Accounting Final

Front 1

4 Standards of Ethical Professional Practice

Back 1

Competence
Confidentiality
Integrity
Credibility

Front 2

Fixed Cost vs. Variable Cost

& equation

Back 2

Fixed always stay the same.
Variable changes with volume

y=ax+b

a-->slope, variance
b-->y-int, fixed

Front 3

High Low Method

Back 3

Change in Cost / Change in Activity

Front 4

Relevant Range

Back 4

The range of activity over which the assumptions about fixed and variable cost behavior are reasonably valid

Front 5

Income Statement Layout

Back 5

Revenue
-Variable Cost
=Contribution Margin
-Fixed Costs
=Net Income

Front 6

Memo Format

Back 6

Memo

To:
From: Anna Hedlund ACH
Re:
Date:

begin...

Front 7

Job Order costing vs. Absorption Costing

Back 7

Job-Order: used in situations where many different products are produced each period.

Absorbtion costing: product costs include all manufacturing costs.

Front 8

Direct Labor vs. Indirect Labor

(and examples)

Back 8

Direct labor--easily traced to a particular job.

Indirect labor--maintennce, supervision, cleanup

Front 9

Difficulties of assigning manufacturing overhead to a specific job (3)

Back 9

1. It is an indirect cost
2. It consists of many different items (ranging form grease used in machines to production manager's salary)
3. Because of fixed costs in manufacturing O/H, total manufacturing O/H costs tend to remain relatively constant from one period to the next.

Front 10

FORMULA:

Predetermined overhead rate

Back 10

Estimated total manufacturing overhead cost / Estimated total amount of the allocation base.

Front 11

FORMULA:

Assinging overhead to a job

Back 11

Overhead applied to a particular job =

Predetermined O/H Rate X Amount of the allocation base incurred by the job.

Front 12

What is a Cost Driver?

Back 12

Something that drives the overhead cost.

Ex: Machine-hours, beds occupied, computer time, flight-hours.

Front 13

The difference between the overhead cost applied to Work in Process and the actual overhead costs of a period is called:

Back 13

Underapplied or Overapplied overhead

Front 14

Items in overhead

Back 14

Rent
Indirect labor
Supervisor Salary
Janitorial staff
Utilities
Taxes
Indirect Materials
Supplies

Front 15

CVP focuses on how profits are affect by these 5 factors:

Back 15

Mix of products sold
Unit variable costs
Selling prices
Total fixed costs
Sales volume

(MUSTS)

Front 16

CVP is a tool that does what?

Back 16

It helps managers understand the relationships among cost, volume, and profit.

Front 17

Contribution income statement layout

Back 17

Sales
-VE
=CM
-FE
=NOI

Front 18

Profit =

Back 18

(Sales-Variable Expenses) - Fixed Expenses

Front 19

CVP Graph

Back 19

Front 20

CM Ratio Formula

Back 20

CM ratio = CM / Sales

Front 21

FORMULA:

Unit sales to attain the target profit =

Back 21

(Target Profit + Fixed Expenses) / Unit CM

Front 22

Margin of Safety

Back 22

the excess of budgeted or actual sales dollars over the break-even volume of sales dollars. It is the amount by which sales can drop before losses are incurred.

Front 23

FORMULA:

Margin of safety ($)

Margin of safety (%)

Back 23

$ = Total budgeted (or actual sales) - Breakeven sales

%= Margin of safety in $ / Total budgeted (or actual) sales in dollars

Front 24

Operating leverage

Back 24

A measure of how sensitive NOI is to a given percentage change in dollar sales.

If an operating leverage is high, a small percentage increase in sales can produce a much larger percentage increase in NOI.

Front 25

FORMULA

Degree of operating leverage

Back 25

CM / NOI

Front 26

Sales Mix

Back 26

The relative proportions in which a company's products are sold.

Goal is to have the mix with the highest profitability.

Front 27

4 Assumptions of CVP analysis

Back 27

1. Selling prie is constant
2. Costs are linear & can be divided into variable and fixed elements.
3. In multiproduct companies, the sales mix is constant.
4. In manufacturing companies, inventories do not change. # produced = # sold.

Front 28

Activity Based costing (definition)

Back 28

A costing method designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore "fixed" as well as variable costs.

Front 29

How does ABC differ from traditional cost accounting? (3)

Back 29

1. Nonmanufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis.

2. Some manufacturing costs may be excluded from product costs.

3. Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity.

Front 30

What does manufacturing overhead include?

Back 30

Factory security guard wages, plant controller's salary, cost of supplies used by the secretary, etc.

Front 31

Unit Level activities

Back 31

performed each time a unit is produced. Te costs of unit-level activities should be proportional to the number of units produced.

Ex: Providing power to run processing equipment.

Front 32

Batch-Level activities

Back 32

performed each time a batch is handled or processed.

Ex: setting up equipment, arranging shipments to customers.

Front 33

Product-Level Activities

Back 33

relate to specific products and typically must be carried out regardless of how many batches are run or units of a product are produced/sold.

Ex: advertising, designing

Front 34

Customer-Level Activities

Back 34

relate to specific customers.

Ex: sales calls, catalog mailings, tech support

Front 35

Organization-sustaining activities

Back 35

carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made.

Ex: heating, cleaning, etc.

