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MBA > ACCT 545 Managerial Accounting > Flashcards

ACCT 545 Managerial Accounting Flashcards

1
Q

Managerial Accounting

A
  1. Internal focused
  2. What you need to know
  3. Optimize decision making
  4. The ability to plan and control operations

Hands off and not rule driven!

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2
Q

Cost-Benefit Approach

A

Alternatives are chosen based on how they benefit management in relation to their costs.

Is there a net benefit to getting information?

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3
Q

Cost

A

A resource sacrificed or forgone so as to achieve a chosen objective. What costs go into a product to make a profit out of it? (i.e materials, labor, utilities, depreciation, salaries, etc . . )

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4
Q

Cost Objects (Types of Costs)

A
  1. Product (truck)
  2. Service (hospital)
  3. Period (time frame)
  4. Activity (how much does a certain activity cost?)
  5. Customer (what is the cost of servicing a particular customer, who is needy and cost you a lot?)
  6. Region (what does it cost do business in South America)
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5
Q

Nature of Costs

A

Different dimensions of how we slice and dice costs.

  1. Cost behavior patterns (how do they behave as volume goes up and down?)
  2. Manufacturing vs non-manufacturing (costs involved in making the product vs costs of marketing/admin?)
  3. Measurement basis (how do we evaluate costs?)
  4. Traceability (how easily can we trace cost to a cost object?)
  5. Product vs period cost (when do we take something that is a cost and move it from being an asset on the balance sheet to an expense on the income statement?)
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6
Q

Variable cost

A

Costs that change in total in direct proportion to changes in related activity within a relevant range.

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7
Q

Fixed costs

A

Costs that remain unchanged in total despite changes in related activity within a relevant range. Ask
what is the volume? It depends on the volume.

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8
Q

Cost behavior

A

Means how a cost will react to changes in the level of business activity.

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9
Q

Manufacturing Costs (types)

A
  1. Direct materials (DM)
  2. Direct Labor (DL)
  3. Factory Overhead (FO)
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10
Q

Prime costs

A

= Direct Materials (DM) + Direct Labor (DL)

Direct inputs to make a product

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11
Q

Conversion Costs

A

= Direct Labor (DL) + Factory Overhead (FO)

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12
Q

Non-Manufacturing Costs

A

Selling + Administrative Expenses (S + A)

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13
Q

Measurement Basis

A

How could we valuate the costs?

  1. Historical costs (actual costs, what did I actually incur to acquire the land?)
  2. Current/Market Value (what could I currently get for it?)
  3. Replacement costs (what is it going to cost me if I have to replace it?)
  4. Budgeted/Standard costs (standard price, standard quantity, actual yield) Fake number. What do I expect it should cost me to make this product or provide this service? Then I can use it as a benchmark to compare against the actual to see if things are out of wac.
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14
Q

Benefits of Standard Costing

A
  1. Planning
  2. Control
  3. Product costing
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15
Q

Traceability

A
  1. Direct costs (DM and DL)
  2. Indirect Costs (FO)

Subject to Materiality. Can I trace it and is it worth tracing?

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16
Q

Product vs Period Costs

A 
Product Costs (DM, DL, FO)
These costs are inventoried and expensed to the income statement as the related product is sold.
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17
Q

Flow of Inventory Acounts

A

DM—-WIP(work in process)——FG(finished goods —— CGS(cost of goods sold)

It stays on the balance sheet until it goes from finished goods to cost of goods sold. At this point it moves form the balance sheet to the income statement.

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18
Q

Period costs

A

S+A

These costs are expensed to the income statement as incurred. They are expensed in the period in which they occur.

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19
Q

Income Statment

A 
Revenues 
- COGS
\_\_\_\_\_\_\_\_\_\_
GP (Gross Profit)
- S+A expenses
\_\_\_\_\_\_\_\_\_\_
Net Income
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20
Q

How is CGS #’s get computed?

A
  1. Perpetual: in real time the know what inventory they have. (BMW by vin #)
  2. Periodic: mom and pop ACE hardware store, don’t know exactly what they have in real time, but they know what they have from the previous period and then a count at the end of the period. The difference is the CGS.
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21
Q

Periodic Method

A 
Beginning Balance
\+ Purchases (inflows)
- Ending balance
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
CGS (Cost of Goods Sold)
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22
Q

VFO

A

Variable Factory Overhead

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23
Q

FFO

A

Fixed factory overhead

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24
Q

FS + A

A

Fixed selling and admin.

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25
Q

VS + A

A

Variable selling and admin.

