Chapter 5

Accounting 2101 with Clark at Georgia State University

About this deck

By: Melanie Berlin
Textbook:

Introduction to Accounting: An Integrated Approach
Created: 2011-10-21
Size: 47 flashcards
Views: 25

About StudyBlue

STUDYBLUE makes things that make you better at school. Things like online flashcards with photos and audio. Things like personalized quizzes and friendly reminders about when (and what) to study next. Think of it as a digital backpack™: access to all of your study materials online and on your phone. STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.

“I have been getting MUCH better grades on all my tests for school. Flash cards, notes, and quizzes are great on here. Thanks!”
Kathy

Sign up (free) to study this.

Primary Influences on Selling Price

These are ________________.
Customers

Customer perspective of balanced scorecard

Competitors

Learning and growth perspective

Legal and social forces

Learning and growth perspective

Cost

Internal perspective of balanced scorecard

Markup

^{(Internal Perspective: cost):}

an amount added to the cost of the product or service.
Can be expressed in $’s or as a % (_______ in $’s/cost).

Selling Price

^{(Internal Perspective: cost):}
_________ = Cost + (Cost x Markup)

$15

If cost is $10 and the markup percentage is 50%, what is the selling price?

Selling margin

^{(Internal Perspective: cost):}

________ is the difference between selling price and cost.
_______can be expressed in $’s or as a percentage
(________ in $’s/selling price).

How External Market Influence Selling Prices

Pure competition
Monopolistic competition
Oligopoly

Very few companies control selling price  Government monitors selling prices

Monopoly

One company controls market and selling price

Government approves price changes

Pure competition

^{(External Market Influencing Selling Price):}

Market determines selling price
Individual company is price taker

Pure competition

________ is an environment where a large number of buyer and sellers distribute virtually identical products & services.

Monopolistic competition

^{(External Market Influencing Selling Price):}

Market influences selling price
Individual companies influence selling price through advertising

Oligopoly

^{(External Market Influencing Selling Price):}

Very few companies control selling price  Government monitors selling prices

Monopoly

^{(External Market Influencing Selling Price):}

One company controls market and selling price

Government approves price changes

Penetration pricing

^{(Definition):}

Setting a lower initial selling price to entice

customers to try the product/service

Legal

Predatory pricing

^{(Definition):}

Setting a low initial selling price to drive out

the competition

Illegal

Skimming pricing

^{(Definition):}

Setting higher initial selling prices due to

uniqueness of product

Legal

Gouging

^{(Definition):}

Setting high price due to unusual demand
Illegal

Life-cycle pricing

^{(Definition):}

Setting a selling price for the life of the product/service based on cost

Determine cost, determine required markup, set selling price

Target pricing

^{(Definition):}

Setting a selling price for the life of the product/

service based on the market

Determine selling price, determine required return, set target cost

Target cost

Selling Price - margin = ______

selling margin

^{(Definition):}
The ________ in dollars and the markup in dollars are the same. It is the percentages that are different!

Holding Inventory

The following are all common reasons for _________
• Meet customer demand
• Smooth production scheduling
• Take advantage of quantity discounts
• Hedge against anticipated cost increases

Not Holding Inventory

All Common Reasons for _______

means significant costs are incurred including risk of obsolescence
allows the company the “hide” its internal process problems because demand can be met from inventory

EOQ

^{(Definition):}

Short-term model
Minimizes incremental ordering and holding costs

JIT

^{(Definition):}

Long-term philosophy
Assumes product-sustaining and facility- sustaining costs are relevant

EOQ (Economic Order Quantity) Model

^(Model):
Q= √ _2DO÷C

D = annual demand
O = incremental ordering cost (batch-related)
C = incremental carrying cost (unit-related)

√_{(2 * 607,500 * $8) ÷ ($0.75)}

A company estimates its annual demand at 607,500 units.

The cost to place an order is $8 and the cost to carry an additional unit in inventory is $0.75
The company operates 250 days per year, desires a safety stock of 100 units.
What is the economic order quantity (EOQ)?

daily demand

Annual demand ÷ days of operation = ________

Reorder point

Daily demand + safety stock = ________

Lead Time

(Daily demand x lead time) + safety stock = __________

JIT Model

Demand-pull system
Kanban (visual) system
Goals

Eliminate disruptions in production
Reduce or eliminate nonvalue-added activities
Minimize inventory levels

Risk: stockouts and resulting customer ill will

Stockout Cost

_______ are the opportunity cost of not having inventory on hand when needed

Common Compensation Plans

The following are all ________:

Piece rate
Commission
Hourly
Salary

Piece rate

^{(Common Compensation Plans)}

Pay based on units completed

Commission

^{(Common Compensation Plans)}

Pay based on sales

Hourly

^{(Common Compensation Plans)}

Pay based on hours worked

Salary

^{(Common Compensation Plans)}

Pay based on period of time

Other Compensation Issues

Bonuses
Insurance
Paid leave
Gross pay versus net pay

Gross = amount earned
Net = amount received

Bonuses

^{(Other Compensation Issues)}

Additional pay based on some future event

Insurance

^{(Other Compensation Issues)}

Protection for employees

Paid leave

^{(Other Compensation Issues)}

Protection for the company

(Gross; Net) Gross pay versus net pay

^{(Other Compensation Issues)}

____ = amount earned

____ = amount received

Bonus amount

________:

Net income before bonus and taxes
Net income before taxes (after bonus)
Net income (after bonus and taxes)

Bonus rate

Percentage of bonus amount

B = $600,000 x .12 = $ ;^{Net Income Calculation:}
$600,000
- 72,000 (the bonus)
- 105,600 (the taxes: 20% x $528,000)
$ _____ (net income);
^{Cash outflows:} $72,000 + 105,600 =

A company anticipates income before bonus and taxes of $600,000. It has set its bonus rate at 12% and it expects a tax rate of 20%. Determine the amount of the bonus, the net income, and the cash outflows if:

^{1. Bonus is based on income before taxes and bonus}

B = .12 x ($600,000 – B)
B = $72,000 - .12B
1.12 B = $72,000
B = (rounded to a whole number);
_{Net Income Calculation:}$600,000
- 64,286 (the bonus)
- 107,143 (the taxes: 20% x $535,714)
$____ (net income);
_{Cash outflows}: $64,286 + 107,143 = $

A company anticipates income before bonus and taxes of $600,000. It has set its bonus rate at 12% and it expects a tax rate of 20%. Determine the amount of the bonus, the net income, and the cash outflows if: ^{2. Bonus is based on income before taxes (after bonus)}

About this deck

By: Melanie Berlin
Textbook:

Introduction to Accounting: An Integrated Approach
Created: 2011-10-21
Size: 47 flashcards
Views: 25

About StudyBlue

“I have been getting MUCH better grades on all my tests for school. Flash cards, notes, and quizzes are great on here. Thanks!”
Kathy