Accounting - Jcollins - Final

Front 1

What grade are you going to get on your Accounting Final?

Back 1

A
98%
10/10
PERFECT SCORE

Front 2

CH2
What is Cost Object?

Back 2

A Cost Object is any activity or item for which a separate cost measure is desired.
i. Raw Materials
ii. Direct Labor
iii. Overhead

Front 3

CH2
What is a purchase order?

Back 3

A document that a company or organization uses to order materials from a vendor
Document to record purchases.

Front 4

CH1
Management Accounting vs Financial Accounting

Back 4

Internal VS External
Timely, Detailed VS Basic, Follows GAAP

Front 5

CH1
What is Management Accounting

Back 5

o The process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information used by management to plan, evaluate, and control ... an organization

Front 6

CH5
What are fixed costs?
How do they act?

Back 6

Costs that remain constan
Decrease per unit as activity increases

Front 7

CH5
What are variable costs?
How do they act?

Back 7

Cost same per unit, changes proportionally

Front 8

CH2
Cost of Raw Materials:

Back 8

(Purchased Raw Materials)+ (Beginning Raw Materials -Ending Raw Materials)

Front 9

CH5
What is the relevant range?

Back 9

Cost behavior pattern holds true

Front 10

CH2
Overhead:

Back 10

(Indirect Labor + Indirect Material + Factory items)

EX- Factory Supplies Used + Depreciation on Machinery + Depreciation on Factory + Factory Security Guard Cost + Factory Supervision Cost

Front 11

CH2
Calculate: Cost of Goods Manufactured this period

Back 11

(Manufacturing cost for period +beg wip inventory) -- (end wip )

Front 12

CH2
Cost of Goods Sold

Back 12

(Beginning Finished Good Inventory + Cost of Goods Manufactured)
--
(Finished Goods Inventory)

Front 13

CH3
What can Direct Labor Hours be used as?

Back 13

Activity base

Front 14

CH3
What is a Cost Driver?

Back 14

Cost driver is a cost cause that is used as a cost allocation base

Front 15

CH3
If overhead is $75,000 and you have 93,500 DLH :
Overhead rate per hour is

Back 15

75,000/93,500 = .8

Front 16

CH3
When is it appropriate to use Process Costing, what type of products lend themselves to this type of system?

Back 16

• A method of allocating manufacturing costs to products to determine an average cost per unit
• Used by businesses such as glass manufacturing, food processing, and oil and gasoline refining
• Costs are accumulated for each production process
Q TIPS

Front 17

CH3
Traditional Allocation Bases

Back 17

• Direct Labor Hours
• Total Direct Labor Cost
• Machine Hours

Front 18

CH3
When is Job order costing used?

Back 18

• Accumulates the cost of production for each job, each individual unit of production, each order, or each product
• Used by a caterer, a mechanic’s garage, a helicopter manufacturer, and a construction crew
• Costs are accumulated for each individual unit produced or each separate order of products
BOATS

Front 19

CH3
How do you calculate equivalent units?
Completed= 5,000 lollipops 700 lollis =40% complete. -----
How do you calculate cost per equivalent units?
Beg inventory Costs = $1,000 current manuf costs = 4,000

Back 19

(Number of Raw Units Completed*Percent Completed)+ (Number of Ending WIP Raw Units*Percent Completed)

(5,000 x 1) + (700 x .4) = Equiv Units = 5280
(1000+ 4000) / Equiv units = $0.95 CPU

Front 20

CH4
Is the result of “ABC” more or less accurate then the Traditional method?

Back 20

MORE Accurate

Front 21

CH4
Does the cost of “ABC” equal the cost of Traditional?

Back 21

ABC is more expensive

Front 22

CH4
Which method reduces the costs for the company?
(ABC vs Traditional)

Back 22

ABC

Front 23

CH6
How do you calculate: Total Contribution Margin?

Back 23

Total Contribution Margin =
(Total Revenue)
-
(Total Variable cost)

Front 24

CH6
How do you calculate: Contribution Margin Ratio

Back 24

Contribution Margin Ratio =
(Contribution Margin)
///
(Total Revenue)

Front 25

CH6
How do you calculate: Break Even Point?

Back 25

[[[FC+(IF Desired profit) /// CMU]]]
Break Even Point =
(Total Fixed Cost)
///
[[(Unit Price) - (Unit Variable Cost)]]

Front 26

CH6
If you want to increase profit by $5,000 , how many units do you have to sell?

Back 26

(Fixed Cost)
+
[[(5,000) /// (CM Per Unit)]]

Front 27

CH7
What are the questions you have to answer to determine if a cost is relevant in a decision making situation?

