Managerial Accounting - Chapters 5-7 - Calculations

Front 1

Break-Even point in units

Back 1

fixed / cmu (contribution margin[sales-variable expenses]/units)

Front 2

Contributions Margin Units

Back 2

Sales-Variable Expenses/units

Front 3

Contribution Margin

Back 3

Sales-Variable Expenses

Front 4

Variable Expenses (Contribution Format)

Back 4

Direct Labor + Direct Material + Variable Manufacturing Overhead + Variable Selling Expenses

Front 5

Fixed Expenses (Contribution Format)

Back 5

Fixed Manufacturing Overhead + Fixed Selling and Admin Expenses

Front 6

Net Income (Contribution Format)

Back 6

Sales (units x price) + Variable Expenses = Contribution Margin - Fixed Expenses = Net Income

Front 7

Operating Leverage Ratio

Back 7

Total Contribution Margin/Net Income

Front 8

Margin of Safety in dollars:

Back 8

Total Sales – Break-Even Sales

Front 9

Margin of Safety as a percentage:

Back 9

Margin of Safety in dollars/Total Sales

Front 10

Variable OH rate per unit:

Back 10

Variable OH/units

Front 11

Variable SG&A per unit:

Back 11

Variable Selling expenses/units

Front 12

Variable Per Unit

Back 12

(Sales x Variable Expenses Ratio)/units

Front 13

Net Profit after Increased Sales

Back 13

(increased amount) x CM ratio

Front 14

Target Unit (Contribution Margin Method)

Back 14

(Fixed expenses + Target net profit)/Unit contribution margin

or target net sales/price of units

Front 15

Target Sales (Contribution Margin Method)

Back 15

(Fixed expenses + Target net profit)/ Contribution Ratio%

or target net units x price of units

Front 16

High-Low Method - Variable rate

Back 16

High minus Low fort Units and for Cost. Divide change in cost by change in units to get variable rate.

Front 17

High-Low Method - Fixed cost element

Back 17

High cost minus (high units x variable rate)

Front 18

High-Low Method : Cost formula y=a + bx

Back 18

y = fixed + variable(x)

Front 19

contribution margin vs gross margin

Back 19

Gross Margin is the Gross Profit as a percentage of Net Sales. The calculation of the Gross Profit is: Sales minus Cost of Goods Sold. The Cost of Goods Sold consists of the fixed and variable product costs, but it excludes all of the selling and administrative expenses.

Contribution Margin is Net Sales minus the variable product costs and the variable period expenses. The Contribution Margin Ratio is the Contribution Margin as a percentage of Net Sales.

Front 20

Contribution Margin

Back 20

Sales - Variable Costs

Front 21

Gross Margin

Back 21

Sales - Variable and Fixed (cost of goods sold) - excluding SG&A

Front 22

Margin of Safety in Dollars

Back 22

Total sales - Break-even sales

Front 23

Margin of Safety in Percentage

Back 23

margin of safety in dollars/total sales

Front 24

Degree of Operation Leverage

Back 24

Contribution Margin/Net Income

Front 25

Multi Product Overall CM ratio

Back 25

Total contribution margin/total sales dollars

Front 26

Multi Product Break Even Sales

Back 26

Fixed Expenses/Overall CM ratio

Front 27

Multi Product - Sales to attain Target Net Profit

Back 27

(Fixed Expenses + Target Net Profit)/Overall Contribution Margin Ratio

Front 28

Assumptions in CVP Analysis

Back 28

A. Selling price is constant. , B. Costs are linear and can be accurately divided into variable and fixed elements. ,
C. In multi-product companies the sales mix is constant.
,
D. In manufacturing companies, inventories do not change.

Front 29

Variable vs absorption costing

Back 29

A. Variable Costing

Variable costing treats only those costs that vary with output as product costs. Ordinarily, direct materials, direct labor and variable manufacturing overhead costs would be included in product costs under variable costing. Fixed manufacturing overhead is not treated as a product cost under this method. Rather, fixed manufacturing overhead is treated as a period cost and is charged off against revenue each period.

B. Absorption Costing

Absorption costing treats all costs of production as products costs, regardless of whether they are variable or fixed in nature. Under the absorption costing method, a portion of fixed manufacturing overhead is allocated to each unit of product.

The difference between the absorption and variable costing methods centers on the treatment of fixed manufacturing overhead costs. Absorption costing includes fixed manufacturing overhead in product costs, whereas variable costing does not.

Front 30

Costing methods and SG&A

Back 30

Selling and administrative expenses are not treated as product costs under either costing method. Selling and administrative expenses are always treated as period costs and deducted from revenues as incurred.

Front 31

Production Equals Sales (No Change in Inventories)

Back 31

When production equals sales, there is no change in inventories. If there is no change in inventories, then there is no change in the fixed manufacturing overhead costs in inventories under absorption costing. Therefore, under both costing methods all of the current fixed manufacturing overhead will flow through to the income statement and be charged against income

Front 32

B. Production Exceeds Sales (Inventories Increase)

Back 32

When production exceeds sales, inventories grow. If inventories grow, then some of the current fixed manufacturing overhead costs will be deferred in inventories under absorption costing. Since all of the current fixed manufacturing overhead costs are expensed under variable costing, the net income reported under the absorption costing will be greater than the net income reported under variable costing.

Front 33

C. Sales Exceed Production (Inventories Decrease)

Back 33

When sales exceed production, inventories shrink. If inventories decrease, then some of the fixed manufacturing overhead costs that had been deferred in inventories in previous periods will be released to the income statement as a charge against income as well as all of the current fixed manufacturing overhead costs. Since only the current fixed manufacturing overhead costs are expensed under variable costing, the net income reported under absorption costing will be less than the net income reported under variable costing.