CH1 Flashcards
Why accounting is essential for decision-makers and managers?
- Because provides accurate financial info that helps them to understand the company’s financial health.
- This info is crucial for making informed decisions like Budgeting, Investing, and controlling costs.
- Helps assess performance ensuring compliance with regulations and plans for the future.
Major users and uses of accounting information by internal managers
used for making short-term Planning and control decisions, non-routine decisions, and overall policies and long-range plans.
Managers use it to answer scorekeeping, attention-directing, and problem-solving questions.
Major users and uses of accounting information by External users.
use the Published Income statement.
used by investors and regulators to:
make investment decisions, regulatory rules and many other decisions
The role of budgets and performance reports in planning and control.
- Essential for planning and control
- Budget result of a Planning process
- Used by managers to translate companies goals into action-
- Performance report is compared against budget to evaluate performance. TO EXERCISE CONTROL
what is a Account ssystem
A systems to help in the costing and managing of their process, Can be Manual, Computerized, Cloud-based
Cost-benefit and behavioral issues involved in designing an accounting system.
designing an accounting system, cost-benefit issues involve balancing the system’s costs (e.g., software, training, and implementation) against the benefits
- improved decision-making, efficiency, and accuracy.
- Behavioral issues: how the system affects employee motivation and performance.
- A poorly designed system can lead to frustration,
the role accountants play in the company’s value-chain functions
- Planning and control role
-gather report cost and revenue info though co’s value chain for Decision makers - provide financial insights across the value chain
- Help to max value creation and efficiency
Current Trend in management accounting
- global competition
- Advancements in technology
- changes in bussiness process
- without continuous adptation accounting systems will become obsolete
why ethics and standards of ethical conduct are important to accountants.
Trust
accuracy with ethical standards
compliance with regulations
compliance with law
reputation of the company
Many companies have Codes of ethical conduct
what is a cost driver ?
an output measure that causes the use of costly resources.
How cost drivers affect cost behavior.
- When the level of an activity changes, the level of the cost driver or output measure will also change, causing changes in costs.
- Cost drivers influence whether costs behave as variable, fixed, or mixed, directly impacting how costs change with activity levels.
how changes in cost-driver levels affect variable costs
Costs that change in direct proportion to the level of activity or cost driver. Example: If the cost driver is units produced:
how changes in cost-driver levels affect fixed costs.
Costs that remain constant regardless of the level of activity or cost driver within a relevant range. Example: If the cost driver is machine hours:
what is The step cost behaviour and its graph - pizza delivery eg
Fixed in steps and change abruptly.
Costs that remain fixed within certain ranges of activity but jump to a higher level once a threshold is crossed.
Eg pizza delivery: costs increase in steps as your activity level (number of deliveries) increases.
Graph: A series of horizontal lines with sudden upward jumps at specific activity levels.
what is the Mixed-Cost Behavior and its graph phone bill ex
Have both fixed and variable elements, changing gradually with activity.
Costs that have both fixed and variable components. They change with activity but not in a straight line.
Eg A phone bill with a fixed monthly fee plus additional charges for each minute used.
Cost volume analysis= BEP
helps visualize how changes in sales volume impact profits, assuming linear revenue and cost relationships, constant prices, and unchanged fixed costs.
It’s a tool for understanding how different levels of activity affect profitability.
5 Assumptions Behind the CVP Graph
1- Linear functions of volume of rev and total costs
- selling price remains constant regardless the vol of sales
- Variable costs per unit remain constant as the volume changes.
- Fixed costs do not change with changes in the volume of activity.
- single product or a constant sales mix if multiple products are involved.
Formula of revenue
Revenue = Selling Price per Unit×Quantity Sold
Difference between the Contribution margin and Gross margin.
Contribution Margin=Sales Revenue−Variable Costs
-Shows how much revenue covers fixed costs and contributes to profit.
- Internal decision making and cost control
-Just variable costs
Gross Margin= Sales Revenue−COGS
- profitability of core operations before other expenses.
- overall operational efficiency.
- includes both variable and fixed production costs (COGS
Describe the purposes of cost management systems.
provide cost information for external financial reporting, for strategic decision making, and for operational cost control.
help manage, control, and optimize costs to enhance overall financial performance.
