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49 Cards in this Set
- Front
- Back
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What is Managerial Accounting |
Managerial Accounting is concerned with providing information to managers for within the organization |
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Managerial Accounting vs. Financial Accounting |
Managerial Accounting: Reports to managers inside the organization for: Planning, Controlling, and Decision Making. Emphasizes decisions affecting the future. Emphasizes relevance. Emphasizes timeliness. Emphasizes segment reports. Not Mandatory. Does not need to follow GAAP/ IFRS. Financial Accounting: Reports to those outside the organization: owners, creditors, tax authorities, regulators. Emphasizes financial consequences of past activities. Emphasizes objectivity and verifiability. Emphasizes precision. Emphasizes companywide reports. Must follow GAAP/IFRS. Mandatory for external reports |
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Planning, Controlling and Decision Making |
Planning: Establishing Goals; Specify How Goals Will Be Achieved; Develop Budgets Controlling: The control function gathers feedback to ensure that plans are being followed. Feedback in the form of performance reports that compare actual results with the budget are an essential part of the control function. Decision Making: Decision making involves making a selection among competing alternatives. - What should we be selling? - Who should we be selling to? - How should we execute? |
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Institute of Management Accountants ethical code. |
Statement of Ethical Professional Practice, a management accountant has ethical responsibilities in four broad areas: First, to maintain a high level of professional competence; Second, to treat sensitive matters with confidentiality; Third, to maintain personal integrity; and Fourth, to disclose information in a credible fashion. The second part of the standards specifies what should be done if an individual finds evidence of ethical misconduct. |
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What is the Sarbanes- Oxley Act of 2002? |
The Sarbanes-Oxley Act of 2002 was intended to protect the interest of those who invest in publicly traded companies by improving the reliability and accuracy of corporate financial reports and disclosures. Six key aspects of hte legislation: 1. The Act requires that both the CEO and the CFO certify in writing that their company's financial statements and accompanying disclosures fairly represent the results of operations. 2. The Act established the Public Company Accounting Oversight Board to provide additional oversight over the audit profession. 3. The Act places the power to hire, compensate, and terminate the public accounting firm that audits a company's financial reports in the hands of the audit committee of the board of directors. 4. The Act places important restrictions on audit firms, it prohibits a public accounting firm from providing a wide variety of non-auditing services to and audit client. 5. The Act requires that a company's annual report contain an internal control report 6. The Act establishes severe penalties of as many as 20 years in prison for altering or destroying any documents. |
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What is a cost object |
Cost Object is anything for which cost data are desired- including products, customers, jobs and organizational subunits |
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Common Cost |
is a cost that is incurred to support a number of cost objects but cannot be traced to them individually. A common cost is a type of indirect cost |
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Direct cost and Indirect cost |
A direct cost is a cost that can be easily and conveniently traced to a specified cost object. An indirect cost is a cost that cannot be easily and conveniently traced to a specified cost object. |
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Examples of Manufacturing Overhead |
Manufacturing Overhead includes all manufacturing costs except direct materials and direct labor. Examples of Indirect materials: lubricants and cleaning supplies, materials used to support the production process. Examples of Indirect Labor: Wages paid to employees who are not directly involved in production work (maintenance workers, janitors, and security guards) |
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Three Basic Elements of Manufacturing Costs |
1. Direct Materials 2. Direct Labor 3. Manufacturing Overhead |
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What are conversion costs and prime costs (be able to calculate them) |
Conversion Cost: is the sum of direct labor cost and Manufacturing overhead cost. Conversion Cost= Direct Labor + Manufacturing Overhead Prime Cost is the sum of direct materials cost and direct labor cost Prime Cost = Direct Materials + Direct Labor |
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Selling Cost |
Costs necessary to secure the order and deliver the product. Ex: Advertising, shipping, sales travel, sales commissions, sales salaries and cost of finished goods warehouses. |
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Administrative Costs |
All executive, organizational, and clerical costs. Ex: executive compensation, general accounting, secretarial, public relations, and similar costs involved in the overall general administration of the organization as a whole. |
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Period Costs |
include all selling costs and administrative costs. Expensed on the income statement in the period in which they are incurred using the usual rules of accrual accounting |
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Product Costs |
include direct materials, direct labor, and manufacturing overhead. because product cost are initially assigned to inventories, they are known as inventoriable costs as inventory on the balance sheet.) After sale of the product it is labeled as cost of goods sold on the Income statement) |
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Fixed Costs |
a cost that remains constant, in total, regardless of changes in the level of activity. Ex: straight-line deprecation, insurance, property taxes, rent, supervisory costs, administrative salaries, and advertising. |
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Variable Cost |
Varies, in total, in direct proportion to changes in the level of activity. Ex: cost of goods sold, direct materials, direct labor, variable elements of manufacturing overhead (indirect materials, supplies, and power) and variable elements of selling and administration expenses (commissions and shipping costs) |
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Activity Base (Cost Driver) |
A measure of what causes the incurrence of a variable cost. Ex: Units produced, miles driven, machine hours, labor hours. |
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Committed Fixed Cost vs. Discretionary |
Committed Fixed Costs- Long-term, cannot be significantly reduced in the short term (ex: depreciation on buildings and equipment and real estate taxes.) Discretionary Fixed Costs- May be altered in the short-term by current managerial decisions. (ex: advertising and research and development) |
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Mixed Costs |
contains both variable and fixed elements |
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Components of the cost formula ( y = a +bx) |
y = total mixed cost a = total fixed cost b = variable cost per unit of activity x = activity level The steeper the slope the higher the variable cost per unit |