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26
Q

WIP

A

Work in Process

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27
Q

FG

A

Finished Goods

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28
Q

CGS

A

Cost of Goods Sold

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29
Q

INV

A

Inventory

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30
Q

PROD

A

Production

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31
Q

GP

A

Gross profit

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32
Q

GM

A

Gross margin

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33
Q

NI

A

Net Income

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34
Q

VC

A

Variable Costs

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35
Q

FC

A

Fixed Costs

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36
Q

VMCGS

A

Variable manufacturing cost of goods sold

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37
Q

CGM

A

Costs of goods manufactured

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38
Q

CM

A

Contribution margin

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39
Q

CVP

A

Cost-volume-profit

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40
Q

JOC

A

Job order costing

41
Q

I/S

A

Income Statment

42
Q

B/S

A

Balance Sheet

43
Q

FOA

A

Factory overhead applied

44
Q

FOC

A

Factory overhead control (actual)

45
Q

ABS

A

Absorption costing

46
Q

VAR

A

Variable costing

47
Q

DMPV

A

Direct materials price variance

48
Q

DMEV

A

Direct materials efficiency variance

49
Q

DLPV

A

Direct labor price variance

50
Q

DLEV

A

Direct labor efficiency variance

51
Q

FBV

A

Flexible budget variance

52
Q

PVV

A

Production volume variance

53
Q

Equation Approach

A

Sales revenue - Variable expenses - Fixed expenses = Profit

54
Q

Sales Revenue

A

Unit sales x Sales volume in units

55
Q

Variable Expenses

A

Unit variable expense x Sales volume in units

56
Q

Contribution Margin

A

Sales revenue - Variable expenses

57
Q

Effect of Income Taxes

A

Rev - VC - FC = NI/(1-t)

58
Q

Cost Structure and Operating Leverage

A

The cost structure of an organization is the relative proportion of its fixed and variable costs.

Operating leverage is the extent to which an organization sues fixed costs in its cost structure.

59
Q

Operating Leverage

A

= Contribution Margin / Net Income

60
Q

How operating leverage impacts net income

A

Formula

(% change in sales volume) x (operating leverage) = % change in net income

61
Q

(WK2) Purposes of a Costing System

A

The purpose is to provide information for the manager. One very important piece of information is the unit cost of providing a product or service.

62
Q

(WK2) Dimensions of Costing System

A
  1. Job Order Costing - made to order
  2. Process Costing - mass production of a single thing
  3. Hybrids - operation costing, - combo of job order and process costing, JIT (Just in Time) Costing,
63
Q

(WK2) Measurement Basis for Product Costs

A
  1. Actual costing - what it actually costs
  2. Normal Costing(a type of budgeted costing) - material and labor done at actual cost, but the overhead at a standardized price
  3. Budgeted Costing - all products used standardized pricing
  4. Standard Costing - DM, DL, FO at a standard price and a standard quantity
64
Q

(WK2) Benefits of Budgeted Costing

A
  1. Planning
  2. Control - compare what you did and what it should be
  3. Product Costing
65
Q

(WK2)Questions to ask of a company

A
  1. How are they aggregating? Are they using job order, process or hybrid costing.
  2. What valuation numbers are they using? Is it actual ,, normal, budgeted, or standard costing?
  3. How are we splitting the costs? Is it based on cost behavior pattern or is based on manufacture vs. non-manufacturing costs?
66
Q

(WK2) Proration

A

Adjust the inventory accounts for the amount of Factory Overhead Applied (FOA) that resides in the ending balances. Is theoretically correct: it gets you back to the actual values.

67
Q

(WK2) No Proration

A

Plug difference to Cost of Goods Sold (CGS) - not accurate.

68
Q

Benefits of Standard Costing

A
  1. Planning
  2. Control
  3. Product Costing - let you have an estimate upfront for your per product cost
  4. Motivation for employees to work hard
69
Q

Standard Cost Variances

A
  1. Price variance: the difference between the actual price and the standard price.
  2. Quantity variance: the difference between the actual quantity and the standard quantity.
70
Q

Standard quantity

A

Standard quantity is the quantity allowed for the actual good output. How much quantity should have been used based on the actual outcome achieved?

71
Q

Absorption Costing

A

Manufacture vs non-manufacture

Product costs

  1. Direct materials
  2. Direct labor
  3. Variable mfg. overhead
  4. Fixed mfg. overhead

Period costs
1. selling & Admin. exp.

