ABC, Lean operations, cost of quality
What is Cost Distortion and how do you combat it?
occurs when some products are overcosted while other products are undercosted by the cost allocation system.
Use more specific costing systems
What makes up the Total Cost? What are their definitions?
Fixed Cost: costs that do not change in total despite wide changes in volume.
and
Variable cost: costs that are incurred for every unit of volume.
When a company has :
- Higher Competition
- Producing many different products with different inputs
-High MOH Costs; Compared to Direct Labor costs
- High volume of some products and low volume of others.
An ____________ might be indicated?
ABC Costing system
what does vx stand for in the equation
y = vx + f
Variable cost
Absorption Costing Income statement formula
Sales Revenue
- COGS
= Gross Profit
- Operating expenses
=Operating income
What are the Categories of activity cost or cost hierarchy for activity cost pools
Unit-level, Batch-level, Product-level and Facility-level
What are the methods of estimating the cost equation?
High Low method
and
Regression Analysis
A higher MOS = higher risk
false
The formula for high-low method?
How do you determine which values to use?
- change in cost/ change in volume
- use your volume to determine which high or low value you are using
Variable Costing Income Statement Formula
Sales Revenue
- Variable expenses
= Contribution Margin
- Fixed expenses
= Operating income
What are the 8 wastes of a traditional Organization?
D.O.W.N.T.I.M.E
Defects
Overproduction
Waiting
Not utilizing people to their full potential
Transportation
Inventory
Movement
Excess processing
What are the two types of costing under income statement
Variable costing/ Contribution Margin Income Statement is used by managers for internal decision-making
Absorption Costing: required by GAAP and is used by external users and investors
A high OLF = higher risk
do you want a high olf
true
no, it means you have a higher amount of fixed cost
Breakeven in units v Breakeven in dollars?
How does it differ from Expected/desired sales formula
Fixed cost/expenses+ Operating income(0) divided by Contribution Margin
Fixed cost/expenses+ Operating income(0) divided by Contribution Margin Ratio
Expected/Desired sales has a given operating income
Margin of Safety
Expected/Actual Sales minus Breakeven Sales
What are Conformance and Non Conformance Cost?
Quality-Related Cost
Conformance: Prevention and Appraisal
Non-Conformance: Internal Failure and External Failure
What is the relevant range?
range of activity variable cost per unit and total fixed cost remain constant
is an r-squared value of 0.3 good
r squared value: Shows us how well the line fits the data
0 to 1. the closer to one the more reliable the cost equation.
-Should be higher than 0.80 = Good
-Lower than 0.50 = Bad
Contribution Margin?
- Selling price - variable cost per unit
-Sales Revenue - Variable cost
Breakeven for Multiproduct companies
Fixed Cost + Operating Income divided by Weighted Average CM Ratio
Weighted Average CM Ratio: Total Cm $ divided by Total Sales $
Why is Lean Thinking Important?
Creates Value for the customer
reduces customer response time
Value Added Activity
How does absorption differ from variable costing when inventory level changes(increases,decreases, constant)?
If inventory level remains constant; Absorption costing equals variable costing
If Inventory level increases, Absorption costing income is greater than Variable costing income
If inventory level decreases, Variable costing income is greater than Absorption costing income
Key pieces of regression Analysis?
X-Variable 1: -It represents the Variable costs per unit in the cost equation
-It is the slope
-The independent variable (X)
Intercept: -It is the Y intercept
-It represents the Fixed Cost of the cost equation
-The dependent variable(Y)
R-squared
Multiple Regression Analysis: Regression analysis with more than one independent variable.
Operating Leverage Factor
Contribution Margin divided by Operating Income
percent change in operating income
OLF multiplied by percent change in sales