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108 Cards in this Set
- Front
- Back
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Accounting area focused on providing information to assist business owner and managers in making business decisions |
Managerial Accounting |
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standards of conduct for judging right from wrong, honest from dishonest, and fair from unfair |
Ethics |
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focuses on three factors that affect the accounting reporting environment – opportunity, incentives, and character |
Sarbanes Oxley Act of 2002 |
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costs that can be traced to the object |
direct cost |
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costs that cannot be traced to the object or that are not worth the effort of tracing |
indirect costs |
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costs that change, in total, in direct proportion to changes in activity levels |
variable costs |
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costs that stay the same, in total, regardless of activity level |
fixed costs |
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have both a fixed and variable component |
mixed costs |
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represent all of the costs associated with producing or manufacturing a physical product |
manufacturing costs |
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includes all of the manufacturing costs other than direct materials and direct labor incurred to produce a physical product |
Manufacturing overhead |
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the costs associated with running the business and selling the product as opposed to manufacturing the product |
non-manufacturing |
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costs that are assigned to the product as it is being manufactured; they are counted as inventory until the product is actually sold |
product/inventoriable costs |
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non manufacturing costs expensed in the period incurred |
period costs |
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has the potential to influence a decision |
relevant cost |
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will not influence a decision |
irrelevant cost |
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costs that have already been incurred; irrelevant for decision making |
sunk cost |
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direct materials and direct labor because at one time they were considered "primary" costs |
prime costs |
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costs incurred to convert direct materials into a finished product |
conversion costs |
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used by companies that make standardized or homogenous products or services |
process cost system |
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is used in companies that offer customized or unique products and services |
job order cost system |
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provides a detailed record of the costs incurred to complete a specific job |
job cost sheet |
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describes the way total cost behaves, or changes, when some measure of activity changes |
cost behavior |
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the range of activity over which we expect our assumptions about cost behavior to hold true |
relevant range |
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fixed over a range of activity and then increase in a step-like fashion |
step costs |
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shows total cost plotted on the vertical axis and a measure of activity, or cost driver, plotted on the horizontal axis |
scattergraph |
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a statistical technique for finding the best fitting line based on historical data |
least squares regression method |
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a decision-making tool that focuses on the relationship among the volume and mix of units sold, prices, variable costs, fixed costs, and profit. |
cost-volume-profit (CVP) analysis |
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tells us how much each unit sold contributes toward fixed costs and profit |
unit contribution margin |
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Contribution Margin Ratio |
contribution margin/sales price |
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break even sales |
total fixed costs/contribution margin ratio (%) |
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an extension of break-even analysis that allows managers to determine the number of units or total sales revenue needed to earn a target profit |
target profit analysis |
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the difference between actual or budgeted sales and the break-even point |
margin of safety |
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refers to how a company uses variable costs versus fixed costs to perform its operation |
cost structure |
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measures the extent to which fixed costs are used to operate the business |
degree of operating leverage |
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provides useful information for management to maker decisions |
managerial accounting |
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Five points for managerial accounting |
internal users internal reports as needed specific reason segments or units, relevant to operations non-audited |
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Five points for financial accouting |
external F/S and quarterly and annual reports General Aggregated and in accordance with GAAP Audited |
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looking ahead by establishing company objectives and performing only activities that add value to th ebusiness |
planning/organizing |
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coordinating of human resources and directing detailed activities to run smoothly |
directing/leading |
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measuring and monitoring, insuring that planned goals and activities are being followed or achieved by the use of budgets, responsibility reports, and performance evaluations |
controlling |
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purchase raw materials from suppliers and convert them into finished products |
manufacturing firms |
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sell the goods that manufacturers produce |
merchandising companies |
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Two points for merchandising |
merchandisers to other businesses are called wholesalers merchandisers to general public called retailers |
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provide a service to customers or clients |
service companies |
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Why did they enact a Sarbanes Oxley Act |
to reduce fraud and defer people from fraudulent activities |
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Three points for Sarbanes Oxley Act |
Reduce opportunities for error and fraud counteract the incentives to commit fraud with stiffer penalties emphasize the importance of the character of managers and employees |
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Manufacturing Costs are the same as... |
product costs |
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Three manufacturing costs |
direct materials direct labor manufacturing overhead |
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10 components of manufacturing overhead |
indirect materials indirect labor factory production manager's salary factory rent factory insurance factory utilities factory maintenance factory depreciation factory property tax (not income tax) factory licenses and permits |
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Two examples for non-manufacturing costs (period costs) |
marketing and selling expenses general and administrative expenses |
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Product Costs = |
DM USED + DL + MOH |
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When are period costs expensed? |
as we spend the dollar |
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Prime costs = |
Direct Materials Used + Direct Labor |
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Conversion Costs = |
Direct Labor + Manufacturing Overhead |
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costs of goods purchased vs. costs of goods manufactured |
