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89 Cards in this Set
- Front
- Back
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financial accounting
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guided by rules, not flexible, historical, looks at company as a whole
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managerial accounting
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no rules, flexible, forward-looking, segmented information
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cost
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use of company resources
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expense
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"used up" cost
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professional ethics
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competence, confidentiality, integrity, credibility
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fixed costs
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costs that remain the same in total, but change on a per unit bases, with changes in production volume
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variable costs
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costs that remain the same on a per unit basis, but change in total, with changes in production volume
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semi-variable (mixed) costs
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costs which have a fixed and variable component
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relevant range
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the normal range of units of production where the fixed and variable relationship holds.
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regression analysis
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a statistical method used to estimate fixed and variable components of a mixed cost
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cost equation
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Total Costs = Fixed Costs + [ Variable Costs per unit x # of units]
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cost structure
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proportion of variable and fixed costs in the organization
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High Low Method and steps to perform it
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another method used to estimate fixed and variable components of a mixed cost
Step 1 - estimate variable cost per unit – change in cost / change in volume Step 2 – estimate fixed cost – use cost equation |
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Contribution Margin Income Statement format
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Sales – Variable Expenses = CM – Fixed Expenses = Profit
Sales = units x sales price Variable expenses = units x variable cost per unit, Fixed expenses = total fixed expenses |
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Cost Flows and All Calculations involved
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Cost Flows
Raw Materials Used: Beg RM + RM purchased = Available – Ending RM = RM Used Cost of Goods Manufactured (COGM): Beg WIP + RM Used + Direct Labor + Man. OH = Available – Ending WIP = COGM Cost of Goods Sold (COGS): Beg FG + COGM = Available – Ending FG = COGS Sales – COGS = Gross Profit – Period Costs = Net Income |
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quality costs
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prevention, appraisal, internal failure, external failure
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marginal costs
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cost to produce one more unit
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product cost/unit=
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total product cost/units produced
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opportunity cost
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foregone benefits to choose one option vs. another
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sunk cost
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irrelevant to decision making, a cost that has already been incurred
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3 types of manufacturing costs
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1) direct materials
2) direct labor 3) direct overhead |
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direct materials
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material costs that can be directly traced to the production of a good
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direct labor
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labor traced directly and conveniently to the production of a product
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Manufacturing Overhead
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includes
-indirect labor -indirect materials -depreciation -insurance -utilities -etc. related to factory production |
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manufacturing cost
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all cost related to making a product
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non-manufacturing cost
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all other costs, expensed as incurred
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examples of manufacturing vs. non-manufacturing costs
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depreciation of factory equipment- manufacturing cost
depreciation of a salesman's car- non-manufacturing cost |
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job-order costing
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cost assigned to each job or product
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process cost
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cost assigned to the processes involved in making product (used for homogeneous products such as detergent, paint, beverages, etc.
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cost pools
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grouping of similar overhead costs
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cost driver
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activities that cause the overhead to occur (e.g. – more use of a machine increases utility cost (an overhead cost), thus machine hours could be considered a cost driver)
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pre-determined overhead rate
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Estimated Total Manufacturing OH / Estimated Total Cost Driver Amount
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applied overhead
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Pre-determined Rate x Actual Use of Cost Driver
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overapplied overhead
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the amount of overhead applied to the job costs is greater than actual overhead costs. When this occurs, reduce cost of goods sold.
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underapplied cost of goods sold
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the amount of overhead applied to the job costs is less than actual overhead costs. When this occurs, increase cost of goods sold
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controller
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in charge of accounting functions, usually reports to the CFO
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line position
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directly involved in achieving the organization's goal
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staff position
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provides assistance to the line positions, indirectly in achieving the organization's goals
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step variable costs
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a cost that increases or decreases in intervals
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committed fixed cost
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long term in nature, can not be reduced over a short-period of time (ex – costs associated with owning a building)
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discretionary fixed costs
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short-term in nature, can be reduced over a short-time frame (year or less)
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cost estimate methods for semi variable costs and descriptions of each method
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1) graphing method-short-term in nature, can be reduced over a short-time frame (year or less)
2) high-low method- use high and low points to get a rough estimate 3) regression analysis- using statistical methods to consider all points |
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the cost equation
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Y=A+Bx
Y=total costs A=total fixed costs B= variable cost per unit x= level of activity |
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steps in the high-low method
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1)Pick the data points with the highest and lowest activity levels
2) Estimate the variable cost per unit by looking at “change in cost / change in volume”. 3) For either high or low data points, “plug” variable cost per unit and volume in cost equation and solve for fixed cost |
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accounting information for internal users vs. external users
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External Users:
-Guided by rules (GAAP, tax code, etc.) -Generally not flexible -Historical Information -Emphasis on organization as a whole Internal Users: -No rules, geared to specific company -flexible and timely -Forward-looking, concerned with future - Emphasis on business segments |
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role of managerial accountant
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- assist management in the decision making process