72
Q

Variable Costing

A

Variable vs. Fixed

Product costs

  1. Direct materials
  2. Direct labor
  3. Variable mfg. overhead

Period costs

  1. Fixed mfg. overhead
  2. Selling & Admin. exp.
73
Q

Difference between absorption and variable costing

A

The difference is the treatment of fixed manufacturing overhead.

Absorption costing - unitized it in product costs
Variable costing - pull it out as lump sum in the period costs

74
Q

Cost Allocations: 3 Questions to Ask

A

Have a skeptical attitude

  1. How is the allocation done?
  2. Why is it done that way?
  3. Is there a better way of doing it?
75
Q

Four Essential Purposes of Cost Allocation

A
  1. To provide information for economic decisions
  2. To motivate managers and other employees
  3. To justify costs or compute reimbursement
  4. To measure income and assets for reporting to external parties
76
Q

Role of a Dominant Criteria

A

Managers must first choose the purpose for a particular cost allocation and then select the appropriate criterion to implement the allocation.

77
Q

Steps to Allocating Costs

A
  1. Determine the cost object
  2. Determine the direct costs and allocate (like DL & DM)
  3. Determine the indirect costs (VFO, FFO)
  4. Select an allocation base for the indirect costs and then allocate (we used labor hours on the midterm)
78
Q

Single-Rate Method

A

The single-rate cost allocation method pools together all costs in a cost pool and allocates these costs to cost objects using the same rate per unit of the single allocation base.

79
Q

Dual-Rate Methods

A

The dual-rate cost allocation method classifies costs in each cost pool into two cost pools - a variable-cost cost pool and a fixed-cost cost pool.

80
Q

Joint products

A

Products resulting from a process with a common input.

81
Q

Split-off point

A

The stage of processing where joint products are separated.

82
Q

Joint product cost

A

Costs of processing joint products prior to the split-off point.

83
Q

Why Allocate Joint Products?

A
  1. Inventory costing and cost of goods sold computations are important for financial accounting purposes, reports to income tax authorities, and internal reporting purposes.
  2. Cost reimbursement contracts
  3. Insurance settlements
  4. Rate regulation
  5. Litigation
84
Q

Five-Step Decision Process

A
  1. Gathering information
  2. Making predictions
  3. Choosing an alternative
  4. Implementing the decision
  5. Evaluating performance (feedback loop)
85
Q

The Meaning of Relevance

A

Relevant costs and relevant revenues are . . .

  1. Expected future costs and revenues that
  2. Differ among alternative courses of action.
86
Q

Differential Income

A

Differential income (net relevant income) is the difference in total operating income when choosing between two alternatives.

87
Q

Differential Costs

A

Differential costs (net relevant costs) are the difference in total costs between two alternatives.

88
Q

Incremental Analysis

A 
Start by assuming a choice, then calculate the  . . . .
1. Incremental benefits
2. Incremental costs
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
If the result is a net benefit = good
If the result is a net cost = bad
89
Q

General Tips in Relevant -Cost Analysis

A
  1. Often better to separate costs based on cost behavior patterns (variable versus fixed)
  2. Often better to analyze fixed costs in aggregate rather than on a per-unit basis.
90
Q

Opportunity cost

A

Opportunity cost is the contribution to income that is forgone (rejected) by not using a limited resource in its next-best alternative use.

91
Q

Major Influences on Pricing Decisions

A
  1. Customers
  2. Competitors
  3. Costs
    The demand for the product or service and its supply.
92
Q

Cost-Plus Pricing

A

The general formula for setting a cost-based price is to add a markup component to the cost base. This makes sure that the revenue is greater than the cost of making the product.

93
Q

Target Costing

A

The process of budgeting a product’s cost that is based on the expected selling price and on a target gross margin.

94
Q

To Make Decisions Under Uncertainty

A
  1. Determine the choice criterion (e.g., max profit)
  2. Determine the set of alternative actions
  3. Determine the set of events (states of nature)
  4. Determine the set of probabilities associated with the events
  5. Determine the set of outcomes (payoffs) for event/action pairings
  6. Compute the expected value of each alternative
95
Q

Information Economics

A

Trying to make choices under uncertainty and also trying to figure out the value of an information signal. For information to have value it must change your behavior.

96
Q

Linear Programming

A

Determines how to best allocate scarce resources so as to attain a chosen objective.

97
Q

Applications of Linear Programing

A
  1. Optimal product mix
  2. Production scheduling
  3. Blending of raw materials
  4. Transportation distribution
  5. People planning - scheduling
98
Q

Steps to Solving Linear Programing

A
  1. Determine the objective function
  2. Determine the basic relationships (constraints)
  3. Compute the optimal solution

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