Managerial Accounting Pre-Final

Front 1

What three things do cost accounting include?

Back 1

Measuring, recording and reporting of product costs

Front 2

What two things do you need to have a reliable cost accounting system?

Back 2

Manufacturing or product costs fully integrated within the company's general ledger

Perpetual inventory system to help provide immediate up to date information on the cost of the product

Front 3

What are the two cost accounting systems?

Back 3

Job cost order system and process cost system

Front 4

What is a job order costing system?

Back 4

Costs are assigned to each individual job or batch. Requires that each job or batch be easily identifiable. The object is to calculate the cost per unique job

Front 5

How are job costs held at the end of the accounting period?

Back 5

Work in progress inventory for jobs that are not complete

Finish goods inventory for jobs that are complete but not sold yet

Front 6

When do you use a process cost system?

Back 6

When large volumes of similar products are manufactured

Front 7

How are costs accumulated using process cost systems?

Back 7

Over a specific time period like a week or a month. Individual units or batches are calculated based on total cost and total production rather than by unit or batch

Front 8

What are the three components to job order cost flows?

Back 8

Manufacturing costs are assigned to work in progress inventory when costs are incurred

Cost of complete jobs are transferred into finished goods inventory

When the units are sold the cost is transferred to cost of goods sold

Front 9

What are the two steps in the flow of costs?

Back 9

Accumulate all manufacturing costs when incurred I.e raw materials factory labor manufacturing overhead

Assign cost to specific job or unit

Front 10

In flow of costs how do you accumulate raw materials?

Back 10

Raw materials are debited to raw material inventory when purchased

Both direct and indirect raw materials.

Note some companies may separate direct from indirect raw materials by having two separate inventory accounts

Front 11

In flow of costs how do you accumulate factory labor costs?

Back 11

labor cost include in direct and indirect labor, gross earnings/wage, payroll taxes, and fringe benefits

All costs are debited to factory labor as they happen. The factory labor account should be zeroed by the end of the accounting period

Front 12

In flow of costs how do you accumulate manufacturing costs?

Back 12

Manufacturing overhead costs are assigned to work in process as work is done on each unit or batch

Includes all manufacturing product costs that are not direct costs

They are accumulated in the manufacturing overhead account that must be zeroed at the end of the accounting period

Front 13

How do you assign manufacturing costs to work in process?

Back 13

Debit work in process inventory and credit to raw material inventory, factory labor, manufacturing overhead

Front 14

How are job cost sheets used?

Back 14

To record cost of each specific job and to determine the total/unit cost of a complete job.

Posting must be made daily and the total of all job cost sheets must balance to work in process inventory

Front 15

How do you assign raw materials to work in process and specific jobs?

Back 15

Materials are assigned to a job as they are used

A material requisition slip is made to authorize issuing of raw materials

Front 16

What does a job cost sheet include?

Back 16

Top section: job number, quantity, item, date requested, for, date completed

Middle section: date, direct material, direct labor, manufacturing overhead

Bottom section: cost of completed job, cost of direct materials, cost of direct labor, cost of manufacturing overhead, total cost, unit of cost ( total dollars divided by quantity)

Front 17

How are direct and indirect raw materials debited?

Back 17

Direct materials are debited to work in process inventory and then to the respective job cost sheet

In direct materials are debited to manufacturing overhead control

Front 18

What does a raw materials requisitions look like?

Back 18

Section 1: company name and title material requisition slip, deliver to, request number, charge job to, date

Section 2:

Quantity, description, stock number, cost per unit, total

Section 3: requested by, received by, approved by, costed by

Front 19

True or false a material requisition slip and a job costing sheet must have matching amounts

Back 19

True

Front 20

How do you assign factory direct labor costs to a specific job?

Back 20

Debit work in process inventory for direct labor costs

Credit factory labor account

Update individual job cost sheet with labor costs information

Front 21

How do you assign factory indirect labor costs to a specific job?

Back 21

Debit manufacturing overhead

Credit factory labor

Factory labor should have a zero balance by the end of the accounting period

Front 22

What does a time ticket look like?

Back 22

Section 1: employee, date, charge to, employee number, job number

Section 2: time started, time stopped, total hours, hourly rate, total cost

Section 3: approved by, costed by

Front 23

True or false a time ticket amount is different than the direct labor amount on a job cost sheet

Back 23

False

Front 24

How do you assign manufacturing overhead to a specific job?

