Managerial Accounting Ch4-6

Front 1

Relevant Information

Back 1

1. differs among the alternatives under consideration
2. is future oriented

Front 2

sunk cost

Back 2

incurred in past transactions; not relevant for current decisions

Front 3

Relevent (differential) revenues

Back 3

1. future oriented
2. differ for alternatives under consideration

Front 4

relevant (avoidable) costs

Back 4

Unit-level activities (avoid by elim. 1 u of product)
Batch-level activities (elim 1 batch)
Product-level (elim product line)
Facility-level (avoid some costs if production line is elim.)

Front 5

Unit-level costs

Back 5

direct mat. and labor
inspections
packaging
ship and handling

Front 6

Product-level costs

Back 6

Quality inspection costs
engineering design costs
costs of obtaining and defending patents
regulation compliance
inventory holding costs

Front 7

Facility-level costs

Back 7

rent/depreciation
administrative and training
property tax
insurance
maintenance
CGS

Segment and corporate level: unavoidable

Front 8

opportunity costs

Back 8

not cumulative; relevant

Front 9

Special order

Back 9

accept/reject
1. det amount rel. rev. earn by accepting
2. det. amt. rel. cost incurred by accepting
3. accept if rel. rev > rel. cost

*should come from outside normal sales; not apply to repeat business; reject if at full capacity

Front 10

Outsourcing

Back 10

1. det prod. costs avoid if outsource (not facility-lvl)
2. compare avoidable prod. costs w/cost of buying product and selecting lower lvl cost option

Front 11

Negatives of outsourcing

Back 11

decreases vertical integration
may use lowball pricing
quality
delivery
displease employees; lower productivity and loyalty

Front 12

segment elimination

Back 12

1. det amount rel. rev. that pertains to elim. division
2. det amt. cost avoid if elim division
3. if rel. rev is <= avoid cost, elim division

*disrupts employees lives

Front 13

accept:
Special order
Outsource
Elimination
if affects:

Back 13

unit, batch
u, b, p
u, b, p, f

Front 14

Equipment replacement

Back 14

1. det rel costs if keep
2. det costs incurred if purchase new

Front 15

cost objects

Back 15

products
processes
departments
activities

Front 16

cost of accumulation

Back 16

determines cost of objects

Front 17

cost driver

Back 17

cause/effect relationship

Front 18

cost allocation

allocation rate

Back 18

TC/cost driver x weight of driver = per/cost object

Front 19

cost pool

Back 19

accumulate many individual costs and then allocate to cost objects

Front 20

joint costs

split off point

Back 20

materials
labor
overhead

become separate
$ allocated based on rel. sales value at split-off point; positive gross margin

Front 21

cost allocation of machinery use

Back 21

allocate utility using machine hours

Front 22

activity based cost driver (ABC)

Back 22

1. costs assigned to pools based on activities that cause them to be incurred
2. costs allocated using a variety of drivers

Front 23

Budgeting

Back 23

planning of financial matters

Front 24

Strategic planning

Back 24

long –term planning/overall objectives
o Which products to manufacture and sell and which market niches to pursue

Front 25

Capital budgeting

Back 25

intermediate investment planning

Front 26

Operations budgeting

Back 26

short-term, used to create master budget

Front 27

Master budget

Back 27

detailed objectives; one year
Supports planning, coordination, performance, measurement, and corrective action

Front 28

Participative budgeting

Back 28

subordinate participation in process; encourages more realistic goals

Front 29

Operating budget

Back 29

detailed schedules and budgets
-Sales budget and schedule of cash receipts
1: Projected sales/month: cash sales + sales on account = total budgeted sales
2: Schedule of cash receipts for projected sales: Current cash sales + collection of accounts receivable = total budgeted collections
Pro forma financial statement data: Total accounts receivable balance and total budgeted sales (revenue; sum of total monthly amounts)

Front 30

Inventory purchases budget
1: projected purchases: budgeted C/GS + desired ending inventory (x% times following month’s C/GS) = total inventory needed less beginning inventory (EI of previous month) = Required purchases (on account)
• 2: schedule of cash payments for inventory purchases: Pay x% of current month acct. pay. + x% of prior month acct. pay. = total budgeted disbursements for inventory
• Pro forma: Total C/GS (Sum of monthly C/GS), EI as of final date (EI in final month), Acct. Pay (remaining x% to be paid in following month)

Back 30

1: projected purchases: budgeted C/GS + desired ending inventory (x% times following month’s C/GS) = total inventory needed less beginning inventory (EI of previous month) = Required purchases (on account)
2: schedule of cash payments for inventory purchases: Pay x% of current month acct. pay. + x% of prior month acct. pay. = total budgeted disbursements for inventory
Pro forma: Total C/GS (Sum of monthly C/GS), EI as of final date (EI in final month), Acct. Pay (remaining x% to be paid in following month)