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050710+UGBA+102B+–+Final+Review

050710+UGBA+102B+–+Final+Review - UGBA 102B...

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UGBA 102B: Introduction to Managerial Accounting Final Review
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Cost Concepts
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Basic Cost Concepts Product costs ( Manufacturing costs ) – Includes all the costs that are involved in acquiring or making a product. Product costs are expensed in the income statement when the products are sold. Period costs (Non Manufacturing costs) – Includes all marketing or selling costs and administrative costs. These costs are expensed in the income statement in the period incurred. Product vs. Period Costs.
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Basic Cost Concepts Raw Materials Work in Process Finished Goods Customer Direct Materials Cost of Goods Manufactured Cost of Goods Sold Manufacturing Cost Flow.
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Basic Cost Concepts Equations for Manufacturing costs Flow. DM = BRM + P – ERM (Direct Materials) MC = DM + DL + MOH (Manufacturing Costs) COGM = BWIP + MC – EWIP (Cost of Goods Manufactured) COGS = BFG + COGM – EFG (Cost of Goods Sold)
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Cost behavior patterns
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Cost Behavior Patterns Key Concepts 1. Variable Costs 2. Fixed Costs 3. Mixed Costs 4. Methods for Analyzing and Estimating Expenses
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Cost Behavior Patterns Variable Costs “True” Variable Costs “Step” Variable Costs $ Q $ Q
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Fixed Costs $ Q $ Q Traditional Fixed Costs Fixed Costs in “Relevant Range” Cost Behavior Patterns
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Mixed Costs Mixed Costs $ Q Y = a + bX Y = Total Mixed Cost a = Total Fixed Cost b = Variable Cost per Unit of Activity X = Activity Level Cost Behavior Patterns
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Analyzing & Estimating Expenses Scatter Plot Analysis $ Q Relevant range Cost Behavior Patterns
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Two-Point Analysis Two-Point, or “High – Low” Analysis $ Q Relevant range Variable Cost per Unit: Y2 – Y1 X2 – X1 Point 1 Point 2 Fixed Costs = Total Cost – Variable Cost per Unit * Units Cost Behavior Patterns
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Least Squares Regression Analysis $ Q Relevant range Y = mX + b Y = 3x + 15 R-squared = 0.8 Cost Behavior Patterns
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CVP Analysis
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CVP Analysis CVP Analysis Focus on how profits are affected by: • Selling Price (P) • Sales volume (Q) • Unit Variable Cost (V) • Total Fixed Cost • Mix of Product Sold Profit = P × Q – V × Q – Fixed expenses Underlying Assumptions: ° Selling price is constant. ± Costs are constant: variable (constant per unit) + fixed (constant in total) ² In multiproduct companies, the sales mix is constant. ³ In manufacturing companies, inventories do not change (units produced = units sold). Profit = Sales – Variable Exp. – Fix Exp.
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CVP Analysis CVP Graph Units $0 $50,000 $100,000 $150,000 $200,000 $250,000 0 100 200 300 400 500 600 Sales Total expenses Fixed expenses Break Break-even point even point Is the level of sales at which profit is zero (Contribution Margin = Fixed Costs) Loss Area Profit Area
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CVP Analysis CVP Analysis – Key Terms CMR = Contribution Margin Sales Contribution Margin Ratio: shows how the contribution margin will be affected by changes in sales.
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