Back 27

1. Is it Future Cost or Benefit
2. Does the cost or benefit differ from decision alternatives

Front 28

CH5
What are Sunk costs?

Back 28

it is a past cost that cannot be changed by current or future action. its irrelevant and shouldn't be considered in current decisions.

Front 29

CH7
What are make or buy decisions?

Back 29

• Basic make-or-buy decision question is whether a company should make its own parts to be used in its products or buy them from vendors
• Also called “outsourcing

Front 30

CH7
How is fixed overhead treated?

Back 30

Not relevant if costs do not change.

Front 31

CH8
What is the time value of money?

Back 31

Money today is worth more than money in the future. thus an investment should be calculated with this in consideration.

Front 32

CH8
What are the payback method?

Back 32

• Measures the length of time a capital project must generate positive net cash flows that equal or “pay back” the original investment
• Required Initial Investment/Annual Net Cash Inflow (only used when net cash flows are equal from year to year)
• If cash flows are unequal, add the net cash inflows year by year until the total equals the required initial investment

Front 33

CH9
What is the operating budget?

Back 33

• Sometimes called the master operating budget or the master budget
• A budget for a specific time, usually one to five years, that establishes who is responsible for the day-to-day operation of the business during that time
• A set of estimated financial statements
• Includes several detailed schedules that provide the backup documentation for the financial statements
• Contents:
o Budgeted Balance Sheet
o Budgeted Income Statement
o Budgeted Statement of Cash Flows

Front 34

CH9
What is perpetual budgeting?

Back 34

• Also called continual budgeting
• Operating budget is continually updated and extended
• As one month or quarter ends, another month or quarter is added to the end of the budget
• The budgeting approach of updating the budget every month

Front 35

CH9
What is zero based budgeting?

Back 35

• A process of budgeting in which manager’s start from scratch, or zero, when preparing a new budget

Front 36

CH9
What is top-down budgeting?

Back 36

?

Front 37

CH9
What is bottom-up budgeting?

Back 37

• A budget initially prepared by lower-level managers and employees
• Three main advantages:
o Budget may be more realistic
o Lower-level managers and employees are more likely to work toward budgeted performance standards because they helped to set those standards
o As employees prepare the budget, they begin to think about the work they will need to do in the coming year

Front 38

CH9
What is incremental budgeting?

Back 38

• The prior year’s budget is used as a starting point for the current year
• Only the changes (increments) need to be justified

Front 39

CH9
Which is the day to day budget?

Back 39

• The operating budget

Front 40

CH10
What is the fixed overhead volume variance? What does it measure?

Back 40

• Caused by manufacturing more or less product during a particular production period than planned
• Focuses on the relationship between production capacity and the actual volume produced
Step 1:Calculate the difference between expected (budgeted) production and the actual production
Step 2:Determine the standard number of direct labor hours associated with the under-or-over production
Step 3:Calculate the dollar amount of the fixed manufacturing overhead volume variance

Front 41

CH10
What is direct material price variance?

Back 41

• A measure of the difference between the amount the company planned to pay for direct material purchased and the amount it actually paid for the direct material
• Provides and indication of whether the price paid to suppliers for direct material compare favorably to the standard price
Step 1: Determine the amount that should have been paid for the direct material purchased according to the standard price
Step 2: Calculate the dollar amount of the direct material price variance

Front 42

CH10
What is direct labor efficiency?

Back 42

• A measure of the difference between the planned number of direct labor hours and the actual number of direct labor hours for the units actually manufactured
• Informs management whether too much or too little direct labor is used in the manufacturing process based on the standards
Step 1: Calculate the standard number of direct labor hours allowed for actual production
Step 2: Calculate the direct labor efficiency variance in hours
Step 3: Calculate the direct labor efficiency variance in dollars

Front 43

CH10
What is variable overhead efficiency variance?

Back 43

•A measure of the variable manufacturing overhead cost attributable to the difference between the planned and actual direct labor hours worked
Step 1: Calculate the standard number of direct labor hours allowed for actual production
Step 2: Calculate the direct labor efficiency variance in hours
Step 3: Calculate the variable manufacturing overhead efficiency variance in dollars

Front 44

CH10
What is variable overhead spending variance?

Back 44

• The difference between how much was actually spent on variable manufacturing overhead and the amount that should have been spent based on the actual direct labor hours worked
• Answers the question, based on the actual number of direct labor hours worked, is variable manufacturing overhead cost in line?
Step 1: Determine the standard variable manufacturing overhead for the actual number of direct labor hours worked
Step 2: Calculate the variable manufacturing overhead spending variance

Front 45

CH11
A Direct fixed cost?

Back 45

Supports a single business and remains constant

Front 46

CH11
A Common fixed Cost?

