Chapter 6
The Excel output used to measure the line of best fit.
R Square Analysis
Amount of income leftover after paying variable expenses. Expected to cover the cost of fixed expenses and desired profit
Contribution Margin
Two components of relevant information
1. Future Oriented
2. Differs Among Alternatives
When is your second exam?
Wednesday, October 14th
Formula used to determine total cost at specific levels of output
Y = VX + F
Contribution Margin / Sales Revenue
Contribution Margin Ratio
Lacks uniqueness, more competition, no brand name.
Ex: egg brands, phone cases, produce, coat hangers
Price takers
What is provided for you during the exam?
Calculator, pencil, scratch paper. Leave electronics in your car/bag/house.
- COGS
= Gross Profit
- Operating Expenses
= Operating Income
Traditional Income Statement
Breakeven in $
The main determinant for Special Order Decisions
Net effect on Operating Income
What is your favorite TV show?
A business decision that a company should not invest in.
An r2 output of .5 or less.
Fixed Expenses + Desired Income / CM Ratio
Target in $
Conceptual determinants of Special Order Decisions
1. Will accepting this order frustrate other regular customers?
2. Does the warehouse have excess capacity?
Do you have any tattoos?
Costs that are not exactly linear, but can be approximated with a straight line.
Curvilinear Costs
The one difference between the Breakeven formulas and the Target Cost formulas.
Target Cost includes Desired Profit
Which item to produce at highest capacity a constraint will allow
Choose the product with the highest contribution margin