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Cost Accounting > Cost accounting > Flashcards

Cost accounting Flashcards

1
Q

How retailers measure COGS

A

That’s the amount paid for the goods and delivery to warehouse

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2
Q

Does positive income guarantee positive cash flow?

A

Having positive income does not guarantee positive cash flow

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3
Q

What does efficiency measure?

A

Efficiency measures how little waste is created when pro ducting and selling a product

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4
Q

What does productivity measure?

A

Productivity considers how to maximize sales and profits while using as few assets as possible

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5
Q

What is the difference between efficiency and productivity?

A

Efficiency tries to reduce waste while productivity tries to use assets to generate more revenue and net income

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6
Q

What is the minimum amount a new investment must generate?

A

All new investments should earn at least enough money to cover their cost of capital

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7
Q

What is the relation between asset turnover and productivity?

A

The higher is the asset turnover, the mrs productive the company

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8
Q

What is a direct cost?

A

It is a cost that can be easily traced to individual product that you make (flower for cookies)

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9
Q

What is an indirect cost?

A

It is a cost that cannot be easily traced to individual product that you make (pan coating for cookies)

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10
Q

What is direct material?

A

Direct materials are raw materials that you can directly trace to the manufactured product

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11
Q

How to compute cost of direct materials for a product?

A

To compute the cost of direct materials for any product just add up the cost of all the individual components needed to make the product

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12
Q

What is direct labor?

A

Direct labor is the cost of paying employee to make your products

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13
Q

How to find total direct labor cost?

A

First estimate how long each kind of worker takes to do the job, then multiply this time period by the hourly cost of paying each worker

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14
Q

What is indirect material?

A

Raw material needed to make products that cannot be easily traced to finished product

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15
Q

What i indirect labor?

A

The cost of labor that is needed to make products but that cannot be easily traced to the finished product

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16
Q

What are product costs?

A

The costs of making products usually inside the factory. These costs include raw materials, labor and overhead. After the product is made the costs becomes an asset: inventory

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17
Q

What are period costs?

A

The costs of running your business, usually outside the factory, that is, all the business’s costs except its product costs (office rent, income taxes, advertising)

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18
Q

How to estimate assets turnover?

A

Asset turnover=(Revenue/Average Assets)

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19
Q

How to improve turnover?

A

Use all assets continuously. Don’t let them sit around doing nothing. e.g. if you run a factory, make sure your machines manufacture product continuously.
Don’t by inventory until you need it. Keep just enough stock to keep customers happy
Increase sales without increasing assets. Expand working hours etc
Reduce your assets

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20
Q

How to estimate return on assets?

A

Return on assets= (Net Income/Average assets)

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21
Q

How to compute variable cost per unit?

A

To compute variable cost per unit divide total variable cost by the number of units produced.
Variable cost per unit= (total variable cost/Number of units produced)

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22
Q

What happens if a company has high fixed costs?

A

Such company would have to have significant activity to produce sales to offset those costs.
Fixed costs in aggregate remain the same regardless of changes in activity.Fixed costs per unit decrease with volume.

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23
Q

How to calculate total costs?

A

Total costs=(variable cost per unit*units products)+total fixed costs

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24
Q

How to allocate overhead costs per unit?

A
  1. Add up total overhead (indirect materials, indirect labor, , rent etc
  2. Compute the overhead allocation rate=(total overhead|/total direct labor hours)
  3. Multiply the overhead allocation rate by the number of labor hours needed to make each product.
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25
Q

What is activity-based costing

A

It’s when you divide production process into cost pools and cost pools into different activities. Each activity then becomes a cost driver. Drives drive costs of activity in each cost pool.

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26
Q

What is contribution margin?

A

It is a measure that helps you to compute how much you need in sales to break eve or achieve a target level of profit

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27
Q

How is contribution margin calculated?

A

Contribution margin=sales-variable costs

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28
Q

How to determine overall profitability?

A

To determine overall profitability, compare total contribution margin to fixed costs. Net income equals the excess of contribution margin over fixed costs

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29
Q

What does contribution margin per unit measure?

A

Contribution margin per unit measures how sales affect profitability

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30
Q

How to calculate contribution margin per unit?

A

Contribution margin per unit=Sales per unit-Variable costs per unit

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31
Q

What is contribution margin ratio?

A

Contribution margin ratio is a measure of percentage of sales that would increase net income.

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32
Q

How to calculate contribution margin ratio?

A

Contribution margin ratio=total contribution margin/total sales or contribution margin per unit/sales price per unit
Ex[ample: if contribution margin - 540 and sales =900, contribution margin ratio =540/900=60%. This means that 60 cents of every sales dollar directly increases net income.

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33
Q

How to calculate net income using total contribution margin?

A

Net income=Total contribution margin-Fixed costs

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34
Q

What is break-even point?

A

The break-even point is the amount of sales needed to earn zero profit-enough sales so that you don’t earn a loss but insufficient sales to earn a profit.

