Strategic Financial Analysis Study Guide

School: Saint Mary's College of California - Course: ACCOUNTING 202 - Subject: Accounting

ACC 222 Exam 2 Study Guide INSTRUCTOR:Eric Marinich Preface Chapter 7: Cost-Volume-Profit analysis I. Use abasic CVP modelto estimate the cost, volume, or selling price needed to meet profit targets in single-product setting II. Useexpanded CVP modelfor multi-product CVP estimates III. Use CVP model to estimate and understandoperating leverage (risk)A. Be able to calculate degree of operating leverage B. Understand how degree of operating leverage can be used to estimate changes in profit given a change in sales Chapter 8: Relevant Analysis I. Understand how toidentify relevant costs and revenues II. Be able to quantify the financial advantage or disadvantage of the following strategic decisions: A.Make or buy(outsourcing a routine function) B.Special orders(accept or reject) C.Keep or discontinuea product or service line III. Know how to choose product (or service) mix when we facecapacity constraints Chapter 10: Variance Analysis I. Understandstandard costing II.Variance analysis: what is it and why do we do it? III. Understand and be able to calculatedirect cost variances A. Materials variance (price and usage) 1

B. Labor variance (rate and eﬃciency) IV. Understand and be able to calculateoverhead variances A. Variable overhead variance (spending and eﬃciency) B. Fixed overhead variance (spending and volume) Exam Tips: I. Put together little income statements if you get stuck on a problem II. For hard conceptual questions, plug in numbers to test conditions III. For multi-product questions, make sure to observe the bundle IV. For make or buy questions, ask yourself, "If I outsource/make in house, how much will I save?" V. For special orders, relevant revenue minus relevant cost must be positive for us to accept Chapter 7: Cost-Volume-Profit analysis Contribution margin format income statement Basic (single product) and expanded (multi-product) CVP models Break-even analysis, break-even plus target profit, operating leverage What's the relationship between costs, revenues, and income? - Operating income = revenue - VC - FC CVP answers "How do changes in one variable affect the others, holding the other variables constant" C = Cost from VC and Fc V = qty is production volume, in revenue and VC