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Who uses information from an accounting system?
1-1 Internal managers and external parties use accounting information:
a. Internal reporting is used by managers for planning and controlling operations, special decision-making, and long-range planning.
b. External reporting is used by stockholders, investors, taxing authorities, government regulators, and other interested parties.
The Emphases of financial accounting and managerial accounting differ. Eplain
1-2 The emphasis of financial accounting has traditionally been on the historical data presented in the external reports. Management accounting is more future-oriented and emphasizes planning, control, and decision-making.

refer to exhibit 1-1 on pg 24
mangerial is internal
financial is external (restrained by GAAP etc)
the field is less sharply defined. Thereis heavier use of economics, decision sciences, and behavioral sciences,
1-3 The branch of accounting described in the quotation is management accounting.

refer to exhibit 1-1 pg 24
distinguish amoung scorekeeping, attention directing, and problem solving
1-4 Scorekeeping is the recording (including accumulation and classification) of data for a later evaluation of performance. Attention directing is the reporting and interpretation of information for the purpose of focusing on inefficiencies of operation, opportunities for improvement, and imperfections and operating problems. Problem solving is analysis of alternative courses of action to evaluate the best course of action.
GAAP assist the development of managerial accounting do you agree?
1-5 No. GAAP applies to financial reporting for external users. Internal accounting reports are not restricted by GAAP.
FIN or MAN ACCT
1. field is les sharpley defined
2. provides internal consulting advice
3. hass less flexibility
4. is characterized by detailed reports
5. has future orientation
6. is constrained by GAAP
7. Behavioral impact is secondary
1. Management 4. Management 7. Financial
2. Management 5. Management
3. Financial 6. Financial
BE/TP = FC+TP/CM (unit or ratio)
BE in units = FC/CM in units
BE in dollars = FC/CM ratio

CM in units= VC/Units sold
CM ratio= 100% - VC% or 1.0-.70
CM is? (form)
Gross M is? (form)
CM is sales - VC (all)
GM is sales - COGS
Give two rules of thumb to use when analyzing cost behavior
2-2 Two rules of thumb to use are:
a. Total fixed costs remain unchanged regardless of changes in cost-driver activity level.
b. The per-unit variable cost remains unchanged regardless of changes in cost-driver activity level.
give 3 examples of variable costs and fixed costs
2-3 Examples of variable costs are the costs of merchandise, materials, parts, supplies, sales commissions, and many types of labor. Examples of fixed costs are real estate taxes, real estate insurance, many executive and supervisor salaries, and space rentals.
Contribution margin is the excess of sales over fixed costs...do you agree?
2-10 No. Contribution margin is the excess of sales over all variable costs, not fixed costs. It may be expressed as a total, as a ratio, as a percentage, or per unit.
Describe three ways of lowering the BEP
2-14 Three ways of lowering a break-even point, holding other factors constant, are: decrease total fixed costs, increase selling prices, and decrease unit variable costs.

know that if costs go up BEP goes up...
incremental analysis is quicker but it has no other advantage over an analysis of all costs and revenues associated with each alternative. Do you agree?
2-15 No. In addition to being quicker, incremental analysis is simpler. This is important because it keeps the analysis from being cluttered by irrelevant and potentially confusing data.
Sales - VC (all) = CM - FE = NI
fill in blanks
study BE in units dollars TP change in CM (unit/dollar), understand ncremental approach
pg 69
review problem 2-37, 2-38
review answers
explain how FC mixed costs are related to both FC and VC
3-4 Mixed costs are costs that contain both fixed and variable elements. A mixed cost has a fixed portion that is usually a cost per time period. This is the minimum mixed cost per period. A mixed cost also has a variable portion that is a cost per unit of cost driver activity. The variable portion of a mixed cost increases proportionately with increases in the cost driver.
describe the methods for measuring cost functions using past cost data
3-17 There are four general methods covered in this text to measure mixed costs using historical data: (1) account analysis, (2) high-low, (3) visual fit, and (4) regression.
• Account analysis looks to the organization's cost accounts and classifies each cost as either fixed, variable, or mixed with regard to an appropriate cost driver.
• High-low analysis algebraically measures mixed cost behavior by con¬structing a straight line between the cost at the highest activity level and that at the lowest activity level.
• Visual-fit analysis seeks to place a straight line among data points on a plot of each cost and its appropriate cost driver.