Back 24

Assigned to work in process and to specific jobs using the predetermined overhead rate

Front 25

True or false manufacturing overhead are all production related costs that are not prime costs

Back 25

True

Front 26

True or false manufacturing overhead costs can easily be assigned to a specific job based on actual costs incurred

Back 26

False

Front 27

How are predetermined overhead rates based?

Back 27

On the relationship between the estimated annual overhead costs and the expected annual operating activity / cost driver

Front 28

What are some examples of operating activity based/cost drivers?

Back 28

Direct labor costs, direct labor hours, machine hours

Front 29

When are predetermined overhead rates set?

Back 29

Typically set at the beginning of the year and may be single use company-wide or a different rate for every department

Front 30

How are predetermined overhead rates used and what is the objective?

Back 30

They're used to assign overhead to different jobs in the process during the period and the objective is to get timely information about cost of a completed job

Front 31

What are the three costing systems used to recognize and accumulate product costs?

Back 31

Annual costing system, normal costing system, standard costing system

Front 32

What are the differences in direct costs between actual costing systems and normal costing systems?

Back 32

Actual costing systems use actual costs times actual quantities

Normal costing system uses cost rates times actual quantity

Front 33

What are the differences in indirect costs between actual costing systems and normal costing systems?

Back 33

Actual accounting system uses actual overhead times actual quantity

Normal costing systems use predetermined factory overhead rate times actual quantity used

Front 34

What is the difference in time and accuracy between actual costing systems and normal costing systems?

Back 34

Actual costing systems are more accurate but take a long time to get the information

Normal costing systems are less accurate but the information is more timely

Front 35

What can be completed when is a job considered complete?

Back 35

When the job cost sheet is complete and the unit cost may be determined

Front 36

What happens when the total cost of the job is transferred from work in process inventory to finish goods inventory?

Back 36

The job cost she moves from work in process inventory to finish goods inventory and the sum of all jobs finished goods inventory must equal the total amount of the finished goods inventory in the general ledger.

Front 37

When does the cost of each complete unit / job move from finished goods inventory to cost of goods sold?

Back 37

When the unit is sold assuming a perpetual inventory system is used

Front 38

How is the job order costing system adjusted for service companies?

Back 38

Work in process becomes service contracts in process

Finished good inventory becomes completed service

Front 39

What are advantages and disadvantages of job order costing?

Back 39

Advantages: more precise cost assignment than process costing, improves management's ability to control and manage costs

Disadvantages: significant amount of data entry, accuracy of overhead allocation is very important

Front 40

What are the two methods for clearing over and under applied manufacturing overhead

Back 40

Cost of goods sold method and proportion method

Front 41

What does a debit balance in manufacturing overhead mean?

Back 41

Overhead is under applied

Overhead applied is less than overhead incurred

Front 42

What does a credit balance in manufacturing overhead mean?

Back 42

Overhead is over applied

Overhead applied is greater than overhead incurred

Front 43

How and why is the cost of good sold method used?

Back 43

Underapplied overhead is debited to cogs

Over applied overhead is credited to cogs

The reason is all cost will eventually work their way through to cogs

Front 44

True or false the cost of goods sold method is the most commonly used method

Back 44

True

Front 45

How is the proportional method used?

Back 45

Over and under applied overhead is prorated to work in progress inventory, finish goods inventory, and cost of goods sold based on the ending balance in each account

Ending account balances will then equal the actual cost incurred

Front 46

Why is the proportional method less commonly used?

Back 46

Additional costs and effort required

Front 47

How do traditional costing systems allocate overhead?

Back 47

Using a single predetermined rate

Front 48

True or false traditional costing assumes that all overhead costs are caused or driven by a single activity or driver

Back 48

True

Front 49

What is the difference between job order costing and process costing

Back 49

Job order costing uses direct labor and process costing uses machine hours as an activity base

Front 50

If direct labor is a significant component of the end product or service what kind of costing system should you use?

Back 50

Traditional one stage costing

Front 51

What costing system has the same amount of overhead allocated to each product?

Back 51

Traditional costing system

Front 52

What is a POR?

Back 52

Predetermined overhead rate

Front 53

When is activity based costing better than a traditional costing system?

Back 53

When each unit has different activities or tasks needed to complete them and each activity uses a resource at a different rate or quantity

Front 54

What are the two major parts of an activity base costing system?

