Exam 1 Flashcards
Define Managerial Accounting
The phase of accounting that is concered with providing info to management for use within the org.
What are the 4 functions of managerial accounting?
- Predict future costs
- Compare actual costs to budgeted costs
- to assign costs
- properly contrast costs associated with alternatives
Define Cost Object
(Direct or Indirect) Anything that has a cost measurement.
How do we know when a cost is traceable
When the cost is caused by the cost object
Define Common Cost
Type of Indirect Cost; cost incurred to support a number of cost objects but cannot be traced to one specific cost object.
T or F
A cost may be direct or indirect, depending on the cost object
T
A soup factory managers salary is indirect if the cost object is chicken noodle soup.
but their salary is direct if the cost object is the manufacturing department.
Define Prime Costs
The sum of direct labor and direct materials
Define manufacturing overhead
Indirect Cost
All other manufacturing costs that are not direct materials or direct labor
Define Indirect Materials
Materials used that cannot be traced to a single cost object. ex)glue uses to put different chairs together, nails used to build a house
Define Indirect Labor
All other factory workers that cannot be traced to products. (Janitors, supervisors, material handlers, etc).
What is included in manufacturing overhead
(only related to the manufacturing facility)
Indirect labor and materials
depreciation
utilities
taxes
insurance
Define Conversion Cost
The cost incurred to convert direct materials into finished products
What are the two types of nonmanufacturing costs
Selling costs
Administration Costs
Define Selling Cost
All costs incurred to secure customer orders and get the finished product to the customer
ex) advertising, sales, shipping, finished goods warehouses, commissions, sales salaries
Example of selling cost that is direct
An advertisement for chicken noodle soup
Example of selling cost that is indirect
A sales managers salary who oversees the whole sales department
Define Admin Cost
All general management excluding manufacturing and selling
Example of direct admin cost
salary of an accountant that only works within the east region
Example of indirect admin cost
CFO salary
Define the matching principle
You only recognize expenses in the same period as the revenues they help to generate are generated
When defining costs; they are either…
(3) categories
Direct or indirect,
product or period
manufacturing, selling, or admin
Define Product cost (3)
Direct materials, direct labor, manufacturing overhead
Product costs are expensed on the income statement when
The product is sold
Define Period Costs
Selling and Admin costs
Period costs are expensed on the income statement when
in the period they are incurred
T or F
Variable cost per unit changes based on activity.
F
(Doesn’t matter if you’re serving 20,000 or 2,000 people dinner, the cost for each individuals dinner is $30 a plate.)
T or F
Fixed cost per unit remains the same regardless of activity level.
F
If I am paying $4,000 in rent, the average rent cost per unit I make will get smaller if I make more units.
Ex) $4,000/month/250 units=$16 per unit.
$4,0000/mo./1,000 units=$4per unit.
Define Differential Cost and Revenue
(The difference in cost or revenue when comparing current operations to an alternative operation.)
ex) we are making 100 units now, how much would it cost and how much more revenue would we make if we produced 200 units?
The difference in cost or revenue
Define Opportunity Cost
The potential benefit that is given up when one alternative is selected over another
What is included in a contribution income statement
Sales
- Variable expenses (COGS, selling expenses, admin expenses)
= Contribution margin
- fixed expenses(selling,admin)
= net operating income
COGS Formula
Beginning inventory+purchaes-ending inventory=COGS
Define Contribution Margin
The remaining revenue after variable expenses have been deducted. The amount available to cover fixed expenses and then profits
Define CM Ratio
It is the contribution margin as percentage of sales
CM Ratio Formula
Contribution Margin/Sales
What is the purpose of CM Ratio
To show how the CM will be affected by a change in sales volume.
A CM ratio of 40% means that for every $1 increase in sales, CM will increase by .40.
Define breakeven point
The level of sales at which profit is zero
Sales=Total expenses
What are the two break-even formuals
Per Unit=fixed expenses/CM per unit
(company needs to make x units to breakeven)
Dollar Sales=fixed expenses/CM ratio
(company needs to make x $$$ to breakeven)
Define Target Profit Analysis
A way to estimate how much you need (units produced or dollar sales) to earn a specific profit
What are the two target profit analysis formulas
Unit sales needed
(fixed costs+target profit)
/ CM per unit
We need to sell x amount of units to earn $100,000 in profit
Dollar sales needed
(fixed costs+target profit)
/CM Ratio
We need to have $x in sales to earn $1000,000 in profit)
If you want to increase CM; you need to do 1 of 2 things…
Increase the price or decrease the variable costs
If you want to decrease breakeven; you need to do 1 of 2 things…
Decrease Fixed Costs or increase CM
Define Margin of Safety
The amount by which sales can drop before losses are incurred
Margin of safety in sales formula and in units formula
Total sales - breakeven sales
Margin of safety in dollars/ selling price per unit
T or F
The higher the CM Ratio; the higher the profitability
T
How do you calculate the sales mix
You divide the unit sales by the overall sales
Lets say you make bikes and cars. If bikes produces 20,000 in sales and your over all sales is 100,000, then bikes would be 20% in sales and cars would be 80% because they would produce 80,000 in sales.
What are the 4 steps for finding the breakeven point in $$$ for a company that sells multiple products
- Calculate the sales mix for each product. (% of sales)
- Calculate the CM Ratio for each product and the CM ratio overall
- Calculate overall breakeven in dollar sales
- Use sales mix % to allocate breakeven in $$$ to each product
