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Accounting Review Sheet

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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


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


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


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


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


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



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