Back 54

1 overhead costs are allocated to multiple activity cost pools

2 assigning the activity cost pool to products or services by means of cost driver the represents the activities used

Front 55

Define activity cost pool

Back 55

A distinct type of activity for example ordering material or setting up machines

Front 56

Define cost driver

Back 56

Any factor or activities that have a direct cause and effect relationship with the resource consumed

Front 57

Define activity

Back 57

Any event action or transaction that causes a cost to be incurred in producing a product or providing a service

Front 58

What are the four steps in activity-based costing

Back 58

1. Identify and classify the major activities in the manufacturing process and assign overhead to cost pools

2. Identify the cost driver

3. Calculate the activity based overhead rate

4. Allocate overhead cost to products using the activity based overhead rate

Front 59

What is the major difference between an activity-based costing system and a traditional costing system?

Back 59

How the overhead costs are allocated

Front 60

What are the three primary benefits of using an activity based costing system?

Back 60

Uses more cost pool resulting in more accurate product costing

Leads to improve overhead cost control

Supports better management decisions

Front 61

What are the four classifications of activity level?

Back 61

Unit level activities

Batch level activities

Product level activities

Facility level activities

Front 62

What is the value added activity?

Back 62

An activity that increases the proceed value of a product or services such as painting and packaging

Front 63

What is a non value added activity

Back 63

An activity that adds cost or increases the time spent on a product or service without increasing is perceived value such as storage of inventory or reception

Front 64

How does an activity-based costing system improve overhead cost control?

Back 64

It allows for recognizing value-added versus non value added activities

Front 65

How does an activity base costing system support better management decisions?

Back 65

It helps to develop performance standards and benchmark performance against other companies and industries. It helps strategic and operational decisions

Front 66

How does using more hospitals result in more accurate product costing and activity based accounting?

Back 66

achieved by classifying activities into four activity level groups. The cost within the pool must be correlated with a driver

Front 67

What are the two limitations of activity-based costing?

Back 67

The process of identifying value adding activities, their cost drivers and various cost pools is time consuming can be expensive

Some arbitrary allocations continue

Front 68

When should a company use activity based costing over traditional costing?

Back 68

When products a complex and greatly different in volume

When product lines are diverse

When overhead costs are a significant portion of total cost

When significant change in manufacturing process or number of productions occurs

When managers are ignoring data from existing systems and instead used bootleg costing systems

Front 69

What does cost volume profit analysis (cvp) do?

Back 69

Analysis the effects of changes in cost and volume on a company's profit and is a critical factor in management decisions and profit plans

Front 70

What are the five components of a CVP analysis?

Back 70

Level of activity, unit selling price, unit variable cost, total fixed costs, sales mix

Front 71

What are the five assumptions of a CVP analysis?

Back 71

Cost and revenue behavior is assumed to be linear throughout the relevant range

All costs can be classified as either fixed or variable

Changes in the activity index are the only factors that affect costs

Inventory levels remain constant

When more than one type of product is sold the sales mix will remain constant

Front 72

When is the CVP income statement made and what does it contain?

Back 72

It's prepared for internal use only when needed.

Classifies all costs as fixed or variable and reports contribution margin in the body of the statement. Reports the same operating income as a traditional income statement

Front 73

What is a break even analysis?

Back 73

The process of finding the break-even point

Front 74

What is a break-even point?

Back 74

Level of activity at which total revenues equal total costs both fixed and variable. Can be expressed in either units or dollars but if units must be rounded to the nearest whole unit

Front 75

What are the three methods for calculating the breakeven point?

Back 75

Mathematical equation, using the contribution margin, from a cost value profit graph

Front 76

True or false basic break Even calculations are completely different from calculations for the Target operating income. Explain

Back 76

False break Even calculations can be adapted to incorporate Target operating income

Front 77

Is operating income pre or post tax?

Back 77

Post tax

Front 78

Is net income before or after taxes?

Back 78

After taxes

Front 79

What is the margin of safety?

Back 79

Measures how much sales can reduce and still achieve break Even point. The cushion or safety zone for a business

Front 80

How is a margin of safety expressed?

Back 80

In dollars or as a ratio

Front 81

What is data analysis?

Back 81

The science of analyzing raw data to then be able to draw conclusion about that data. Used with CVP for decisions or conclusions

Front 82

True or false CVP analysis can help management analyze and respond to changes in the business conditions

Back 82

True

Front 83

What is a sales mix?

Back 83

When a company sells more than one product

Front 84

How to companies decide what mixup products a cell?

Back 84

Relative percentage in which each product is sold when more than one product is sold. This is important because different products have substantially different contribution margin

Front 85

What is a cost structure?

Back 85

The relative proportion fixed versus variable costs at a company incurs

Front 86

What are the three effects that cause structure can have on profitability?

Back 86

1. Effect on contribution margin ratio

2. Effect on breakeven point

3. Effect on margin of safety ratio

Front 87

What is the degree of operating leverage?