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Calculate the variable cost component, the total fixed cost and the TOTAL cost (variable cost + fixed cost) for a company using the high- low method |
Variable Cost = Y2- Y1 / X2 - X1 = cost of high level of activity - cost of low level of activity / high activity level - low activity level Now determine the amount of fixed cost by taking the cost of either the high or the low activity level and deducting the variable cost element ( variable cost x high level of activity) Fixed Cost Element = Total Cost - Variable cost element Then plug into y = a + bx |
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Given beginning inventory, ending inventory, and purchases, determine the cost of goods sold. |
Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory |
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Given a set of data, determine the contribution margin |
Contribution Margin is the amount remaining from sales revenue after variable expenses have been deducted. This amount contributes toward covering fixed expenses and then toward profits for the period |
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Given a set of data, determine the gross margin |
Gross Margin = Sales - Cost of Goods Sold |
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Give a set of data determine the differential cost, differential revenue, the sunk cost and the opportunity cost. |
Differential Cost- a difference in cost between any two alternatives Differential Revenue- a difference in revenues (usually just sales) between two alternatives Sunk Cost- A cost that has already been incurred and cannot be changed by any decision now or in the future. It needs to be ignored Opportunity Cost- The potential benefit that is given up when one alternative is selected over another |
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Traditional Income Statement |
Sales xxx Cost of Goods Sold - xxx Gross Margin xxx Selling and Admin Expenses: Selling xxx Administrative xxx - xxx Net Operating Income xxxx |
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Contribution Format Income Statement |
Sales xxx Variable Expenses: Cost of Goods Sold xxx Variable selling xxx Variable Admin. xxx -xxx Contribution Margin xxxx Fixed Expenses: Fixed Selling xxx Fixed Admin xxx -xxx Net Operating Income xxxx |
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What is the least-squares regression method? |
A method used to analyze mixed costs if a scatter-plot reveals an approximately linear relationship between the X and Y variables This method uses all of the data points to estimate the fixed and variable cost components of a mixed cost. The goal of this method is to fit a straight line to the data that minimizes the sum of the squared error. |
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Managerial accounting is concerned with |
Providing information for use within the organization |
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Which of the following statements is NOT correct |
A plan is always expressed in formal quantitative terms |
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A Performance Report: |
is part of the control process; compares budgeted data to actual data in an effort to identify excellent performance |
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Which of the following statements is NOT correct |
Corporate social responsibility is a process used by a company to identify risks relating to strategy, plan, and decision and develop responses to them that enable it to be reasonably assured of meeting its goals |
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Which of the following statements is correct |
A strategy is a game plan that enables companies to attract customers by distinguishing itself from competitors. |
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A focal point of a company's strategy should be |
its target customers |
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The IMA's Statement of Ethical Professional Practice includes which of the following broad categories: |
Competence, Confidentiality, and Creditibility |
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Which of the following statements about corporate social responsibility is NOT correct |
All of the above statements are correct |
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Which of the following statements about the value chain is NOT correct |
From a control and decision- making standpoint, managers need to focus on functional performance rather than process excellence |
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Which of the following statements about lean production is NOT correct |
Lean thinking organizes work demartmentally and encourages departments to maximize their output |
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Which of the following costs would NOT be considered an indirect cost of serving a particular customer at a delicatessen |
The cost of bread used to make the sub sandwich that is ordered |
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Which of the following would NOT be classified as a product cost |
The cost of shipping units of product to one of the company's customers |
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Which of the following would NOT be classified as manufacturing overhead |
All of the above would be classified as manufacturing overhead |
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An analysis of a particular cost incurred in a factory revealed that the cost averages $0.40 per machine hour at an activity level of 20,000 machine hours and increases to an average of $0.50 per machine hour at an activity level of 16,000 machine hours. Assuming that this activity is within relevant range, what is the total expected cost if the activity level is 17,300 machine hours. |
$8,000 This cost is fixed in nature. MH (a) x Average Cost per MH (b) = Total Cost 20,000 x $0.40 = $8,000 16,000 x $0.50 = $8,000 So at any level of activity of machine hours total cost would be $8,000 |
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Given the formual Y= $30,000 + $5X, What is the expected total cost at an activity level of 16,000 units |
$110,000 Y= $30,000 + ($5 x 16,000) |
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Hadron Company incurred $40,000 to ship 19,000 pounds and $34,000 to ship 16,000 pounds. If the company ships 18,000 pounds, what is its expected shipping expense |
Variable cost per unit = Change in cost / Change in Units 40,000 - 34,000 =6000 19,000 - 16,000 =3000 6000/ 3000 = $2 Total Fixed Cost = Total cost - Total variable cost 40,000 - (19,000 x $2)= $2,000 Total Cost = Total variable cost + Total fixed cost (18,000 x $ 2.00) + 2,000 = $38,000 |
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Within the relevant range |
Variability cost per unit will remain the constant and fixed cost per unit will fluctuate |
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Sales 700,000 Fixed Administrative expenses 110,000 Fixed Cost of goods sold 100,000 Fixed Selling expenses 50,000 Variable administrative expense 30,000 Variable cost of good sold 220,000 Variable selling expenses 170,00
What is the company's contribution margin |
$280,000 Sales - Variable expenses |
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Sales 700,000 Fixed Administrative expenses 110,000 Fixed Cost of goods sold 100,000 Fixed Selling expenses 50,000 Variable administrative expense 30,000 Variable cost of good sold 220,000 Variable selling expenses 170,00
What is the company's gross margin |
$380,000 Sales - Cost of goods sold |
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Which of the following matches the definition of an opportunity cost |
The potential benefit that is given up when one alternative is selected rather than another. |
