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36 Cards in this Set

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Contribution Income Statement
Sales
-Variable Costs
=Contribution Margin
-Fixed Costs
=Income from operations
Contribution Margin
Sales less variable cost of goods sold and variable selling and administrative expenses.
Contribution Margin Formula
Sales - Varabile costs = Contribution margin
Unit Contribution margin formula
Sales price per unit - variable costs per unit
Contibution Margin Ratiot
Indicates the percentage of each sales dollar available to cover the fixed costs and to provide income from operations
Contribution Margin Ratio Formula
(Sales-Variable Costs)/Sales
Break Even Sales Point
The level of operations at which a business's revenues and expired costs are exactly equal. Revenues = Costs.
Break Even Sales (units) Formula
Fixed Costs / unit contribution margin
Target profit Formula
Sales(units)= (fixed costs+target profit) / (Unit contribution margin)
Profit Markup
Expressed as a percentage of cost. This percentage is then multiplied by the cost amount per unit. The dollar amount of the markup is then added to the cost amount per unit to arrive at the selling price.
Markup Percentage Formula
Desired profit / total costs
This number is expressed as a percentage.
Markup per unit formula
desired profit/total costs = markup percentage, then total cost per calculator x percentage markup
Production Bottleneck
Occurs at the point in the process where the demand for the company's product exceeds the ability to produce the products. When a company has a bottleneck in its production process, it should attempt to maximize its profitability subject to the influence of the bottleneck. The correct measure of performance is the value of each bottleneck hour, or the contribution margin per bottleneck hour.
Rate of Return on Investment Formula
Income from operations / Invested Assets
Rate of Return on Investment (profit Margin) Formula
profit margin x investment turnover
Markup Percentage Formula
Desired profit / total costs
This number is expressed as a percentage.
Markup per unit formula
desired profit/total costs = markup percentage, then total cost per calculator x percentage markup
Production Bottleneck
Occurs at the point in the process where the demand for the company's product exceeds the ability to produce the products. When a company has a bottleneck in its production process, it should attempt to maximize its profitability subject to the influence of the bottleneck. The correct measure of performance is the value of each bottleneck hour, or the contribution margin per bottleneck hour.
Rate of Return on Investment Formula
Income from operations / Invested Assets
Rate of Return on Investment (profit Margin) Formula
profit margin x investment turnover
Markup Percentage Formula
Desired profit / total costs
This number is expressed as a percentage.
Markup per unit formula
desired profit/total costs = markup percentage, then total cost per calculator x percentage markup
Production Bottleneck
Occurs at the point in the process where the demand for the company's product exceeds the ability to produce the products. When a company has a bottleneck in its production process, it should attempt to maximize its profitability subject to the influence of the bottleneck. The correct measure of performance is the value of each bottleneck hour, or the contribution margin per bottleneck hour.
Rate of Return on Investment Formula
Income from operations / Invested Assets
Rate of Return on Investment (profit Margin) Formula
profit margin x investment turnover
Rate of Return on Investment (investment turnover) Formula
(Income from operations / Sales) x (Sales / Invested Assets)
Balanced Scorecard
A set of financial and non financial measure that reflect multiple performance dimensions of a business. A common balanced scorecard design measure performance in the innovation and learning, customer, internal, and financial dimensions of a business.
Innovation and Learning Perspective (balanced scorecard)
Measures the amount of innovation in an organization.
Customer Perspective (balanced scorecard)
Measure customer satisfaction, loyalty, and perceptions
Internal Perspective (balanced scorecard)
Measures the effectiveness and efficiencey of internal business processes.
Financial Perspective (balanced scorecard)
Measures the economic performance of the responcibility center.
Balanced Scorecard Purposes
Designed to revel the underlying nonfinancial drivers, or causes of financial performance. I helps managers consider trade-offs between short and long- term performance. 40% of companies use or are planning to use the balanced scorecard, thus it is gaining acceptance because of its ability to reveal the underlying causes of financial performance while helping managers consider the short and long term implications of their decisions.
Cash Payback Period
The expected period of time that will elapse between the date of the capital expenditure and the complete recovery in cash (or equivalent) of the amount invested. The time required for the net cashflow to equal the initial outlay for the fixed asset is the payback period.
Cash Payback Period Formula
Fixed Asset / Annual net cash flows: annual cash revenue-annual cash expense.
Cash Payback Method Benefits
Widely used in evaluating proposals for investments in new projects. A short payback period is desirable because the sooner the cash is recovered, the sooner it becomes available for reinvestment. Also reduces outside risks when payback period is short. This method is especially useful to managers whose primary concery is liquidity.
Casg Payback Method Deficiencies
The cash payback method is that is ignores cash flows occuring after the payback period. In addition, the cash payback method does not use present value concepts in valuing cash flows occuring in different periods.