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35
Q

What is margin of safety?

A

Margin of safety is the difference between your actual or expected profitability and the break-even point. It measures how much breathing room you have- how much you can afford to lose in sales before your net income drops to zero.

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36
Q

What is operating leverage?

A

Operating leverage is a measure of how changes in sales can affect net income. For a company with high operating leverage a relatively small increase in sales can have a fairly significant impact on net income

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37
Q

How to calculate operating leverage?

A

Operating leverage=Total contribution margin/Net income

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38
Q

What is cash payback method?

A

It is estimation how long a project will take to cover its original investment

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39
Q

How to calculate cash payback?

A

Cash payback period-Cost of investement/annual net cash flow

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40
Q

How to use cash payback method for investing decisions?

A

For investing decisions compare cash payback period of one project with that of another

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41
Q

What is sales mix?

A

Sales mix is the relative percentage of sales of each product

42
Q

How to figure out sales mix?

A

To figure out the sales mix divide the sales of each type of product by total sales

43
Q

What is WACMR?

A

Wachk’em’er is an average of all products’ contribution margin ratios weighted by sales

44
Q

How to compute WACMR?

A

Multiply each product’s sales mix percentage by its contribution margin ratio

45
Q

What is a loss leader?

A

A loss leader is a product which a company sales at a lost to attract customers to buy more profitable products

46
Q

How to define which product squeezes the most profitability out of a constraint resource? (May be needed to decide which of the product to produce /purchase more)

A

Divide Contribution margin by a measure of the constraint resource

47
Q

How to figure out a markup for cost plus pricing?

A

Markup = desired profit/units produced

48
Q

What are the problems with cost plus pricing?

A

Cost-plus pricing ignores market factors. Your customers are not necessarily ready to pay your markup

49
Q

What is target costing?

A

It’s when you design the price before you design the product. It is especially good for low-differentiated producers

50
Q

How to negotiate a transfer price?

A

Lock managers of the selling and purchasing divisions into a room and don’t let them out until they agree on a number of discover that no beneficial agreement is possible

51
Q

How to prepare a direct labor budget?

A

Multiply the number of units to be produced (from production budget) by the direct labor time needed to make each unit. Then multiply that result by the average direct labor cost per hour

52
Q

What is selling and administrative expense budget?

A

It is the budget that predicts the amount of selling and administrative expenses needed to generate the sales forecasted in the sales budget

53
Q

What is a cash budget?

A

It is a budget that summarizes all your cash inflows and outflows for the period, adding cash receipts and subtracting cash payments

54
Q

What are the possible sources for budget variance?

A
  1. Changes in conditions
  2. The quality of management
  3. Lousy budgeting
55
Q

What measures are included in balanced scorecard?

A

Financial (net income, revenues)
Customer (satisfaction)
Internal business (how well a company performs internally)
Learning and growth

56
Q

What are the general financial KPIs?

A 
ROI
Return on sales
Return on assets
Net income
Credit rating
Subscription income
Share price
Profit per employee
Same-store sales
57
Q

What are the general customer-related KPIs?

A 
Results of customer surveys
Number of new customers
Response time to customer inquiry
Market surveys of brand recognition
Tracking customer complaints
Market share
Product returns as a percentage of sales
Percentage of repeat customers
58
Q

What are the general internal business KPIs?

A

Raw materials inventory as a percentage of sales
Worki in progress inventory as a percentage of sales
Inventory turnover
Cost of quality control
Amount of inventory spoilage
Setup time
Number or percentage of product defects
Variance analysis
Development time needed for a new product
Time to settle customer claim

59
Q

How to calculate gross profit margin?

A

Gross profit margin=(net sales-cost of goods sold)/net sales

60
Q

What are the steps to solve problem of constraints?

A

Identify system constraint (find the bottleneck)
Exploit the constraints (make sure you get the most out of constrained resource)
Subordinate everything to the constraints
Break the constraints (find the ways to increase their capacity)
Go to step one

61
Q

What is the accounting equation?

A

Assets=liabilities+owners equity. It must always balance

62
Q

How to calculate net income?

A

Subtract expenses from revenues

Net income=(sales price*volume)-total costs

63
Q

What are revenues

A

Revenues are sales

64
Q

What are expenses?

A

Expenses are costs associated with making sales

65
Q

How to calculate break-even volume?

A

Break-even volume=fixed costs/(sales price-variable cost per unit)

66
Q

How to calculate present value of money?

A

Present value=Future value/(1+interest rate) в степени равной количеству лет

67
Q

Why do we use customer metrics?

A
  1. Not all customers are equally profitable for our business

2. Customer cost analysis helps to identify costs related to a particular customer not including product costs

68
Q

What are customer unit-level cost?

A

Costs that occur with every unit sold to a customer. e.g. sales commission, shippiing costs, restocking

69
Q

What are customer batch-level costs?