• Regression analysis fits a straight line to cost and activity data according to statistical criteria.
eplain the strengths and weaknesses ofthe high low and visual fit methods
3-19 The strengths of the high-low method are also its weaknesses -- the method is simple to apply since it does not require extensive data or statistical sophistication. This simplicity also means that the method may not be reliable because it may not use all the relevant data that are available, and choice of the two points to measure the linear cost relationship is subjective. The method itself also does not give any measures of reliability.
why is regression analysis usually preferred to the high low method
3-21 Regression analysis is usually preferred to the high-low method (and the visual-fit method) because regression analysis uses all the relevant data and because easy-to-use computer software does the analysis and provides useful measures of cost function reliability. The major disadvantage of regression analysis is that it requires statistical sophistication to use properly. Because the software is easy to use, many users of regression analysis may not be able to critically evaluate the output and may be misled to believe that they have developed a reliable cost function when they have not.
the following cost fx is a MC. Explain why it is a MC and not a fixed, variable, or step cost
TC= $8,000 + $52(units produced)
3-31 (5 min.) The $8,000 is a fixed cost and the $52 per unit is a variable cost. By definition, adding a fixed cost and a variable cost together produces a mixed cost.
High low method
pick high and low activity costs
ue the respective dollar amounts
use formula
V = Change in cost/Change in activity
Review all Chapter 3 in class ecercises
4 problems two questions
Review all Chapter 2 HW excercises and in class
6 problems 5 questions
manufacturing costs
diect material = major materials lumber, steel, etc..
direct labor = wages for assembly
indirect costs = assisting with the prodution process...glue, mails, bolts.... etc
product costs
cost that include direct labor, direct material, and MOH included in MOH are inderect costs. sometimes called inventory costs
period costs
r&d, reasearch, sales, customer service etc...anything that isnt direct related to the production and do not relate to inventory they are non production
UDOC
Under applied = Debit Cogs
Over Applied = Credit Cogs
BOAR
total budgeted factory overhead/total budgeted amount of cost driver
Steps with BOAR
1. calculate PDOHR
2. apply actual activity to PDOHR
3. compare applied to actual
4.. record journal entry by immediate write off method
5 conceptual...what is the effect on income
DCOGS and CCOGS
reducing COGS (debit) increases income
Increasing COGS (credit) decreases income
4-12 Why do copanies asignall production costs and only production costs to products for external reporting purposes?
mainly because GAAP requires it
GAAP requires publically-held companies to allocate all production-related costs andonly production-related costs to its products for finacial reporting
4-19 Depreciation is a period expense for financial statement purposes do you agree?
Dep related to priduction activites is a product cost , not a period costs. Hence, it will become an expenses as a part of manufacturing cost of good sold. Thus, depreciation is not always an imediate expense. EXAM
4-20 Distinguish between cost and expenses
Expenses denote all costs deducted from revenues in a given period.
Costs is broader. its used to describe an asset (the cost of inventory) and a expense (COGS)
4-21 distinguish between manufacturing and merchandising companies...how do their acct systems differ?
they differ in the way they accumulate and repor cost of inventories.
merchandising record costs as how much they pay fortheir goods.
Manufacturing record costs that go into their product DL,DM etc...
4-22 Why is ther a direct-materials inventory account but no direct-labor inventory account on a manufacturing company's balance sheet?
DL is incurred at the time it is performed in production. unlike DM where the products bought are stored
Suppose a company uses machine hours as cost llocation base for factory overhead. How does the company compute a budgeted overhead application rate? How does it compute the amounts of factory overdead applied to a particular job?
The budgeted overhead application rate is the predetermined factory overhead for the budgeted period divided by the predicted machine hours for that period. The amount of factory overhead applied to a job is the budgeted ovehead application rate times the actual machine hours used on the job
13.4 Identify four cost-allocation bases that a manufacturing company migh use to apply factory overhead costs to jobs?
Cost allocatin bases might include direct labor cost, direct labor hours,direct material cost, machine hours..etc
13.5 Is the comparison of actual overhead costs to budgeted costs part of the roduct costing process or part of the control process?
the comparison of actual overhead costs to budgeted overhead costs is part of the control process. It tells mangers when he actual results differ from what was expected
13.6 what are some reasons for differences between the amounts of incurred and applied overhead?
incurred overhead will differ from applied overhead in much the same way as any estimte will differ from actual expeience. Specific causes might be variations in supliers' price; inefficiences in production (excessive down-time, for example) failure of sales to materialize, failure to meet production quotas, and unexpected increases in fixed overhead (increase in insurance rates for example) They also can arise because of inaccurate overhead cost predictions
13.8 Define normal costing
Normalcosting is the priduct-costing method whereby inventory is carried at actual direct material costs plus actual direct labor costs lus applied factory overhead at a budgeted rate
4-24 Contrast ABC with ABM
Activity-based management is using activity-based cost information to improve the operations of an organization. Managers use ABC information for decision making, planning, and controlling purposes. Cost information is vital for each of these purposes. The accuracy level of the cost information is a critical factor in determining the effectiveness of decision making, planning, and controlling.
