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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.