Accounting Review Sheet

Variable Cost Behavior When Activity: When Activity:

Increases Decreases

Total Variable Cost Increases Decreases

Variable Cost/ Unit Stays Same Stays Same

Fixed Cost Behavior When Activity When

Activity

Increases Decreases

Total Fixed Cost Stays Same Stays Same

Fixed Cost per Unit Decreases Increases

Contribution Margin = Revenue - Variable Costs

Average Cost per Unit = Total Cost / Number of Units

Magnitude of = Contribution Margin

Operating Leverage Net Income

Break even volume in units= Fixed Cost / CM per unit Ð'©Ð'¦ ~Contribution Margin Ratio= CM / Sales Ð'©Ð'¦ ~Break Even Point= Fixed Cost / CM Ratio or Selling Price/Units*# Units Sold = [(VC/Unit*# Unit Sold) + Fixed Cost] Ð'©Ð'¦ ~To find how many units must be sold: Fixed Cost + Target Profit/ CM Ð'©Ð'¦ ~Profit= CM Ð'ЁC FC Ð'©Ð'¦ ~Margin of Safety= (Budgeted Sales Ð'ЁC Break Even Sales)/ Budgeted Sales

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Profit (Net Income) = Sales Ð'ЁC Variable Costs Ð'ЁC Fixed Costs Operating Leverage = CM / NI

Contribution Margin = Sales Ð'ЁC Variable Costs Gross Margin = Sales Ð'ЁC COGS

Contribution Margin Ratio = CM / Sales

*Ratio represents portion of Sales to cover Fixed Costs* High/Low Method = (High Cost Ð'ЁC Low Cost) / (High Units Ð'ЁC Low Units) = VC per unit

Margin of Safety = (Budgeted Sales Ð'ЁC Break Even Sales) / Budgeted Sales Break Even = FC / CM

Net Income = Sales Ð'ЁC COGS Ð'ЁC All other Expenses Purchases = Sales + EI Ð'ЁC Beginning Inventory

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Horizontal Analysis Ð'ЁC study of the behavior of individual financial statement items over several accounting periods.

Vertical Analysis Ð'ЁC uses percentages to compare individual components of financial statements to a key statement figure.

*Balance Sheet - % of total assets* **Income Stmt - % of total sales**

Ratio Analysis Ð'ЁC involves studying various relationships between different items reported in a set of financial stmts

Liquidity Ratios: Working Capital, Current Ratio, Quick Ratio, Accounts Receivable Ratio, Inventory Ratio,

Solvency Ratios: Debt to assets ratio; Debt to equity ratio; Number of times interest earned ratio; Plant assets to long-term liabilities

Profitability Ratios: Net margin, Asset turnover, Return on Investment, Return on Equity

Stock Market Ratios: Earnings per share, Book value per share, Price-earnings ratio, Dividend yield

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Current Assets = Cash, Accounts Receivable, Marketable Securities, Inventory Unadjusted rate of return= cash inflow/(cost of inv/2)

Current Liabilities = Payables due w/in the next 12 months Payback period= (cost of inv/annual cash inflow)

Quick Assets = Cash, Accounts Receivable, Marketable Securities Internal rate of return(IRR)= (cost of inv/annual cash inflows); look up PV value on table

Working Capital = Current Assets - Current Liabilities Net PV= PV of future cash flows Ð'ЁC cost of inv.

Return on inv(roi)=OI/sales(margin) x sales/OA(turnover); OI/OA; OA * ROI=OI Current Ratio = Current Assets / Current Liabilities

Return on Equity = Net Income / Ave. Total StockholderÐ'ÐŽÐ'Їs Equity Quick Ratio = Quick Assets / Current Liabilities

Debt to Equity Ratio = Total Liabilities / Total Equity Inventory Turnover = COGS / Ave. Inventory

Residual income=oi-(oa * desired roi) PV of future cash flows= cash inflow * PV factor

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Increase in sales: ROI * investment=OI => (OI=sales increase amt * sales)

PV w/ taxes = 1. revenue Ð'ЁC depr= taxable income 2. taxable income * tax rate =taxes 3. taxable income Ð'ЁC taxes = net income 4. NI + depr = cash inflows 5. Cash inflows * PV factor= ? 6. ? Ð'ЁC cost of asset

Selling price per unit: 1. OI=ROI * OA 2. OI=(Sales Volume (n)) Ð'ЁC fixed Ð'ЁC variable

Cost of units transferred out: 1.Transfer units *100% 2. ending inv * %completed 3. Add 1. and 2. 4. all other costs/ 3 answer= cost per unit 5. cpu * 2

The process product costing system distributes costs evenly across total production

T-charts: Cash, Raw Mat. WIP, Manufacturing OH, Common Stock, Revenue, COGS, SG&A

Depreciation on Manufacturing equip is added to Manufacturing OH.

Return on Investment (ROI) = Margin (OI / Sales) * Turnover (Sales / OA)

Residual Income = [OI Ð'ЁC (OA * Desired ROI)]

PV of Future Cash Flows = Cash inflow * PV factor

Net Present Value = PV of future cash flows Ð'ЁC cost of investment

Internal Rate of Return = cost of the investment / annual cash inflow = PV value **Look up PV value