4-25Explain how the layout of a plant;s production equipment can reduce non-value added costs
One of the most significant non-value-added activities in any manufacturing company is moving inventory, materials, and parts from one point to another during the production process. The time it takes for material-handling labor to move material can be reduced by changing the layout of machines. For example, one company changed its layout so several machines that were used to produce about 50% of its products were placed next to one another. This layout change reduced the distance and time required to move partially completed products from one machine to another. The cost savings were significant.
4-26 Why do managers wat to distinguish between value added activities and non value added activities
Managers seek to eliminate, or at least reduce as much as possible, non-value-added activities. Separating these from value-added activities helps focus attention on the costs to be examined for potential reductions.
4-27 what is benchmarking? what do companies use for it? how do they determine benchmarks?
Benchmarking is the continuous process of comparing products, services, and activities against the best industry standards. Companies use benchmarking as a tool to help measure their competitive posture. Benchmarks can come from within the organization, from competing organizations, or from other organizations having similar processes.
4-29 why are more organizations adopting ABC systems?
Six factors that explain why more and more organizations are adopting activity-based costing systems are:

1. Fierce competitive pressure has resulted in shrinking margins, making accurate cost determinations essential. While companies may know that their overall margin is shrinking, they often do not have faith in the accuracy of the margins for individual products or services. Some are winners and some are losers -- but which ones?
2. Business complexity has increased, resulting in greater diversity in the types of products and services as well as customer classes. This means that the consumption of a company’s shared resources also varies substantially across products and customers.
3. New production techniques have increased the indirect proportion of total costs -- that is, indirect costs are far more important in today’s world-class manufac¬turing environment. In many industries direct labor is being replaced by auto¬mated equipment. It is not unusual for indirect cost to be more than 50% of total cost.
4. The rapid pace of technology change has shortened product life cycles. This means that companies do not have time to make price or cost adjustments once costing errors are discovered.
5. The costs associated with bad decisions that result from inaccurate cost determinations are substantial (bids lost due to overcosted products, hidden losses from undercosted products, failure to detect activities that are not cost effective, etc.).
6. Computer technology has reduced the costs of developing and operating ABC systems that track many activities.
4-37 perform drills
r
4-38 perform drills for Midterm
r
4-39 perform drills
r
14-2 Distinguish between job costing and process costing
14-2 The distinction between the job cost and the process cost methods centers largely around how product costing is accomplished. Unlike process costing, which deals with broad averages and great masses of like units, the essential feature of the job-cost method is the attempt to apply costs to specific jobs that may consist of either a single physical unit (a custom sofa) or a few like units (a dozen tables) in a distinct batch or job lot.
14.3 describe the supporting details for work in process in a job-cost sytem
14-3 The basic record for the accumulation of job costs is the job-cost sheet or job-cost record. Exhibit 14-1 shows a Job-Cost Sheet, and it also shows the related source documents. A file of current job-cost sheets becomes the supporting details for the Work-in-Process Inventory account.
14.4 what types of source documents provide information for job cost system
14-4 Source documents include materials requisitions and labor time tickets (time cards).
14.5 State 3 examples of service industries that use the job costing approach
14-5 Examples of service industries that use the job-costing approach include repairing, consulting, legal, accounting, painting, dentistry, and income tax preparation.
14.7 Give 3 examples of industries where process-costing systems are probably used
14-7 Examples of process costing include flour, glass, paint, and beer.
14.8 Give 3 examplesof non-profit orgs where process costing systems are prob used
14-8 Examples of process costing include handling of mail, income tax returns, automobile registrations, and drivers license examinations.
14.9 there are five key steps in process cost accounting what are they?
14-9 Five key steps in process cost accounting are
Step 1: Summarize the flow of physical units
Step 2: Calculate output in terms of equivalent units
Step 3: Summarize the total costs to account for, which are the total debits in Work in Process (that is, the costs applied to Work in Process)
Step 4: Calculate unit costs (cost per equivalent unit)
Step 5: Apply costs to units completed and to units in ending work in process
14.11 suppose a univeristy has 10k full time studs and 5k half time studs compute the number of full time equivilient studs
14-11 (1 x 10,000) + (.5 x 5,000) = 12,500 full-time-equivalent students.
14.15job costs are accumulated for purpose of inventory valuation and income determination...state two other purposes
14-15 In addition to inventory valuation and income determination, managers want accurate job costs as guides to pricing and to allocating effort among particular products, services, or customers. They are also necessary in contracts that reimburse the cost of a product or service.
relevent costs
for exam purposes all costs that are relevant are all variable.incremental costs...essentially delete FC from specal orders. if the CM revenues- total VC generates a profit you should accept special order. eve if its zero contribution margin.