- analyze and interpret information |
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management activities
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-planning
-controlling -decision making -directing and motivating |
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planning activities
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- short term planning for less than one year
- long term planning for more than one year -often uses pro forma financial documents and budgets - develops the company's goals and objectives |
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T/F: It is okay to make decisions based solely on quantitative data in managerial accounting
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False. Both Quantitative and qualitative information should be considered when making decisions
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just-in-time manufacturing
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-Product made “just-in-time” to meet customer demand
-Carry little or no inventory of materials or finished goods -Production generally completed in one area or “manufacturing cell” -Reduce non-value added activities and costs – costs that do not provide more value for the customer |
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Just-in-time inventory and production management system
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-Materials purchased and goods made only as needed (small orders)
–reliable suppliers -Uniform production rate – -less delays and fluctuations -High quality – limits defective units -Quick setups of machinery – -manufacturing cells -Multi-skilled workers – reduce bottlenecks, more flexible -Reduced non-value added costs such as storage, wait time and moving time |
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professional ethics in accounting
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integrity, credibility, competence, confidentiality
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product cost vs. period cost
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product cost- costs related to goods either purchased for resale or manufactured for resale, also known as inventory costs
period costs- any cost not a product cost (ex. advertising, selling, and administrative costs) |
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manufacturing vs. merchandising companies
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manufacturing- make what you sell
merchandising- buy what you sell |
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cost flow for a traditional manufacturer
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1. Raw materials (store room)
2. Work in Progress (factory) 3. Finished Goods (warehouse) 4. Cost of Goods Sold (Customer) |
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Costs of Quality
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1. Prevention Costs (Preventing design flaws)
2. Appraisal Costs (testing costs, inspection costs) 3. Internal Failure Costs (product failure before reaching customer, reworking product cost) 4. External Failure costs (customer failure, warranties, product recall, legal fees) |
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job-order costing
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1. assigns jobs for each individual product
2. works well with products that are different or are in low volume 3. used in service industries |
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process costing
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1. assigns costs to production processes
2. works well for homogeneous products produced on a continuous basis 3. unit costs calculated using average cost approach |
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job order costing involves...
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(1) Measure and Track Direct Material
(2) Measure and Track Direct Labor (3) Apply Manufacturing Overhead (Note: Companies often use a form called a job cost sheet to record the 3 costs above) |
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measure and track direct materials
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-Determine amount of material used for specific product and apply cost
-Service Companies usually have little direct materials -Material Requisition Form can be used as source document for cost accounting entry |
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measure and track direct labor
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-Measure amount of hours used and apply labor rate
-Must include fringe benefits, usually run 30% to 35% of wage rate. -Time Record can be used as source document for cost accounting entry |
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Tracking manufacturing overhead
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-Most difficult of costs to assign to a particular product or job.
-Most overhead is an indirect cost so unable to track to individual product or job. -Therefore, overhead must be applied (allocated) |
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cost driver
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An activity or factor that causes overhead costs to be incurred
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plantwide overhead
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use only one overhead rate for the entire company
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departmental overhead
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each department within the factory has an overhead rate. Overhead is allocated to job by department.
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JIT production comes from what model?
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The Lean Model
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Theory of constraints
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based on insight that effectively managing a constraint is key to sucess
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constraint
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anything that keeps you from getting what you want
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Six sigma
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improvement method that relies on customer feedback and fact based data gathering and analysis techniques to drive process improvement
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non value added activities
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activities that doe not add value to the product or service that customers do not want to pay for
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Sarbanes-Oxley Act of 2002
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intended to protect the interests of those who invest publicly traded companies by improving on the reliability and accuracy of financial reports and disclosures. This includes:
1. requires CEO and CFO to certify in writing that their company's financial statements and accompanying disclosures represent the results of operations fairly 2. established the Public Company Accounting Oversight Board to provide additional oversight to the audit profession 3. Places 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. Places restrictions on audit firms 5. Requires a company's annual report contain an internal control report 6. Establishes severe penalties as many as 20 years in prison for altering or destroying any documents that may eventually be used in an official proceeding and up to ten years for managers who retaliate against whistle blowers who report outside of the company's chain of command |
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enterprise risk management
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identify risks and manage them effectively
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value/non-value
engineer designs product improvement |
value added
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value/non-value
storage of a completed product |
non value added
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value/non-value
assembling the product |
value added
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value/non-value
delivery of product to customer |
value added
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value/non-value
idle time of employees between work processes |
value added
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Product Cost or Period Cost ?
depreciation of factory equipment |
product
manufacturing overhead |
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Product Cost or Period Cost ?
depreciation of cars used by sales people |
period
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Product Cost or Period Cost ?
lubricants used on factory equipment for maintenance |
product
manufacturing overhead (indirect materials) |
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Product Cost or Period Cost ?
factory supervisors' salaries |
product
manufacturing overhead |
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Product Cost or Period Cost ?
heat, water, and electricity used in the power plant |
product cost
manufacturing overhead |
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Product Cost or Period Cost ?
material used to produce product |
product cost
direct materials |
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Product Cost or Period Cost ?
fringe benefits paid to hire assembly worksers |
product
direct labor |
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Fixed or Variable Cost ?
building (assume 40 year life) |
fixed
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Fixed or Variable Cost ?
raw material costs to output product |
variable
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Fixed or Variable Cost ?
factory supervisor's salary |
fixed
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Fixed or Variable Cost ?
hourly wages paid to assembly line workers |
variable
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Fixed or Variable Cost ?
property taxes paid on a building |
fixed
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