Front 36

3 Essential characteristics of a successful ABC implementation:

Back 36

1. Top managers must strongly support ABC implementation.
2. Top managers should ensure that ABC data is linked to how people are evaluated and rewarded.
3. A cross-functional team should be created to design and implement the ABC system.

Front 37

STEPS to implement ABC (5)

Back 37

1. Define activities, activity cost pools, activity measures
2. Assign overhead costs to activity cost pools
3. Calculate activity rates
4. Assign overhead costs to cost objects using the activity rates and activity measures.
5. Prepare management reports.

Front 38

First Stage Allocation

Back 38

the process of assigning OH costs derived from a company's general ledger to the activity cost pools.

Front 39

Second Stage Allocation

Back 39

Activity rates are used to apply overhead costs to products and customers

Front 40

Why is ABC not used?

Back 40

1. External reports are less detailed than internal reports prepared for decision making.

2. It is often very difficult to make changes in the company's accounting system.

3. ABC systems do not conform to GAAP.

4. Auditors are likely to be uncomfortable with allocations that are based on interviews with the company's personnel.

Front 41

Vertically Integrated

Back 41

When a company is involved in more than one activity in the entire value chain

Front 42

Make or Buy Decision

Back 42

A decision to carry out one of the activities in the value chain internally rather than to buy externally from a supplier.

Front 43

The purpose of a flexible budget is to:

Back 43

Update the static planning budget to reflect the actual level of activity during the period.

Front 44

Sales Budget

Back 44

Prepared first.

Front 45

Production Budget

Back 45

Lists number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory.

Budgeted Unit Sales
+ Desired ending inventory of finished goods
=Total Needs
-Beginning inventory of finished goods
=Required Production

Front 46

Direct Materials Budget

Back 46

Details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

Front 47

Direct Labor Budget

Back 47

Shows the direct labor-hours required to satisfy the production budget.

Front 48

Manufacturing overhead budget

Back 48

lists all costs of production other than direct materials and direct labor.

Front 49

4 Major Sections of Cash Budget

Back 49

1. Receipts section
2. Disbursements section
3. Cash excess or deficiency section
4. Financing Section

Cash Balance, Beginning
+Receipts
=Total Cash Available
-Disbursements
=Excess (deficiency) of cash

Front 50

Ideal Standards

Back 50

No machine breakdowns or other work interruptions, and call for a level of effort that can be attained only by the most skilled and effiient employee working at peak effort 100% of the time.

Few organizations use ideal standards.

Front 51

Practical standards

Back 51

"tight but attainable"

Allow for machine downtime and employee rest periods, can be attained through reasonable, thought highly efficient, efforts by the average worker.

Front 52

The standard rate per hour for direct labor includes what?

Back 52

-Hourly wages
-Employment taxes
-Fringe benefits

Front 53

FORMULA:

Materials quantity variance

Back 53

(AQ*SP)-(SQ*SP)

Front 54

FORMULA

Materials Price Variance

Back 54

(AQ*AP)-(AQ*SP)

Front 55

FORMULA

Labor Efficiency Variance

Back 55

(AH*SR)-(SH*SR)

Front 56

Causes of unfavorable labor efficiency variance:

Back 56

--poorly trained or motivated workers
--poor quality materials
--faulty equipment
--poor worker supervision

Front 57

FORMULA

Labor rate variance

Back 57

(AH*AR)-(AH*SR)

Front 58

Typical cash budgeting decisions include:

Back 58

1. cost reduction decisions
2. expansion decisions
3. equipment selection decisions
4. lease or buy decisions
5. equipment replacement decisions

Front 59

A dollar today

Back 59

is worth more than a dollar a year from now

Front 60

If Net Present Value is:

1. Positive
2. Zero
3. Negative

Back 60

Then the project is:

1. Acceptable b/c it's return is greater than the required rate of return.

2. Acceptable b/c it's equal

3. Not acceptable

Front 61

3 types of typical cash outflows

Back 61

1. investment on equipment
2. working capital
3. periodic outlays for repairs and maintenance and additional operating costs.

Front 62

Typical cash inflows (3)

Back 62

1. revenues
2. selling equipment for salvage value
3. working capital

Front 63

FORMULA:

Factor of the internal rate of return

Back 63

= Investment required/ Annual Net cash flow

Front 64

If net present value and internal rate of return do not agree, which should you go with?

Back 64

Net Present Value Method.

Of the two, it makes the more realistic assumption about the rate of return that can be earned on cash flows from the project.

Front 65

When managers consider investment opportnities, they make make 2 types of decisions:

Back 65

1. Screening --> Come first, pertain to whether the proposed investment is acceptable or not.

2. Preference --> Come second, "how do the screened proposals rank in order of rate of return?"

Front 66

FORMULA:

Project Profitability Index

Back 66

=Net Present value of the project / Investment Required

Front 67

FORMULA:

Payback period

(when the annual net cash inflow is the same every year)

Back 67

investment required/ annual net cash inflow

Front 68

Simple Rate of return FORMULA

Back 68

=Annual incremental NOI / Initial investment

Front 69

3 Capital Budgeting Methods:

Back 69

1. Net Present Value: good at 0 or above
2. Internal Rate of Return: NPV=0
3. Payback: no discounted cash flow

Front 70

Things that go into determining a discount rate

Back 70

Growth
Interest
Inflation
Risk