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ACCT 2000- Midterm Exam Guide - Comprehensive Notes for the exam ( 103 pages long!)

Department
Accounting
Course Code
ACCT 2000
Professor
E.Briggs
Study Guide
Midterm

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LSU
ACCT 2000
MIDTERM EXAM
STUDY GUIDE

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Accounting 2000
Chapter 18 Class Notes
Page 1 of 12
1. Explain Variable, Fixed and Mixed Costs.
2. Prepare a CVP Income Statement to Determine Contribution Margin.
3. Compute the Break-Even Point.
4. Determine the Sales Required to Earn Target Net Income.
To manage any business, you must understand:
How __costs__ respond to changes in _sales volume_, and
The effect of _cost__ and __revenue__ on __profits_.
To understand cost-volume-profit (CVP), you must know how costs behave.
Some costs ___change__; others remain the __same__
A knowledge of ___cost behavior_ helps management plan __operations__
and decide between alternative __courses of action__.
Cost behavior analysis applies to all types of __entities (corporations,
partnerships, sole prop.__.
Starting point in cost behavior analysis is measuring key ___business components__.
Activity levels may be expressed in terms of:
Sales dollars (in a retail company)
Miles driven (in a trucking company)
Room occupancy (in a hotel)
Dance classes taught (by a dance studio)
Many companies use more than one measurement base.
The activity level selected is called the __activity or volume index__.
The activity index:
Identifies the activity that causes changes in the __behavior__ of __costs__.
Allows costs to be classified according to their _response__ to changes in activity
as either:
__variable costs(utility bill)_, ___fixed costs(rent)_, or ___mixed costs(phone bill)___
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Accounting 2000
Chapter 18 Class Notes
Page 2 of 12
Variable costs
Costs that vary in total ___directly__ and ___proportionately__ with changes in
the activity level.
Example: If the activity level increases 10 percent, total variable costs will
increase 10 percent.
Example: If the activity level decreases by 25 percent, total variable costs will
decrease by 25 percent.
Variable costs remain the ___same per unit__ at every level of ___activity__.
Examples of Variable Costs:
o ___direct materials__.
o __direct labor___.
Example:
1. Damon Company manufactures radios that contain a \$10 digital clock.
2. The activity index is the __number of radios produced___.
3. For each radio produced, the total cost of the clocks increases by \$10:
4. If 2,000 radios are produced, the total cost of the clocks is
_____2000 x \$10 = \$20,000____.
5. If 10,000 radios are produced, the total cost of the clocks is
______10,000 x \$10 = \$100,000________.
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