ACC 202 Ch.6 Flashcards

Questions and Answers

What is a CVP statement?

Study of the changes of cost and volume on a company's profit for internal use, classifies costs as variable and fixed, and computes contribution margin.

What does cost includes?

All manufacturing costs and selling/administrative expenses related to product.

What does the Margin of Safety tell us?

How far sales can drop before the company is operating at a loss.

Is a lower break even point better?

True Signup and view all the answers

What is a Sales Mix?

Relative percentage at which a company sells its multiple products. Signup and view all the answers

What does the Weighted Average Unit Contribution Margin compute?

Break even sales for a sales mix of multiple products. Signup and view all the answers

What is the formula for the Weighted Average Unit Contribution Margin?

=(unit contribution margin X sales mix percentage) +(unit contribution margin X sales mix percentage) Signup and view all the answers

What is the formula for the Break Even Point in Units for multiple Sales Mix?

=Fixed Cost / Weighted Average Unit Contribution Margin Signup and view all the answers

What is the formula for the Weighted Average Contribution Margin Ratio?

= (Contribution Margin Ratio X Sales Mix %) + (Contribution Margin Ratio X Sales Mix %) Signup and view all the answers

What is the formula for the Break Even Point in Dollars for multiple Sales Mix?

=Fixed Cost / Weighted Average Unit Contribution Margin Ratio Signup and view all the answers

What is the formula for Contribution Margin per unit of limited resource?

=Unit Contribution Margin / number of units of limited resource required Signup and view all the answers

What does Cost Structure refer to?

The relative proportion of fixed versus variable costs that a company incurs. Signup and view all the answers

What is Operating Leverage?

The extent to which a company's net income reacts to a given change in sales. Signup and view all the answers

What is the formula for Degree of Operating Leverage?

= Contribution Margin / Net Income Signup and view all the answers

What is Variable Costing?

Only direct labor, direct materials, and manufacturing overhead are considered product costs. Signup and view all the answers

What is Absorption Costing?

Considers fixed manufacturing overhead a part of product costs as well. Signup and view all the answers

Study Notes

CVP Statement

Analyzes how cost and volume changes impact a company's profit.
Used internally to inform management decisions.
Categorizes costs into variable and fixed, calculating the contribution margin.

Cost Includes

Encompasses all manufacturing costs.
Includes selling and administrative expenses linked to the product.

Margin of Safety

Indicates the extent to which sales can decline before the company incurs a loss.

Break Even Point

A lower break-even point is preferable as it requires fewer sales to begin making a profit.

Sales Mix

Represents the relative percentage a company sells of its various products.

Weighted Average Unit Contribution Margin

Utilizes sales mix to calculate break-even sales across multiple products.

Weighted Average Unit Contribution Margin Formula

Calculated by multiplying unit contribution margin with sales mix percentage for each product and summing the results.

Break Even Point in Units for Multiple Sales Mix Formula

Fixed Cost divided by Weighted Average Unit Contribution Margin determines units needed to break even.

Weighted Average Contribution Margin Ratio Formula

Aggregates the contribution margin ratio multiplied by each product's sales mix percentage.

Break Even Point in Dollars for Multiple Sales Mix Formula

Calculated as Fixed Cost divided by the Weighted Average Unit Contribution Margin Ratio to get total revenue needed to break even.

Contribution Margin per Unit of Limited Resource Formula

Computed by dividing the Unit Contribution Margin by the number of units of the limited resource required.

Cost Structure

Refers to the balance between fixed and variable costs incurred by a company.
Has a significant impact on overall profitability.

Operating Leverage

Measures how sensitive a company's net income is to sales changes.
Indicates a company's earnings volatility.

Degree of Operating Leverage Formula

Calculated as Contribution Margin divided by Net Income to assess the leverage effect.

Variable Costing

Considers only direct labor, direct materials, and manufacturing overhead as product costs.

Absorption Costing

Includes fixed manufacturing overhead in product costs.
Complies with GAAP for external financial reporting.

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Description

Test your knowledge on Chapter 6 of ACC 202 with these flashcards. This section covers important concepts such as CVP statements, cost classification, and margin of safety. Perfect for internal studies and reinforcing your understanding of financial impacts on profit.