# ACG 2071 Exam II

 The flashcards below were created by user wcady on FreezingBlue Flashcards. 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 Four types of Quality Costs 1. Prevention costs—costs to avoid producing poor-quality goodsor services2. Appraisal costs—costs that incurred to detect poor-quality g/s3. 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 OI = REV - VE - FE CMU = Sales price per - VC per CMR = CMU/ Sales price per Income Statement Approach OI = REV - VE - FE BEU = FE + OI/ CMU BES = FE + OI/ CMR 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 Weighted Avg. CMU CM/Sales Mix MSU = Expected Sales in Units - BSU MSS = Expected sales in dollars - BES MS % = MSU(MSS)/ Expected sales in units(Dollars) 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 Op Leverage Factor = CM/OI 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? 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? Target Costing Rev @ MP - Desired Profit Cost Plus Pricing TC + Deesired Profit 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? 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? 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? 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? Authorwcady ID43595 Card SetACG 2071 Exam II DescriptionFormulas and Terms Updated2010-10-21T13:43:29Z Show Answers