ACT 4A Exam 1 Flashcards by Will Vang

A profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting.Managerial Accounting

Managerial Accounting

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producing annual and quarterly consolidated financial statements that will be used by investors and creditors to make investment and lending decisions

Financial accounting system

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Internal managers with the accounting information needed to plan, direct, and control operations.

Managerial accounting system

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.100-year-old professional association for management accountants. developing, certifying, connecting, and supporting accounts and financial professionals.

IMA- Institute of Management Accountants

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Competence-Maintain their professional competence
Preserve the confidentiality of the information they handle.
Uphold their integrity
Perform their duties with credibility

IMA Ethics

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Perform professional duties in accordance with relevant laws, regulations, and technical standards. Clear accurate, concise, timely.

Competence

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Inform all relevant parties regarding the appropriate use of confidential information. Monitor to ensure compliance. Confidentiality

Confidentiality

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Avoid apparent conflicts of interest. Advise all parties of any potential conflicts of interest.
Abstain from engaging in or supporting any activity that might discredit the profession.

Integrity

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Provide a relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendation

Creditbility

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Raw materials inventory
Work in process inventory
Finished goods inventory

Types of Inventory

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Toyota is in business to sell completed cars, not work in process. Once the vehicles are completed, they are no longer considered work in process, but rather become part of finished goods inventory.

Finished goods inventory

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Service Companies, Merchandising Companies, Manufacturing Companies.

Types of companies

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A cost that can be traced to the cost object, meaning the company can readily identify associate the cost with the cost object

Direct Cost

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is a cost that relates to the cost object but cannot be trace specifically to it.

Indirect Cost

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direct material, direct labor, and manufacturing overhead.

Types of Manufacturing costs

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Single units or small batches with large differences between jobs.
costs are average over the small number units in a job.

Job Costing

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Large quantities of identical units

More averaging-cost are average over the thousands or millions of identical units that pass through each process.

Process Costing

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Total estimated manufacturing overhead costs/Total estimated amount of the allocation base.

Predetermined MOH rate

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Overhead allocated to job is more than the amount of manufacturing overhead costs actually incurred; jobs overcost

Overallocated Manufacturing Overhead

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Less than the amount of manufacturing overhead costs.

Underallocated Manufacturing Overhead

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Life Fitness had estimated $1,000,000 of MOH for the year and 62,500 DL hours, resulting in a predetermined MOH rate of $16/DL hour. By the end of the year, the company had actually incurred $975,000 of MOH costs and used a total of 60,000 DL hours on jobs. By how much had Life Fitness overallocated or under allocated?

estimated Moh/Toal  aloc base= 1,000,000/62,500DL= $16/DL
Compare actual MOH $975,000
vs allocated MOH
$16/DL x 60,000 DL) 960,000
=15,000
=Under allocated

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In a job costing system, which of the following statements about materials is not correct?

Materials used during production are always classified as direct materials

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Predetermined overhead rate times the estimated amount of the allocation base used by the specific job.

The formula to calculate the amount of manufacturing overhead to allocate to jobs is

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STEP 1: the company first identifies its primary activities and then estimates the total manufacturing overhead costs associated with each activity. these are known as activity cost pools.
STEP 2: the company selects an allocation base for each activity and estimates the total amount that will be used during the year.
STEP 3; the company calculates its activity cost allocation rates using the information estimated in Steps 1 and 2.
STEP 4: the company allocates some manufacturing overhead from each activity to the individual jobs that use the activities.

Steps of ABC’s

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Cost Levels

Unit-level activities—activities and costs incurred for every unit. Examples include inspecting and packaging each unit the company produces. Batch-level activities—activities and costs incurred for every batch, regardless of the number of units in the batch. One example would be machine setup. Once the machines are set up for the specifications of the production run, the company could produce a batch of 1, 10, or 100 units, yet the company only incurs the machine setup cost once for the entire batch. Product-level activities—activities and costs incurred for a particular product, regardless of the number of units or batches of the product produced. One example would be the lease payments on equipment used solely for manufacturing a particular product. Facility-level activities—activities and costs incurred no matter how many units, batches, or products are produced in the plant. An example is facility upkeep: the cost of depreciation, insurance, property tax, and maintenance on the entire production plant.

are costs incurred to avoid producing poor-quality goods or services. Often, poor quality is caused by the variability of the production process or the complexity of the product design.

Prevention Cost

are costs incurred to detect poor-quality goods or services. These costs include inspecting raw materials, work in process, and finished goods in order to identify any product that isn’t up to par.

Appraisal Cost

are costs incurred on defective units before delivery to customers. For example, sometimes defective units can be repaired and then sold as perfectly good units. The cost of the repair, called rework, is considered an internal failure cost.

