Ch 4 :Managerial Accounting and Cost Concepts Flashcards
financial accounting rules
external
historical perspective
emphasis on verifiability
emphasis on precision
company wide reports
must follow GAAP
mandatory
Purpose of managerial acting
To teach measurement skills that managers use to support planning, controlling, and decision-making
managerial
Users-internal managers
emphasis on relevance
emphasis on timeliness
focus is on segment reports
not bound by GAAP
Requirement- Not mandatory
functions of management
planning , controlling, decision making
Planning
Establishing goals and specifying how goals will be achieved
Develop budgets
what are budgets
detailed plans for future expressed in formal quantitative terms
Controlling
Gathering feedback to ensure plans are being followed
Feedback in the form of performance reports compare actual results with the budgets
decision making
Involves making a selection among competing alternatives
examples of cost object
Products, customers, plants, departments, office locations
direct costs
Cost that can be easily and conveniently traced to a specific cost object
indirect cost
A cost that cannot be easily and conveniently traced to a specific cost object
what are the 3 manufacturing costs
direct mats, direct labor, manufacturing overhead
direct mats
raw mats that become a part of the product and can be traced to it
(materials that go into the final product)
direct labor
labor costs that can be easily traced to individual units of a product
manufacturing overhead
all manufacturing costs expect direct mats and labor
includes indirect mats, indirect labor, factory overhead
examples of indirect mats
glue, screws, bolts
examples of indirect labor
-factory janitors, supervisors, security gaurds
prime cost formula
direct mats + direct labor
conversion costs
direct labor + manufacturing overhead
selling costs
costs incurred to secure customer orders and deliver the product
general and administrative expenses
costs associated w general management of an org rather manufacturing and selling
matching principle
based on the accrual concept that costs incuyrred to generate a particular revenue should be recognixefd as expenses in the same period that revenue is recognized
(means costs incurred to make smth that will evntually be sold will only be recognized when the sale takes place (product costs))
product costs
-costs involved in acquiring/making a product
-attached to a unit until its sold
-also known as inventorial costs
-balance sheet inventory
period costs
includes all costs that are not product costs (selling and general expenses
-expensed on income statement
what is cost behavior
refers to how a cost reacts to changes in level of activity
3 cost classifications
variable
fixed
mixed
variable costs
-cost that varies in proportion to changes in activity level
-variable cost per unit is constant
-ex labor, mats
activity base
measure of whatever causes the incurrence of variable cost ( cost driver)
fixed costs
Cost that remains constant in total, regardless of changes in the level of activity
Average fixed cost per unit decreases as activity increase tho bc its constant
differential/incremental cost
the difference in cost btw any 2 alternatives (can be fixed or variable)
differential revenue
a diff in revenue btw 2 alternatives (relevant benefit)
Irrelevant costs or benefits
any future cost or benefit that does not differ btw alternatives should be ignored
Opportunity cost
the potential benefit given up when one option is chosen over another (relevant) (ex lost wages while on vacay)
Traditional format
organizes costs into either Cost of Goods Sold or Selling, General, and Administrative expenses
Sales - cost of goods sold = gross margin
Cost of goods sold = the product costs attached to the merchandise sold
Selling, general, and administrative expenses are period costs expensed as incurred
Sunk cost
a cost that has already been incorrect and cannot be changed by any decision made in the future (Irrelevant) (ex machinery purchased a year ago)
(depreciation)
Contribution format
Organizes costs into either variable or fixed expenses
Sales- variable costs= contribution margin
Helps managers organize data pertinent to decisions (product-line analysis, pricing, make or buy analysis)
contribution margin formula
sales-variable expenses
direct manufacturing cost
-direct labor
-direct mats
total manufacturing cost
-direct labor
-direct mats
-overhead
cogs formula
beg inventory + purchases- ending inventory
how to find net operating income
sales - cogs (beginning in + purch-ending inv) - selling-admin=net operating income
