ACG 2071 Exam II

  1. Four basic steps for computing and using the ABC rates:
    1. The company first identifies its primary activities and then estimates the total MOH cost associated with each activity.

    2. The company selects an allocation base for each activity and estimates the total amount that will be used during the year

    3. The company calculates its activity cost allocation rates using the information estimated in steps 1 and 2

    Activity Cost Allocation = total est. activity cost pool / total est. activity base

    4. The company allocates some MOH from each activity to the individual jobs that use the activities

    MOH Allocate to job = ABCR *actual amount used by job
  2. Four types of Quality Costs
    • 1. Prevention costs—costs to avoid producing poor-quality goodsor services
    • 2. Appraisal costs—costs that incurred to detect poor-quality g/s
    • 3. Internal failure costs— costs that are incurred on defectiveunits before delivery to customers
    • 4. External failure cost—costs incurred because the defective g/s are not detected until after delivery is made
  3. OI
    = REV - VE - FE
  4. CMU
    = Sales price per - VC per
  5. CMR
    = CMU/ Sales price per
  6. Income Statement Approach
    OI = REV - VE - FE
  7. BEU
    = FE + OI/ CMU
  8. BES
    = FE + OI/ CMR
  9. Sensitivity analysis
    is a ‘what if’ technique that asks what results will be if actual prices or costs change or if an underlying assumption such as sales mix changes
  10. Weighted Avg. CMU
    CM/Sales Mix
  11. MSU
    = Expected Sales in Units - BSU
  12. MSS
    = Expected sales in dollars - BES
  13. MS %
    = MSU(MSS)/ Expected sales in units(Dollars)
  14. What is the Op leverage factor?
    Tells you, at a given level of sales, indicates the % change in OI that will occur from a 1% change in V. In other words, it tells us how responsive a company’s OI is to changes in V
  15. Op Leverage Factor
    = CM/OI
  16. Special orders Considerations
    Do we have excess capacity available to fill this order?

    Will the reduced sales price be high enough to cover the incremental costs of filling this order?

    Will the special order affect regular sales in the LR?
  17. Regular Pricing Considerations
    What is our target profit?

    How much will customers pay?

    Are we a price-taker or a price-setter for this product?
  18. Target Costing
    Rev @ MP - Desired Profit
  19. Cost Plus Pricing
    TC + Deesired Profit
  20. Considerations for dropping
    Does the product provide a positive CM?

    Will fixed costs continue to exist even if we drop the product?

    Are there any direct FC that can be avoided if we drop the product?

    Will dropping the product affect sales of the company’s other products?

    What could we do with the freed capacity?
  21. Product Mix Considerations
    What constraints stop us from making all of the units we sell?

    Which products offer the highest CM per of the constraint?

    Would emphasizing one product over another affect FC?
  22. Outsourcing Considerations
    How do our VC compare to the outsourcing cost?

    Is any FC avoidable if we outsource?

    What could we do with the freed capacity?
  23. Sell as is or Process Further Considerations
    How much revenue will we reciev if we sell the product as is?

    How much revenue will we receive if we sell the product after processing it further?

    How much will it cost to process it further?
Card Set
ACG 2071 Exam II
Formulas and Terms