Back 87

A measurement of a company's earnings volatility and can be used to compare companies

Front 88

True or false the greater The DOL value the lower the risk

Back 88

False

Front 89

How does DOL work?

Back 89

For each percentage change in volume d o l provides an estimate for the corresponding change in operating income or earnings before interest and taxes

Front 90

What are the five steps to the decision making process?

Back 90

1. Identify the problem

2. Determine and evaluate possible courses of action

3. Make the decision

4. Review the results of the decision

Front 91

What is the incremental analysis approach

Back 91

The process of identifying financial data that will change under alternative actions

Front 92

How does the data vary in an incremental analysis approach?

Back 92

Both cost and revenue may vary

Only revenue may vary

Only cost me vary

Front 93

What is a relevant cost?

Back 93

Carlson revenues that differ from each alternative and occur in the future

Front 94

What is an opportunity cost?

Back 94

The cost of giving up the opportunity to benefit from another action

Front 95

What is a sunk cost?

Back 95

Cost of already been incurred and will not be changed or avoided by any future decision some costs are never considered to be a relevant cost

Front 96

True or false time value of money is a huge consideration of incremental analysis

Back 96

False

Front 97

What are the six types of incremental analysis?

Back 97

1. Except an order at special price

2. Make or buy component parts or finished product

3. Sell product or process further

4. Retain or replace equipment

5. Eliminate or retain an unprofitable business segment

6. Allocate limited resources

Front 98

What does order at a special price mean and when is it accepted

Back 98

It means management considers an order at a special price (often a one-time order)

It is accepted if the contribution margin / income is positive

Front 99

What are the two key assumptions of accepting an order at the special price?

Back 99

1. Sales of the company's other production line will not be affected by the special order (factory is not already at 100% capacity)

2. Existing customers will not expect the same reduced selling price

Front 100

What is the make or buy decision and when should it be outsourced?

Back 100

Management considers whether to have the product or unit made in house or purchased using outsourcing

If outsourcing costs less than in-house outsourcing should be selected.

Front 101

What are the advantages and disadvantages of outsourcing in the make or buy decision?

Back 101

Advantages: freeze up capacity for other uses and shifts production risk to supplier

Disadvantages: potential loss of quality control and can be very difficult to bring back production if needed. Making sure there's adequate materials and expertise

Front 102

What is opportunity costs?

Back 102

The potential benefit that may be obtained from following an alternative course of action

Front 103

What is the cell or process further decision and when should product be processed further?

Back 103

When management decides whether to sell a product now or to process it further and sell the unit at a higher price

The unit should be processed further as long as the incremental revenue exceeds the incremental processing costs

Front 104

True or false any cause occurred up into the point of processing or not relevant to a sell or process further decision

Back 104

True

Front 105

What are the two decision scenarios in cell or process further decisions?

Back 105

Scenario one the company produces only one product that can be sold or processed further

Scenario 2 the company produces multiple products simultaneously from a single raw material referred to as a joint product

Front 106

When do products become identifiable from each other in the cell or process further decision?

Back 106

At the split off point

Front 107

When must a retain or replace equipment decision be made?

Back 107

If the new asset increases net income

Front 108

Are sunk cost relevant to the decision-making process?

Back 108

No

Front 109

What is the salvage value?

Back 109

What you would receive from selling the old asset

Front 110

What is the useful life?

Back 110

How long a company plans to generate revenue from an asset

Front 111

When is the decision of eliminating an unprofitable product or segment made?

Back 111

If it will improve the overall total net income

Front 112

Why is the proper handling of fixed costs so important when it comes to eliminating an unprofitable product or a segment?

Back 112

You must determine what costs are avoidable or unavoidable. Avoidable fixed costs will no longer be incurred but unavoidable fixed costs will be allocated to the remaining products

Front 113

True or false retain the product line or segment unless they saved or eliminated fixed costs are greater than the lost contribution margin

Back 113

True

Front 114

When deciding to allocate limited resources what is the decision criteria?

Back 114

Select the product or product combination that maximizes the net income

Front 115

What is involved in a short-term decision in allocated limited resources?

Back 115

Focuses on the product or products that yield the greatest contribution margin per unit of limited resource

Front 116

What is involved in a long-term decision in allocating limited resources?

Back 116

Trying to reduce or eliminate the constraint by changing the contribution margin per unit of limited resource or removing the limitation on the resource

Front 117

What are the incremental analysis theory of constraints?

Back 117

Approach used to identify and manage constraints to help achieve a company's goals

Requires identification of the constraints

Continual attempts to reduce or eliminate constraints