Chapter 1: Accounting: Information for Decision Makers
1) Four Step Framework
- Specify the decision problem, including the decision makers goals
- Identify options
- Measure benefits and costs to determine the value of each option
- Make the decision, ch
CVP Model & Operating Risk
Two measures of risk emanate from the CVP relation
1. Margin of Safety
a. Is the cushion, or amount by which sales can decrease before the
firm incurs a loss
= (current sales breakeven sa
CHAPTER 6 DECISION MAKING IN THE SHORT TERM SOLUTIONS
REVIEW QUESTIONS 6.1 6.2 6.3 The temporary gaps between the demand and supply of available capacity. The maximum volume of activity that a company can sustain with available resources. Because organiza
Identifying and Estimating
Costs and Benefits
How to Estimate Costs and Benefits
There are two principles associated with estimating costs
and benefits, variability & traceability.
Cost Flows and Cost Terminology
Estimating Costs and Benefits
To estimate costs and benefits, we need data.
Where do we get the data?
From our good friend, the accounting system.
o Most accounting systems are set up to comply with GAAP.
CHAPTER 2 HW
2.1 2.2 2.3 2.4 Controllable benefits and costs are, respectively, the incremental revenues and expenditures relative to current revenues and expenditures. Value equals controllable benefits less controllable costs. Relevant costs and benefit
Cost Accounting Systems
o Cost, and Allocation, systems, match the production environment
CHAPTER 4 TECHNIQUES FOR ESTIMATING FIXED AND VARIABLE COSTS SOLUTIONS
Review Questions 4.1 Because the statement groups costs by business function rather than variability. That is, the traditional income statement combines fixed (non-controllable) and va
CHAPTER 5 HOMEWORK
Profit before taxes
= [(Price Unit variable cost) Sales volume in units]
Fixed costs = Unit contribution margin Sales volume in units Fixed costs.
The contribution margin statement.
The sales volume at which profit equals z
CHAPTER 2 IDENTIFYING AND ESTIMATING COSTS AND BENEFITS SOLUTIONS
REVIEW QUESTIONS 2.1 2.2 2.3 2.4 Controllable benefits and costs are, respectively, the incremental revenues and expenditures relative to current revenues and expenditures. Value equals con
CHAPTER 4 HW
Because the statement groups costs by business function rather than variability.
That is, the traditional income statement combines fixed (non-controllable) and
variable (controllable) costs.
Revenues less variable costs. It is the am
CHAPTER 7 OPERATING BUDGETS:
BRIDGING PLANNING AND CONTROL SOLUTIONS
REVIEW QUESTIONS 7.1 7.2 7.3 A plan for using limited resources. Firms budget for (1) planning, (2) coordination, and (3) control (performance evaluation and feedback). Operating bud
Chapter 4: Techniques for Estimating Fixed and Variable Costs:
1) Contribution margin vs. GAAP income statements
- Contribution margin income statements are used for internal reporting because it groups costs
by their variability (variable vs. fixed) whic
Chapter 5: Cost-Volume-Profit Analysis
1) CVP Relationship
- The CVP relation expresses profit before taxes as a function of the selling price per unit, the
unit variable cost, sales volume, and fixed costs
- Profit before taxes = (Price - unit variable c
Chapter 6: Decision-Making in the Short-Term
1) Capacity for Different Organizations
- Capacity is the maximum volume of activity that a company can sustain with available
- Examples: Staples Center can hold 18,997 people; Chicago Sun-Times can
Chapter 7: Operating Budgets
1) Describe the different roles that budgets play in an organization
- A budget is a plan for using limited resources. Budgets serve 3 major roles: planning, control,
- Operating budgets reflect the outcomes o
5) Compare the advantages and disadvantages of top-down and bottom-up budgeting
- Most firms use a combination of both top-down and bottom-up
- Top-down approach is suitable for small firms with managers intimately involved in day to day
Chapter 8: Budget Control and Variance Analysis
1) Explain how budgets are used as part of the control function
- As plans determine the benchmark of evaluating actual performance, a good plan is the
foundation for effective control. Without a well-concei
5) Input Price & Quantity Variances
- An input price variance is the difference between the budgeted price per unit and the actual
price per unit of the input, multiplied by the total actual quantity of the input. An input price
variance arises whenever t
Chapter 9: Cost Allocations
1) Explain how firms use cost allocations to make long-term decisions
- The key feature distinguishing long-term decisions from short-term decisions is the ability to
change the level of capacity supplied and, thus, the capacit
Chapter 10: Activity Based Costing and Management
1) Compare an ABC system to other costing systems
- Profit margin, rather than gross margin or contribution margin, is the appropriate metric for
long-term decisions. The profit margin is contribution marg
Chapter 14: Job Costing
1) Explain how the characteristics of a firms production process determine the features of its
-Production environments range from making individual units of customized products to making
millions of units of the
Chapter 16: Support Department Cost Allocations
1) Describe the relationship between support activities and line or producing activities
- A line activity directly relates to producing services or products. Costs incurred in these
departments are almost f
Cost Allocations: Theory and Applications
Nature of Long-Term Decisions
In the Long-Term (LT), capacity costs are controllable
We can augment or contract capacity
Examples = Kelley School of Business; Blockbuster Video
We need a way to esti
Budgetary Control & Variance Analysis
Uses of Variances
A variance is the difference between an actual result and
a budgeted amount.
We label variances as Favorable (F) or Unfavorable (U) to
denote the variances effect on operating income.
Operating Budgets: Bridging Planning and
The Iron Pit provides you with the following information regarding budgeted membership and
purchases of supplies (in $) for August, September, and October.
Month Individual Memberships
Operating Budgets: Bridging Planning and
What is a Budget?
Definition: A budget is a plan for using limited resources
Who uses budgets?
Where Budgeting fits in
Identify organizational objectives
Long term strategy and short