Exam 1 (Chapters 1 & 2) Flashcards
This accounting is concerned with providing information to managers for use within the organization.
Managerial Accounting
This accounting is concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators.
Financial Accounting
___________ is a part or activity of an organization about which managers would like cost, revenue, or profit data. Examples of business segments include product lines, customer groups (segmented by age, ethnicity, gender, volume of purchases, etc.), geographic territories, divisions, plants, and departments.
Segment
_______ involves establishing goals and specifying how to achieve them.
Planning
________ helps managers perform three vital activities—planning, controlling, and decision making.
Managerial Accounting
_______ is a detailed plan for the future that is usually expressed in formal quantitative terms
Budget
_________ compares budgeted data to actual data in an effort to identify and learn from excellent performance and to identify and eliminate sources of unsatisfactory performance. Performance reports can also be used as one of many inputs to help evaluate and reward employees.
Performance Report
_______ is a “game plan” that enables a company to attract customers by distinguishing itself from competitors
Strategy
This accounting is concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators.
Financial Accounting
This accounting is concerned with providing information to managers within an organization so that they can formulate plans, control operations, and make decisions.
Managerial Accounting
What are the purposes of cost classification?
- Assigning costs to cost objects
- Accounting for costs in manufacturing companies
- Preparing financial statements
- Predicting cost behavior in response to changes in activity
- Making decisions
Costs that can beeasily and conveniently traced to a unit of product or other cost object.
Direct Cost
Costs that cannot be easily and conveniently traced to a unit of product or other cost object.
Indirect Cost
Indirect costs incurred to support a number of cost objects. These costs cannot be traced to any individual cost object.
Common Cost
Give examples of Direct Cost
Direct Material & Direct Labor
Give an example of an Indirect Cost
Manufacturing Overhead
What are the classifications of manufacturing Costs
- Direct Materials
- Direct Labor
- Manufacturing Overhead
_______ are raw materials that become an integral part of the product and that can be conveniently traced directly to it.
Direct Materials
Given an example of Direct Materials
A radio installed in an automobile
___________ are those labor costs that can be easily traced to individual units of product
Direct Labor Cost
Give an example of a Direct Labor Cost
Wages paid to automobile assembly workers
__________ includes all manufacturing costs except direct material and direct labor. These costs cannot be readily traced to finished products.
Manufacturing Overhead
Manufacturing Overheard includes _________ & _________ that cannot be easily or conveniently traced to specific units of product
Indirect Materials & Indirect Labor costs
Give examples of Manufacturing Overhead
- Depreciation of manufacturing equipment
- Utility costs
- Property taxes
- Insurance premiums incurred to operate a manufacturing facility
Prime Cost =
Direct Material + Direct Labor
Conversion Cost =
Direct Labor + Manufacturing Overhead
_________ all executive, organizational, and clerical costs. Administrative costs can be either direct or indirect costs.
Administrative Cost
________ Costs necessary to secure the order and deliver the product. Selling costs can be either direct or indirect costs.
Selling Cost
What makes up non manufacturing Costs
Selling Costs & Administrative Costs
__________includes all the costs that are involved in acquiring or making a product.
Product Costs
Which costs “attach” to a unit of product as it is purchased or manufactured and they stay attached to each unit of product as long as it remains in inventory awaiting sale.
Product Costs
For manufacturing companies, product costs
include:
Raw Materials, Work in Process, and Finished Goods Costs
_______ includes any materials that go into the final product.
Raw Materials
________ consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer.
Work in Process
__________ consists of completed units of product that have not yet been sold to customers.
Finished Goods Costs
_______ include direct materials, direct labor, and manufacturing overhead.
Product Costs
________ include all selling costs and administrative costs.
Period Costs
________ refers to how a cost will react to changes in the level of activity.
Cost behavior
What are the classifications of cost behavior
Variable costs, fixed costs, and mixed costs
A cost that varies, in total, in direct proportion to changes in the level of activity.
Variable Costs
A variable cost per unit is _________
constant
A measure of what causes the incurrence of a variable cost?
- Units produced
- Machine hours
- Miles Driven
- Labor hours
A cost that remains constant, in total, regardless of changes in the level of the activity.
Fixed Costs
If expressed on a ____ _____ ______, the average fixed cost per unit varies inversely with changes in activity.
per unit basis
What are the two types of fixed costs?
Committed and Discretionary
This type of fixed cost is long-term, cannot be significantly reduced in the short term
Committed
This type of fixed cost may be altered in the short-term by current managerial decisions
Discretionary
A mixed cost contains both ________ & _________ elements
Variable & Fixed
Give an example of a mixed costs? Why?
Utility Cost bc the fixed cost is the monthly rate (which stays the same) and t variable costs is the cost per hour (which varies)
What is the equation for total mixed costs? What do they stand for?
Y = a +bX Y-> total mixed cost a-> fixed costs b-> the variable cost per unit of activity X-> the level of activity
__________ are the difference in cost between any two alternatives.
Differential Costs
A difference in revenue between two alternatives is called ________
Differential Revenue
__________ have already been incurred and cannot be changed now or in the future.
Sunk Costs
What cost should be ignored when making decisions?
Sunk Costs
What is the potential benefit that is given up when one alternative is selected over another?
Opportunity Cost
These costs are not usually found in
accounting records but must be explicitly considered in every decision
Opportunity Costs
When are job-order costing systems used?
- Many different products are produced each period.
- Products are manufactured to order.
- The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job.
What are some examples of companies that would use job order costing?
- aircraft manufacturing
- large scale construction
- movie production
An ____________ __________, such as direct labor hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs
allocation base
Why do we use an allocation base?
- It is impossible or difficult to trace overhead costs to particular jobs.
- Manufacturing overhead consists of many different items ranging from the grease used in machines to the production manager’s salary.
- Many types of manufacturing overhead costs are fixed even though output fluctuates during the period.
The __________ ________ ________ used to apply overhead to jobs is determined before the period begins.
Predetermined overhead rate (POHR)
What is the POHR formula?
POHR= Estimated total manufacturingoverhead cost for the coming period/ Estimated total units in theallocation base for the coming period
Why do we need the POHR?
- Actual overhead for the period is notknown until the end of the period, thus inhibiting the ability to estimate job costs during the period.
- Actual overhead costs can fluctuate seasonally, thus misleading decision makers.
A _______ is a factor that causes overhead costs.
Cost driver