income statement |
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merchandise inventory vs. finished goods, work in process inventory and raw materials inventory |
Balance Sheet |
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Short COGM schedule |
BWIP + Current Manufacturing Costs =Total Costs of Work in Process -EWIP =COGM |
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Current Manufacturing Costs = |
Direct Materials Used +Direct Labor +Manufacturing Overhead Applied |
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Direct Materials Used = |
Beg Raw Materials + Purchases = Total Available -End Raw Materials |
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Costs of Goods Sold |
Beg Finished Goods + COGM =Available for Sale -End finished goods -COGS (+ or - adjustment for under/over applied OH) |
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involve the measuring recording and reporting of product costs |
cost accounting systems |
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gathered from materials requisitions forms - those that list the quantity and cost of direct materials used on a specific job |
direct materials |
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Three journal entries for direct materials |
1. debit raw materials inventory; credit cash 2. debit work in process - DM (job1, job2); credit raw materials inventory 3. Debit Manufacturing Overhead; credit raw materials inventory |
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gathered from direct labor time tickets that show how much time a worker spent on various jobs each week |
direct labor |
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Two direct labor journal entries |
1. Debit factory labor; credit wages payable 2. debit work in process -DL (job1, job2); debit WIP- IDL (j1, j2); credit Factory Labor |
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cannot be traced to a specific activity so must be allocated to everything in the factory in a particular period |
Manufacturing Overhead |
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______ ______ to accumulate the bills as they come in |
Record debits |
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For manufacturing overhead, the debit side of the account accumulates all of the ______ costs as they are incurred. The timing does not necessarily related to the production of the product |
actual |
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MOH debit journal entry |
debit MOH; credit various payables |
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_______ recorded show the ___________ of overhead to the process as units of product are made. |
Credits application |
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Actual is on the _____. |
debit side |
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If you have a debit balance it is ______ applied. and if you have a credit balance it is _____. |
under over |
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PDOHR = |
Total estimated Annual OH Cost/Total estimated annual activity (driver) |
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Use the PDOHR computed to multiply times the... |
actual units and record on credit side of T account. |
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Journal entry to record Applied overhead |
WIP-MOH Applied - debit MOH Applied - Credit |
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Determine the actual costs of MOH and record on... |
the debit side |
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Determine the balance of MOH and... |
label it under applied or over applied |
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Journal entry for an over applied MOH balance |
Debit MOH; Credit COGS |
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Journal entry for an under applied balance |
Debit COGS; Credit MOH |
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Journal entry for completion of work |
Debit Finished Goods; Credit Work in Process |
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When is a good moved into COGS? |
when it reaches the customer |
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Journal spent for sale of goods |
Debit accounts receivables or cash; credit sales revenue Debit COGS; credit Finished Goods Inventory |
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how a total cost responds to changes in some measure of activity |
cost behavior |
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the amount of the item selected also known as volume |
activity index |
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Total Cost = |
variable costs (times total) + fixed costs |
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As activity goes up, variable costs per unit is _______, not _____. |
constant fixed |
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Fixed costs per unit has an... |
inverse cost per unit |
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Six steps for computing High-Low |
1. determine high activity 2. determine low activity 3. find the difference between the two for activity and cost 4. calculate the variable cost per unit 5. calculate total variable costs at high and low and calculate fixed costs. 6. determine cost formula, then total cost at a particular level of activity |
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traditional income statement |
revenues - COGS total of direct materials direct labor variable manu overhead fixed overhead = Gross Margin total of variable selling/administrative fixed selling/administrative -operating expenses =operating income |
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contribution margin income statement |
revenues -variable costs =CM -Fixed expenses =Operating income |
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a decision making tool that focuses on the relationship among the volume and mix of units sold, prices, variable costs, fixed costs, and profit |
cost volume profit |
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Five assumptions of CVP analysis |
linear costs and revenue functions all costs can be classified as either fixed or variable only volume affects total cost and total revenue production volume is equal to sales volume constant product mix |
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Profit = |
fixed cost + profit wanted ------------------------------------- contribution margin |
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Break Even units = |
FC/CM per unit |
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Break Even Sales = |
FC/CM Ratio |
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Target income units = |
(FC + Target operating income) -------------------------------------------- CMPU |
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Target operating income sales = |
(FC + Target Operating Income) --------------------------------------------- CMR |
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Margin of Safety = |
Actual or budgeted sales - break-even sales |
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model allows managers to perform "what-if" analysis to see how changing one or more variables will affect the others |
CVP for Decision Making |
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Three points for CVP for Decision Making |
changing prices changing variable costs and volumes changing fixed costs and prices |
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refers to how a company uses variable costs versus fixed costs to perform its operations |
cost structure |
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Higher fixed costs = |
higher operating leverage |
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Degree of Operating Leverage = |
Contribution Margin ------------------------------ Net Operating Income |
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used because companies generally have more than one product or service; usually assumes a constant mix; sales mix uses traditional break even analysis |
multi-product CVP mix |
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determine the weighted average unit contribution margin of products |
compute break-even sales |
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How do you determine the weighted average contribution margin? |
divide the total CM $ by the total # of units |
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How do you determine break-even units? |
by taking the total fixed costs and dividing it by the weighted average contribution margin |
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For multi-product CVP, take the break-even units... |
and allocate based on the proportionate ratio of the product mix |