Back 46

Supports multiple business segments and remains constant

Front 47

CH11
What is a cost center?

Back 47

• A business segment where the manager has responsibility and authority to act to decrease or at least control costs but has little or no control over the revenues generated or the amount invested in the segment
• Business segments that provide service to the company or customers but do not contribute directly to revenues
• Accounting department of a hospital, repair department that handles warranty repair work, an assembly department, and an inspection facility in a manufacturing plant

Front 48

CH11
How do you calculate return on investment?

Back 48

Return on Investment =
(Income)
///
(Investment)

Front 49

CH11
What is residual income & how do you calculate it?

Back 49

Equals Residual income =
(Actual income)
-
(Required income)

Front 50

CH11
What is the balanced score card approach?

Back 50

An integrated set of performance measures organized around four distinct perspectives. Financial, customer, internal, innovation-learning.

Front 51

CH11
What is your ROI?

Back 51

ROI =
(Income)
///
(Investment)

Front 52

CH??
What is your Internal Rate of Return (IRR)?

Back 52

IRR =
(Outlay)
///
(Income)
Then check chart for %

Front 53

CH??
What is the Profitability index?

Back 53

Profitability index: method used to rank capital projects (m-219)
Present value of Inflows / present value of outflows

Front 54

CHM
CH??
What is the Accounting Rate of Return (m-223)?

Back 54

(Increase in operating income)
///
(Required Investment)

Front 55

CH??
Review the journal entries for the following:

Back 55

Sale of Goods - remember you need to record the sale (revenue) and remove the the merchandise from inventory.


Purchase of goods – (raw materials)

Transfer of finished goods from work in process.

Front 56

CH2
Calculate (Manufacturing cost for period)

Back 56

Direct Materials + Direct Labor + Manufacturing Overhead

Front 57

CH4
What is Activity Based Costing?

Back 57

A more accurate technique of allocating indirect costs to products based on activities that cause the cost to occur

Front 58

CH4
What are the 5 Steps for ABC

Back 58

Step 1: Review overhead cost and remove any direct costs from manufacturing overhead
Step 2: Identify major activities
Step 3: Pool the costs of major activities
Step 4: Determine multiple cost allocation rates
Step 5: Determine the cost of individual products

Front 59

CH5
High Low Method + Separating Mixed Costs- Calculate?

Back 59

(Cost of Highest Activity - Cost Lowest Activity)
/////
(Highest - Lowest Activity Lvl)
= Variable Cost Per Unit
********
TC = FC + (VC x Units)

Front 60

CH7
Relevant Costs are?

Back 60

Total Labor Cost
Cost of NEW Option
Residual Value
Old Option Sale

Front 61

CH7
Special Pricing?

Back 61

As long as the offered is greater than variable cost, it is good.

Front 62

CH8
Net Present Value

Back 62

Bring all cashflows to present value and compare to initial outlay(investment).

Front 63

CH9
How much purchases do you need?

Back 63

(Sales + Ending Inventory) - (Beg Inventory)
EX
25k + (20% x 35k) - (20% x 25k)
25k+7k-5k = 27k

Front 64

CH10
Calculate material quantity variance

Back 64

(AQ X SP) ----- (SQ X SP)
=
QUANTITY VARIANCE

Front 65

CH10
Calculate material price variance

Back 65

(AQ x SP) - (Actual Cost)
=
Price Variance

Front 66

CH10
What is meant by an Ideal Standard?

Back 66

• A standard that is attainable only under perfect conditions
• No room for substandard performance of any kind
• Nearly impossible to achieve

Front 67

CH10
What is meant by a Practical Standard?

Back 67

• A standard that allows for normal, recurring inefficiencies
• More realistic and less likely to result in unreasonable unfavorable variances than ideal standards
• Used by most companies
• Unfavorable variances indicate that a true problem exists

Front 68

CH10
What is material quantity variance?

Back 68

• A measure of the over-or-under consumption of direct material for the number of units actually manufactured
•Also called: Direct material usage variance, Direct material efficiency variance
• Informs management whether too much or too little direct material is used in the manufacturing process based on the standards
• Difference between the standard quantity and the actual quantity of direct materials used
Step 1:Calculate the standard quantity of direct material allowed for actual production
Step 2: Calculate the direct material quantity variance in units of direct material
Step 3: Calculate the direct material quantity variance in dollars

Front 69

CH8
Accounting rate of return method?
& What is left out of the equation?

Back 69

• The rate of return for a capital project based on the anticipated increase in accounting operating income due to the project, relative to the amount of capital investment required
• Increase in Operating Income/Required Investment
• Two Major Drawbacks:
o Focuses on accounting income rather than cash flow
o Does not consider the time value of money
• Superior to the payback method