Exam 1 Ch1-3

Question 1

Financial Accounting Key Uses

Answer 1

Reports to those outside the organization(owners, creditors, tax authorities, regulators). EMPHASIS historical perspective, on objectivity and verifiability, precision. Primary focus on company-wide reports. Must follow GAAP/IFRS. And mandatory for external reports.

Question 2

Managerial Accounting Key Uses

Answer 2

Managers who plan and control organization. EMPHASIS on future, relevance, timeliness. Focus on segment reports. Not bound by GAAP/IFRS or any prescribed format. And Not Mandatory.

Question 3

Segment

Answer 3

Is a part or activity of an organization about which managers would like cost, revenue, or profit data.

Question 4

What are the three main functions of management?

Answer 4

Planning, Controlling, and Decision Making.

Question 5

Planning

Answer 5

Involves establish goals and specifying how to achieve them.

Question 6

Controlling

Answer 6

Involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.

Question 7

Decision Making

Answer 7

Involves selecting a course of action from competing alternatives.

Question 8

Budget

Answer 8

A detailed plan for the future that is usually expressed in formal quantitative terms.

Question 9

Performance Report

Answer 9

Compares budgeted data to actual data in an effort to identify and learn from excellent performance.

Question 10

Importance of Ethics in Accounting

Answer 10

W/O Ethical Standards in business, the economy and all of us who depend on it for jobs, goods and services would suffer.
Abandoning ethical standards would lead to lower quality of life with less desirable goods and higher prices.

Question 11

Strategy

Answer 11

Is a “game plan” that enables a company to attract customers by distinguishing itself from competitors.

Question 12

Corporate Social Responsibility (CSR)

Answer 12

Is a concept whereby organizations consider the needs of all stakeholders when making decisions. –extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.

Question 13

Business Process

Answer 13

Is a series of steps that are followed in order to carry out some task in a business.

Question 14

Value Chain

Answer 14

Consists of the major business functions that add value to a company’s products and services. —Every step in the process that adds value.

Question 15

Lean Production or Just in Time (JIT)

Answer 15

Is a management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders.

Question 16

Cost Object

Answer 16

Is anything for which cost data are desired- including products, customers, jobs, and organizations subunits. Any part of the business for which cost can be accumulated and reported.

Question 17

Direct Cost

Answer 17

Costs that can be easily and conveniently traced to a unit of product or other cost object. Ex. Direct Materials and direct labor.

Question 18

Indirect Cost

Answer 18

Costs that cannot be easily and conveniently traces to a unit of product or other cost object. Ex. Manufacturing overhead.

Question 19

Common Costs

Answer 19

Indirect costs incurred to support a number of cost objects. These cannot be traced to any individual cost object. Ex. CEO salary.

Question 20

Raw Materials

Answer 20

The materials that go into the final product.

Question 21

Direct Materials (DM)

Answer 21

Are those materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. Ex. Radio or windshield installed directly in an automobile.

Question 22

Indirect Materials (IM)

Answer 22

Not worth the effort to trace the costs of relatively insignificant materials. Ex. Solder, glue, nails. Part of manufacturing overhead.

Question 23

Direct Labor (DL)

Answer 23

Labor costs that can be easily traced to individual units of product. Also called touch labor.

Question 24

Indirect Labor (IL)

Answer 24

Labor costs that cannot be physically traced to particular products. Part of manufacturing overhead. Ex. Janitors, Supervisors, security guards.

Question 25

Manufacturing Overhead (MOH)

Answer 25

Manufacturing costs that cannot be easily traced directly to specific units produced. Ex. Indirect Materials used to support the production process and Indirect Labor like wages paid to employees whoa re not directly involved in production work.

Question 26

Non-manufacturing Costs

Answer 26

Selling Costs and Administrative Costs

Question 27

Selling Costs

Answer 27

Costs necessary to secure the order and deliver the product. Selling costs can be either direct or indirect costs.

Question 28

Administrative Costs

Answer 28

All executive, organizational, and clerical costs. Can be either direct or indirect.

Question 29

Product Costs

Answer 29

Include all costs involved in acquiring or making a product. include Direct materials, direct labor, and manufacturing overhead.

Question 30

Period Costs

Answer 30

Are all the costs that are not product costs. All selling and administrative costs.

Question 31

Prime Cost

Answer 31

Is the sum of direct materials cost and direct labor cost.

Prime Cost=DM+DL

Question 32

Conversion Cost

Answer 32

Is the sum of direct labor cost and manufacturing overhead cost.
Conversion Cost=DL+MOH

Question 33

Cost Behavior

Answer 33

Refers to how cost reacts to changes in the level of activity. Common classifications are: Variable costs, Fixed costs, and mixed costs.

Question 34

Variable Costs

Answer 34

Varies, in total, in direct proportion to changes in the level of activity.

Question 35

Cost Driver (or activity base)

Answer 35

A measure of whatever causes the incurrence of a variable costs. Common activity bases are Direct Labor Hours (dLH), Machine Hours (dMH), units produced, and units sold.

Question 36

Fixed Costs

Answer 36

Is a cost that remains constant, in total, regardless of change in the level of activity. Ex. Include straight line depreciation, insurance, property taxes, rent supervisory salaries, admin salaries, and advertising.

Question 37

Committed Fixed Costs

Answer 37

Represent organizational investments with a multi year planing horizon.

Question 38

Discretionary Fixed Costs

Answer 38

Usually arise from annual decisions by management to spend on certain fixed cost items.

Question 39

Relevant Range

Answer 39

The range of activity within which a company is willing and able to operate.

Question 40

Mixed Costs

Answer 40

Contain both variable and fixed cost elements.
High-Low Method of Estimating total mixed costs:
Formula: Y=a+bX

Question 41

Contribution Margin

Answer 41

The amount remaining from sales revenues after variable expenses have be deducted. This amount contributes toward covering fixed expenses and then toward profits for the period.

Question 42

Differential Cost

Answer 42

A difference in costs between any to alternatives.

Question 43

Differential Revenue

Answer 43

A difference in revenues between any two alternatives.

Question 44

Opportunity Cost

Answer 44

The potential benefit that is given up when on e alternative is selected of another.

Question 45

Sunk Cost

Answer 45

A cost that has already been incurred and that cannot be changed by any decision made now or in the future.

Question 46

Job Order Costing

Answer 46

Used in situations where many different products, each with individual and unique features, are produced each period.

Question 47

Allocation Base

Answer 47

Is a measure such as direct labor-hours (DLH), Direct labor Cost (DLC), or Machine Hours (MH) that is used to assign overhead costs to products and services.