Internal Failure Cost

are costs incurred because the defective goods or services are not detected until after delivery is made to customers. News reports are filled with stories of product recalls that damage a company’s reputation and can significantly harm the company’s future sales.

External Failure Costs

Total estimated activity cost pool/Total estimated activity allocation base.

How do we calculate an activity cost allocation rate?

Allocation cost allocation rate X Actual amount of activity allocation base used by the job?

How do we allocate an activity's cost to a job?

Managers use ABC data in ABM to make the following decision: - Pricing and product mix - Cost cutting - ROutine playing and control

General Concepts of ABC

- More accurate product cost information more detailed information on the cost of activities and associated cost drivers help managers control cost and eliminate non-value-added activities.

What are the main benefits of ABC?

are activities for which the customer is willing to pay because these activities add value to the final product or service. fabricating component parts and assembling the units.

Value-added activities

neither enhance the customer's image of the product or service nor provide a competitive advantage. could be reduce or removed from the process with no ill effect on the end product or service.

non-value-added activities

express the amount of work done during a period in terms of fully completed units of output.

Equivalent units

Number of physical units x Percentage of completion= Number of equivalent Units

Number of physical units x Percentage of completion= Number of equivalent Units. How to calculated Equivalent Units

Dairymaid makes organic yogurt. The only ingredients, milk, and bacteria cultures are added at the very beginning of the fermentation process. At month-end, Dairymaid has 100,000 cups of yogurt that are only 25% of the way through the fermentation process. Use the equivalent unit formula to answer the following: a. How many equivalent units of direct materials are in ending work in process? b. How many equivalent units of conversion costs are in the ending work in process?

a. 100,000 x 100%= 100,000 EU of DM | b. 100,000 x 25%= 25,000 EQ of conversion

The combination of direct labor and manufacturing overhead costs. Conversion Costs

Conversion Costs

Which of the following companies would be most likely to use a job costing system rather than a process costing system?

c. Legal Firm

In a job costing system, which of the following statements about materials is not correct?

Materials used during production are always classified as direct materials

The formula to calculate the amount of manufacturing overhead to allocate to jobs is

predetermine overhead rate times the estimate amount of the allocation base used by the specific job

If the company underestimates the amount of allocation base when calculating its presdetermined manufacturing overhead rate but estimates the amount of manufactuing overhead correctly, the amount of manufacturing overhead allocated for the year will be

overallocated

When a company uses direct labor, it traces the cost to the job by debiting

Work in Process Iventory

For which of the following reasons would the principal partner of a consulting firm want to know the total costs of a job

To determine the fees to be charged to the client

overcosting some products and undercosting other products.

Cost disortion is likely to cause

Insurance in a company's buildings would most likely be classified as a

facility-level

The legal costs associated with filing a patent for a new model of scooter at a toy manufacturer is an example of which type of activity?

Product-level

What of the following statements is false?

Activtiy-based costing can only be used by manufacturing firms.

Which of the following is not a good reason for a paint manufactuer to use activity-based costing?

Most costs are direct; indirect costs are small proportion of total costs.

The cost of reworking defecive products before shipping to customers woul be classified as which type of quality costs?

Internal Failure costs

Which primary management responsibility includes the process of creating budget?

Planning

Which primary management respobsibility includes the process of comparing the budget to actual results

Controling

Which of the following positions is primarily resonsible for raising capital and investing funds?

The treasurer

Maintain an approproate level of professional leadership and expertise by enhancing knowledge and skills is an example of which IMA ethical standard?

Competence

To help meet profit goals in the current year, the Fretter Corporation manager ships out pre-ordered merchandise the last week of December, even though the customer explicitly stated that the order was to be shipped the third week of January. This early shipment could be a violation of which ethical standard?

Integrity

According to the Sarbanes Oxley Act, who is repsonsible for the corporation's financial statements?

THe company's CEO and CFO

The costs of manufacturing or purchasing inventory would be classified as

Which of the following costs would be classified as manufacturing overhead?

Which of the following is true?

Manufacturing overhead is always a variable cost.

Which of the following companies would most likely use job costing?

A hospital

An equivalent unit of conversion costs is equal to:

the amount of conversion costs needed to produce one unit.

How is the cost equivalent unit calculated?

Total costs to account for dividied by total equvalent units

Equivalent units are calculated for which of the following?

Both direct materials and conversion costs

The jourdanl entry that records the transfer of unit from Department A to the next processing department, Department B, will include a debit to

Work in Process Inventory for Department B and a credit to Work in Process Inventory for Department A.