data is linked to how people are evaluated and rewarded
3. A cross-functional team should be created to design and implement the ABC system

Front 34

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

Back 34

duration drivers

Front 35

activities that are performed each time a unit is produced

Back 35

unit-level activities

Front 36

activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch

Back 36

batch-level activities

Front 37

activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run

Back 37

product-level activities

Front 38

activities that are carried out to support customers but that are not related to any specific product

Back 38

customer-level activities

Front 39

activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made

Back 39

organization-sustaining activities

Front 40

Three Reasons why the Traditional Costing System reports different product margins as compared to the Activity-Based Costing System?

Back 40

1. Allocates all manufacturing overhead costs to products
2. Allocates all of the manufacturing overhead costs using a volume-related allocation base - machine-hours - that may or may not reflect what actually causes the costs
3. ABC system assigns the nonmanufacturing overhead costs caused by products to those products on a cause-and-effect basis

Front 41

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

Back 41

activity-based management

Front 42

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

Back 42

benchmarking

Front 43

developing goals and preparing budgets to achieve those goals

Back 43

planning

Front 44

those steps taken by management to increase the likelihood that all parts of the organization are working together to achieve the goals set down at the planning stage

Back 44

control

Front 45

Six Advantages of Budgeting?

Back 45

1. Communicate management's plans throughout the organization
2. Force managers to think about and plan for the future
3. Provides a means of allocating resources most effectively
4. Can uncover potential bottlenecks
5. Coordinate the activities of the entire organization by integrating the plans of its various parts
6. Define goals and objectives that can serve as benchmarks for evaluating subsequent performance

Front 46

a system of accountability in which managers are held responsible for those items of revenue and cost - and only those items - over which they can exert significant control

Back 46

responsibility accounting

Front 47

a 12-month budget that rolls forward one month as the current month is completed

Back 47

continuous budget

Front 48

A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement.

Back 48

self-imposed budget

Front 49

Four Advantages of Self-Imposed Budget?

Back 49

1. Individuals are recognized as members of the team whose views and judgements are valued by top management
2. Budget estimates prepared by front-line managers are often more accurate and reliable
3. Motivation is generally higher when individuals participate in setting their own goals
4. With a self-imposed budget, a manager cannot say that the goals were impossible to reach

Front 50

Submitting a budget that is easy to attain

Back 50

budgetary slack

Front 51

T/F?

The purpose of the budget is to motivate people and to coordinate their efforts

Back 51

True

Front 52

a group of key managers who are responsible for overall budgeting policy and for coordinating the preparation of the budget

Back 52

budget committee

Front 53

a number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet

Back 53

master budget