Ch 4 :Managerial Accounting and Cost Concepts

Question 1

financial accounting rules

Answer 1

external
historical perspective
emphasis on verifiability
emphasis on precision
company wide reports
must follow GAAP
mandatory

Question 2

Purpose of managerial acting

Answer 2

To teach measurement skills that managers use to support planning, controlling, and decision-making

Question 3

managerial

Answer 3

Users-internal managers
emphasis on relevance
emphasis on timeliness
focus is on segment reports
not bound by GAAP
Requirement- Not mandatory

Question 4

functions of management

Answer 4

planning , controlling, decision making

Question 5

Planning

Answer 5

Establishing goals and specifying how goals will be achieved
Develop budgets

Question 6

what are budgets

Answer 6

detailed plans for future expressed in formal quantitative terms

Question 7

Controlling

Answer 7

Gathering feedback to ensure plans are being followed

Feedback in the form of performance reports compare actual results with the budgets

Question 8

decision making

Answer 8

Involves making a selection among competing alternatives

Question 9

examples of cost object

Answer 9

Products, customers, plants, departments, office locations

Question 10

direct costs

Answer 10

Cost that can be easily and conveniently traced to a specific cost object

Question 11

indirect cost

Answer 11

A cost that cannot be easily and conveniently traced to a specific cost object

Question 12

what are the 3 manufacturing costs

Answer 12

direct mats, direct labor, manufacturing overhead

Question 13

direct mats

Answer 13

raw mats that become a part of the product and can be traced to it

(materials that go into the final product)

Question 14

direct labor

Answer 14

labor costs that can be easily traced to individual units of a product

Question 15

manufacturing overhead

Answer 15

all manufacturing costs expect direct mats and labor

includes indirect mats, indirect labor, factory overhead

Question 16

examples of indirect mats

Answer 16

glue, screws, bolts

Question 17

examples of indirect labor

Answer 17

-factory janitors, supervisors, security gaurds

Question 18

prime cost formula

Answer 18

direct mats + direct labor

Question 19

conversion costs

Answer 19

direct labor + manufacturing overhead

Question 20

selling costs

Answer 20

costs incurred to secure customer orders and deliver the product

Question 21

general and administrative expenses

Answer 21

costs associated w general management of an org rather manufacturing and selling

Question 22

matching principle

Answer 22

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))

Question 23

product costs

Answer 23

-costs involved in acquiring/making a product
-attached to a unit until its sold
-also known as inventorial costs
-balance sheet inventory

Question 24

period costs

Answer 24

includes all costs that are not product costs (selling and general expenses

-expensed on income statement

Question 25

what is cost behavior

Answer 25

refers to how a cost reacts to changes in level of activity

Question 26

3 cost classifications

Answer 26

variable
fixed
mixed

Question 27

variable costs

Answer 27

-cost that varies in proportion to changes in activity level

-variable cost per unit is constant

-ex labor, mats

Question 28

activity base

Answer 28

measure of whatever causes the incurrence of variable cost ( cost driver)

Question 29

fixed costs

Answer 29

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

Question 30

differential/incremental cost

Answer 30

the difference in cost btw any 2 alternatives (can be fixed or variable)

Question 31

differential revenue

Answer 31

a diff in revenue btw 2 alternatives (relevant benefit)

Question 32

Irrelevant costs or benefits

Answer 32

any future cost or benefit that does not differ btw alternatives should be ignored

Question 33

Opportunity cost

Answer 33

the potential benefit given up when one option is chosen over another (relevant) (ex lost wages while on vacay)

Question 34

Traditional format

Answer 34

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

Question 34

Sunk cost

Answer 34

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)

Question 35

Contribution format

Answer 35

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)

Question 36

contribution margin formula

Answer 36

sales-variable expenses

Question 37

direct manufacturing cost

Answer 37

-direct labor
-direct mats

Question 38

total manufacturing cost

Answer 38

-direct labor
-direct mats
-overhead

Question 39

cogs formula

Answer 39

beg inventory + purchases- ending inventory

Question 40

how to find net operating income

Answer 40

sales - cogs (beginning in + purch-ending inv) - selling-admin=net operating income