A

Costs that occur with every new transaction: order processing, invoicing, recording of sales returns

70
Q

What are customer-sustaining costs?

A

Costs that occur regardless of the number of units sold, e.g. salesperson’s travel costs, monthly statement-processing costs etc

71
Q

What are distribution-channel costs?

A

Resourses consumed by each distribution channel a firm uses to serve its customers, e.g. operating costs of regional warehouses

72
Q

What are sales-sustainiing costs?

A

Resources that cannot be tracked to individual unit, batch or channel, such as bonuses of general sales-manager

73
Q

What is liquidity ratio?

A

Ratio that measures a firm’s ability to meet its short-term obligations These include current ratio,quick ratio also called “acid test ratio”

74
Q

How to calculate current ratio?

A

Currrent ratio=current assets/current liabilities

75
Q

How to caclculate quick ratio?

A

Quick ratio=(current assets-inventories)/current liabilities

76
Q

What are asset management ratios?

A

Inventory turnover
Days sales outstanding (average collection period)
Fixed asset turnover
Total asset turnover

77
Q

How to calculate Inventory turnover?

A

Inventory turnover=COGS/Inventory. Shows speed at which inventory is produced and sold

78
Q

How to calculate average collection period?

A

Average collection period=accounts receivable/average sales per day

79
Q

How to calculate fixed asset turnover?

A

Fixed asset turnover=sales/net fixed assets. Shows how effectively the firm uses its plant and equipment to generate revenue

80
Q

How to calculate total asset turnover?

A

Total asset turnover=sales/total assets. Indicates efficiency with which firm uses its assets to generate sales

81
Q

How to calculate debt ratio?

A

Debt ratio=total debt/total assets Shows the percentage of fundsprovided by creditors

82
Q

How to calculate net profit margin on sales?

A

Net profit margin on sales=earnings avaliable to common stockholders/net sales. Measures % of each sales dollar remained after all costs and expenses have been deducted

83
Q

What is profit margin?

A

Percent of sales left after all expenses have been paid

84
Q

How to calculate static budget variance?

A

Static budget variance=actual result-static budget amoount

85
Q

What are the benefits of flexible budgeting?

A

Measure performance easily

Manage by exclusions

86
Q

What is a flexible budget?

A

Flexible budget is a type of budget that alters those expenses that vary directly with revenues. You input the actual revenues or other activity measures into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs.

87
Q

How to build a flexible budget?

A
  1. Identify all fixed costs and segregate them in the budget model.
  2. Determine the extent to which all variable costs change as activity measures change.
  3. Create the budget model, where fixed costs are “hard coded” into the model, and variable costs are stated as a percentage of the relevant activity measures or as a cost per unit of activity measure.
  4. Enter actual activity measures into the model after an accounting period has been completed. This updates the variable costs in the flexible budget.
  5. Enter the resulting flexible budget for the completed period into the accounting system for comparison to actual expenses.
88
Q

Why do strategies fail?

A
  1. Vision barrier (no one understands strategy)
  2. People barrier (most people have objectives that are not linked to the strategy of an organization)
  3. Resourse barrier (time, energy and money are not allocated to those things that are crytical to the organization)
  4. Management barrier (management spends too little time on strategy and too much time on short-term decision making)
89
Q

How to start a balance scorecard system?

A
  1. Establish mission, goals, initiatives
  2. Develop strategy and structure
  3. Create strategic control
  4. Measure performance
90
Q

What are the elements of the banalced scorecard?

A

Financial
Customer
Internal
Learning and growth

91
Q

What is a book value? Where can we find it?

A

It is the value of an entity reflected in its financial statements. It can be found in Balance Sheet under PP&E and under shareholders’ equity

92
Q

How can we calculate market value of a firm?

A

Its number of shares outstanding multiplied by price per share

93
Q

What is the equity value of a business?

A

It’s the value of a business attributable just to equity holders that is value of the business minus debt lenders and other obligations

94
Q

What is a shareholders’ value of a business?

A

Its value of the company’s assets minus liabilities

95
Q

What are multiples?

A

Multiples are metrics that compare net income to market capitalization. They are used for investement evaluation.

96
Q

What are the three core methods of valuation?

A
  1. Comparable company analysis
  2. Presedent transaction analysis
  3. Discounted cash flow analysis
97
Q

What is comparible company analysis?

A

Its an analysis that compares our company with companies that are similar in size product and geography

98
Q

How does value evaporate?

A

Decision-maker does not know strategy
Decision-maker is in bad management system
Decision-maker does not have tools to manage
Decision-maker does not feel like an owner

99
Q

What is discounted cash flow enterprise value?

A

PV of UFCF year 1+PV of UFCF of year n+ PV of terminal value

100
Q

What is UFCF?

A

Unlevered cash flow is a measure of cash flow before equity holders and lenders have been paid. It is cash made or lost based on core operations of the business

Cost Accounting (1 decks)

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