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62 Cards in this Set
- Front
- Back
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What does managerial accounting emphasize? |
helping organizations make, implement and evaluate business decisions |
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What type of cost is direct labor? |
variable |
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What type of cost is rent by a manufacturing company for a leased factory building? |
fixed |
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How is the break-even points in units calculated? |
the ration of fixed costs to the contribution margin per unit. |
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What type of cost is rent for an office building? |
fixed |
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What is equal to zero at the break-even point? |
Profit |
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In the very long run, what type of costs are most costs likely to be? |
variable |
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Management accounting is primarily concerned with providing information to whom? |
Managers inside the organization. |
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Annual fixed cost: $45,000 Contribution margin: $50 per unit sold How many units to earn $60,000 profit? |
2,100
(2,100 x 50 = 105,000 - 45,000 = 60,000) |
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What type of cost is the compensation for a senior partner in a law firm who is responsible for supervising many legal clerks? |
direct |
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In the short term, when surplus capacity is available, a manufacturer should accept an order as long as the revenue covers what type of costs? |
variable |
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ABC is likely to allocate more overhead costs to complex products than to simple products because? |
complex products consume more support activity resources. |
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hourly direct labor rate: $20/hr overhead: $60 per direct labor hour If direct labor increases by 4,000 hours, what will the actual increase in costs be? |
80,000 ($20 x 4,000) total overhead costs not likely affected |
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what is the allocation rate for ABC of an activity which costs $14,000 for 700 total units? |
$20 ($14,000/700) |
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T or F: ABC do not distort costs as much as traditional systems. |
True |
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T or F: Traditional cost systems are not very accurate in identifying direct labor costs, direct material costs and overhead costs. |
False |
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T or F: ABC is more accurate than traditional in estimating direct labor costs and direct materials. |
False |
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T or F: Traditional should be replaced by ABC in all circumstances |
False |
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Describe differentiating strategy |
analyzing detailed record of customers to be more responsive to changes in consumer preferences and introducing new products before competitors to command higher prices without losing market share. |
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What type of costs are sales and marketing? |
Indirect |
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What type of costs are machines? |
capital |
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describe the difference between direct and indirect costs |
Direct costs: can be readily identified with individual products or customer jobs (i.e. direct material and direct labor)
Indirect costs: cannot be easily identified with individual products or consumer jobs (i.e. overhead or Supervisor salary - in some cases) |
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Describe fixed costs |
costs that do not change with changes in productive volume in the short run (i.e. rent) |
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Describe variable costs |
Costs that change in proportion to changes in production volume |
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Short term costs are usually ___________ in nature |
fixed |
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Long term costs are usually ______________ |
variable |
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Outsourcing of many parts, components and services makes those costs more __________ in nature |
variable |
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Vertical integration requires investments in plants and facilities to make the components, making those costs more ______________ |
fixed |
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Describe step fixed costs |
costs that remain fixed over small changes in production volume but increase or decrease in discrete steps with larger changes in volume |
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Describe mixed cost |
costs comprising of both fixed and variable costs (i.e. utility bill - still charges even if you don't use and goes up based on how much you use) |
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What is the cost model? |
Total Cost (C) = total fixed cost (F) + total variable costs (V)
C = F + (V x Q)
C = total cost F = fixed cost V = variable cost per unit Q = number of units produced (or sold) |
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Describe breakeven point |
no profit and no loss |
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what is the breakeven point formula? |
BEP = Fixed cost / contribution margin per unit
or
BEP = F/P - V
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What is the contribution margin? |
P - V (sell Price per unit minus Variable cost per unit) |
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Formula for profit |
{(sales Price per unit - Variable cost per unit) x Volume} - Fixed cost
{(P - V) x Volume} - F |
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How do you find the production volume that gets you to your Target Profit? |
BEP for Target Profit = F + T/P - V
Target production = Fixed cost + target profit / contribution margin per unit |
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Traditional costing systems link ____________ to products |
costs |
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ABC systems link _____________________ to products |
overhead costs |
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What are the 4 basic steps in ABC? |
1. trace all costs to activity cost pools 2. determine cost drivers for all activities to capture how costs are driven by activity levels and measure the difference in the consumption of activity resources 3. determine activity cost driver rates 4. allocate costs to products based on activity cost driver rates multiplied by the activity level |
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Example of step 1 (trace all overhead costs to activity cost pools) |
Purchase orders: $1,000,000 QC: $250,000 Production set-ups: $750,000 Machine maintenance: $1,500,000 |
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Example of step 2 (determine cost drivers for all activities) |
Purchase orders: # of orders 1,000 QC: # of inspections 5,000 Production setups: # of setups 500 Machine maint: # of machine hrs 50,000 |
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Example of step 3 (determine activity cost driver rates) |
Purchase orders: rate per unit = 1,000,000/1,000 QC: rate per unit = 250,000/5,000 Production setups: rate per unit = 750,000/5,000 Machine maint: rate per unit = 1,500,000/50,000 |
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When is traditional product costing adequate? |
1. very small overhead costs 2. all products consume different activity resources in the same proportion 3. a surrogate basis measure is available that approximates the differences in the relative intensity of consumption for all products |
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When you discover a loss making product, why do you NOT want to drop the product immediately? |
because some of the costs are fixed and some are variable and you'll loose more per unit. Costs do not just disappear. |
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What is an incremental cost? |
crappy airplane food ($7). The pilot, fuel etc are fixed costs you would pay whether or not customer bought $99 flight. |
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What are relevant costs? |
These are the costs that change (costs in scenario A are different than alternative B) |
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What are sunk costs |
costs incurred in the past |
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should sunk costs be recognized |
yes |
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are avoidable costs relevant costs |
yes; they are relevant to decision-making and eliminated when products are outsourced |
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what does ABC try to change? give sample. |
tries to change nature of indirect cost to direct cost.
sample: nurses doing rounds usually (in traditional costing) costed at 8 hr shift and wage no matter if she spends 5 mins or 5 hours with a particular patient. |
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describe penetration pricing strategy |
charging a lower price to initially win over market share from an established product of a competing firm
based on the expectation that higher prices will be commanded in the future when customers cannot switch suppliers easily |
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relevant costs |
all costs and revenues that differ across alternatives (are relevant)
costs that remain the same are not |
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incremental costs |
amount by which costs (or revenues) change if a particular alternative is selected instead of the base case alternative
they are relative |
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are incremental costs relevant costs |
yes |
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sunk costs |
costs incurred or committed in the past therefore they cannot be changed by current action
since they do not differ between alts they are irrelevent |
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are sunk costs relevant costs |
no |
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avoidable costs |
eliminated when a product or component is outsourced
are relevent |
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are avoidable costs relevant |
yes |
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how are make or buy decisions determined |
by comparing the costs avoided to the cost of outsourcing |
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make decision |
make product or components in house |
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buy decision |
outsource |
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JOHNSON CASE fixed cost: $60 total cost: $100 per unit volume: 200 units variable cost per unit: $40
what would the price be if the company expected a volume of 240 units and used a mark up of 50%? |
$12,000 (fixed cost $60 x 200) (fixed cost remains same even if volume increases) / 240 (new volume = $50 expected fixed cost expected fixed cost $50 + variable cost $40 = $90 total cost per unit. Mark-up $45. $90 + $45 = expected price of $135
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