1. zero to positive
2. need to have capacity
-if we are opeating at 100% there is no room
basic criteria to accept special order
CM from 0 to psitive
need to have capcity
fixed costs are irelevant
cost plus pricing
he tells us whatour cost is and tells us to mark it up 40%
target price or costing
tells us target price which equals market price
tells us the target profit
we figure the cost tht equates to the target profi
any future cost is relevent explain
5-4 No. Only future costs that are different under different alternatives are relevant to a decision.
why are historical or pastdata irrelevant to special decisions
5-5 Past data are unchangeable regardless of present or future action and thus would not differ under different alternatives.
fixed cost are not relevant do you agree?
5-10 No, fixed costs are not always irrelevant. Often they are not relevant. However, they can be relevant if they are affected by the decision being considered.
in target costing prices determine costs rather than vice versa
5-15 In target costing, managers start with a market price. Then they try to design a product with costs low enough to be profitable at that price. Thus, prices essentially determine costs.
provide three examples of pricing decisions other than the special order
5-19 Three examples of pricing decisions are (1) pricing new products, (2) pricing products sold under private labels, and (3) responding to new prices of a competitor's products.
give to reasons why full costs are more widely used than variable costs for guiding pricing
Full costs are more popular than variable costs for pricing because price stability is encouraged and in the long run all costs must be recovered to stay in business.
income statemnt, absorption costing be most usefull
5-24 Managers generally find contribution margin income statements more useful, especially if they are concerned with short-term results. The contribution margin statement provides information on the immediate profit impact of increases or decreases in sales.
6-1 distiguish between an opportunity cost and an outlay cost
6-1 An opportunity cost does not entail a disbursement of cash at any future time, whereas an outlay cost does entail an additional disbursement sooner or later.
6-3 accountants do not ordinarily record oppourtunity costs in the formal accounting records why?
6-3 Accountants do not ordinarily record opportunity costs in accounting records because those records are traditionally concerned with real transactions rather than possible transactions. It is impossible to record data on all lost opportunities.
6-4distinguish between increental costs and a differntial costs
6-4 A differential cost is any difference in total cost or revenue between two alternatives. A differential cost is an incremental cost when one of the alternatives contains all the costs of the other plus some additional costs. The additional costs are the incremental costs – which are also differential.
6-7 qualitative factos generally favor making over buying a component do you agree?
6-7 Not necessarily. Qualitative factors can favor either making or buying. Often factors such as product quality and assurance of delivery schedules favor making. However, sometimes establishing long-term relationships with suppliers is an important qualitative factor favoring the purchase of components.
6-9 The key to decisions to delete a product or department is identifying avoidable costs do you agree?
6-9 Yes. The costs that make a difference when a product or department is being deleted are the avoidable costs.
6-14 inventory tha was purchased for 5,000 should not be sold for 5,000 becuase it would result in a loss do you agree?
6-14 No. Once inventory has been purchased, the price paid is a sunk cost. It is true that selling at a price less than $5,000 would produce a reported loss. However, a sale at any price above $0 is economically beneficial provided that the only alternative is to scrap the inventory.
6-15 Recovering sunk costs is a major objective when replacing equipment d you agree
6-15 No. Sunk costs are irrelevant to the replacement decision.
6-16 past costs are indeed relevant in most instancs because they provide the point of departure for the entire decision process do you agree?
6-16 No. Past costs are not relevant because they cannot be affected by a decision. Although past costs are often indispensable for formulating predictions, past costs themselves are not the predictions that are the inputs to decision models. Clear thinking is enhanced by these distinctions.
6-18 some expected future costs may be irrelevant do you agree?
6-18 Yes. Some expected future costs may be irrelevant because they will be the same under all feasible alternatives.
6-23 evaluating performance decision, decision by decision, is costly. aggregate measures, such as the income statement, are frequently used. how might the wide use of income statements affect managers decision about buying equipment?
6-23 The wide use of income statements to evaluate performance may overly influence managers to maximize short-run performance that may hurt long-run performance. They may pass up profitable opportunities to replace equipment because of the large loss on disposal shown on the first year’s income statement.
6-27 explain why it is soemtimes best to sell inventory for less than the amount paid for it
6-27 The amount paid for inventory is a sunk cost. Once a company has the inventory, it cannot change what it paid for it. Thus the only relevant issue is what can be done with the inventory. If there is a choice of selling the inventory for less than what the company paid for it or not selling it at all, it is certainly better to get something rather than nothing for it.
avoidable is included in costs
true
DM, DL, VOH, or TVC areincluded is decision?
always
allocated = irrelevant to decision
true
person elliminated ie supervisor salary is avoidable
true
avoidable always gets factored in
true