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Accounting 202 > Exam 3 (ch 8, 9, 10, 11, 12) > Flashcards

Exam 3 (ch 8, 9, 10, 11, 12) Flashcards

1
Q

Relevant information

A
  • Expected future (cost and revenue) data

* Differs among alternative courses of action

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2
Q

Irrelevant information

A
  • Costs that do not differ between alternatives

* Sunk costs (incurred in past and cannot be changed)

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3
Q

Special order decisions

A
  • A special order occurs when a customer requests a one-time order at a reduced sales price, often for large quantities.
  • analyze impact on profit
  • existing fixed costs may not be relevant
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4
Q

pricing decisions

A
  • Price taker = target costing

- Price setter = cost plus pricing

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5
Q

target costing

A

= market price - desired profit

current cost target cost = find ways to reduce costs

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6
Q

Cost Plus Pricing

A

= full cost + desired profit

  • opposite of target costing
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7
Q

Dropping a Product, etc.

A

does the product provide a positive contribution margin? (no = drop)
Will total company profits increase if product is dropped? (yes = drop)

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8
Q

direct fixed expenses

A

would be eliminated if product is dropped

ex. product managers salary
- avoidable

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9
Q

indirect fixed expenses

A

would remain even if product is dropped

ex. depreciation on factory building
- unavoidable common allocated costs

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10
Q

Product Mix Decisions

A

• Emphasize the product with the highest contribution margin per unit of the constraint

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11
Q

Outsourcing (Make or Buy?)

A

Incremental costs of making > incremental costs of outsourcing = outsource

Incremental costs of making

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12
Q

opportunity costs

A

Benefit foregone by selecting an alternative course of action

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13
Q

Sell as-is or Process Further?

A

Extra revenue (from processing further) > extra cost of processing further = process further

Extra revenue (from processing further)

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14
Q

joint processing costs

A

not relevant

- sunk costs

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15
Q

qualitative factors

A

may impact any types of decisions

special order, pricing, dropping a product, product mix, outsourcing, and sell as is or process further

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16
Q

Capital Budgeting

A

process of making capital investment decisions

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17
Q

Net cash inflows

A

most methods use net cash inflows rather than operating income
- cash inflows minus cash outflows

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18
Q

payback period

A
  • Length of time it takes to recover the initial cost

- used as a screening tool

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19
Q

calculating payback period (if annuity)

A
  • cash inflows are equal each year

- payback period = amount invested / expected annual net cash inflows

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20
Q

calculating payback period (if not annuity)

A
  • cash inflows are not equal each year
  • you must accumulate net cash inflows until the amount invested is recovered (portion of last year may have to be calculated)
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21
Q

Accounting Rate of Return (ARR)

A

only method that uses operating income instead of cash flows

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22
Q

ARR =

A

average annual operating income / initial investment

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23
Q

operating income and net cash inflows conversions

A

o If you are given net cash inflows, you must deduct depreciation expense to get operating income
o If you are given operating income, you must add back depreciation expense to get net cash flows (Payback, NPV, IRR)

24
Q

Future / present value of a dollar

A

lump sum

25
Q

future / present value of an annuity

A

series of equal periodic payments

26
Q

interest rate interchangeable terms:

A

hurdle rate, required rate of return, discount rate, minimum rate of return

27
Q

Net Present Value (NPV) Method

A
  • determine and sum the present value of all net cash inflows
  • if positive or 0 -> acceptable
  • if negative -> not acceptable
28
Q

profitability Index

A

used to rank competing investments with acceptable NPV

= PV / Investment Amount

29
Q

Internal Rate of Return (IRR) Method

A

the actual rate of return of an investment

if an annuity formula the same as payback period

30
Q

actual rate of return expected on the investment

A

o NPV = 0 -> IRR = Required Rate of Return (acceptable)

o NPV > 0 -> IRR > Required Rate of Return (acceptable)

o NPV IRR

31
Q

Master Budget

A

• Comprehensive planning document for the entire organization

  • includes the operating budget and financial budget
32
Q

Operating Budget

A
  • Budgets needed to run daily operations
  • Starts with the sales or revenue budget
  • Ends with budgeted income statement
33
Q

Financial Budget

A
  • Projects collection and payment of cash (including capital expenditures)
  • Forecasts budgeted balance sheet
34
Q

Operating Budget Components

A

Sales budget, Production Budget, Direct Materials Budget, Direct Labor Budget, Manufacturing Overhead Budget, Operating Expense Budget, Budgeted Income Statement,

35
Q

Manufacturing Overhead Budget

A
  • Separate sections for fixed and variable components

- includes non-cash expenses that must be added back to determine cash outflow

36
Q

Operating Expense Budget

A
  • Period Costs - all value chain components except Production/Purchases
  • Both fixed and variable costs
  • Includes noncash items such as depreciation and bad debt expense
37
Q

Financial Budget Components

A

Cash Budget and Budgeted Balance Sheet

38
Q

Cash Budget

A
  • Timing of cash inflows from sales
  • Sales made COD – Cash or collect on delivery; cash collected at time of sale
  • Sales made on account – collection may be in a later period
39
Q

Master Budget for Service and Merchandising Companies

A
  • Sales Budget
  • Cost of Goods Sold, Inventory, and Purchases Budget
  • Operating Expense Budget
  • Budgeted Income Statement
  • Financial budgets are the same
40
Q

Price takers

A
  • product lacks uniqueness
  • heavy competition
  • target costing
  • ex. natural resources, banking services
41
Q

price setters

A
  • product is more unique
  • less competition
  • cost plus pricing
  • ex. jewelry, patented perfume scents, custom made furniture, branded items
42
Q

total target

A

revenue at market price less desired profit

43
Q

opportunity cost

A

the benefit foregone by not choosing an alternative course of action

44
Q

capital asset

A

will be used for a long period of time and involves a significant sum of money

45
Q

strategic planning

A

setting long term goals that extend 5-10 years

46
Q

rolling budget

A

continuously updated so that the next 12 months of operations are always budgeted

47
Q

static budgets

A

prepared for one level of sales volume

48
Q

flexible budget variance

A

difference between amounts in the flexible budget and actual amounts

49
Q

cost center example

A

maintenance department at continental airlines
or
the production department for XYZ manufacturing

50
Q

revenue center example

A

regional sales department for Xerox copiers

51
Q

disadvantage of decentralization

A

unit managers may not understand the big picture of the company

52
Q

management by exception

A

the practice of directing executive attention to important deviations from budgeted amounts

53
Q

Materials price variance

A

most useful in assisting the performance of the purchasing department

54
Q

materials effeciency variance

A

if a worker drops the raw materials and they must be discarded

55
Q

practical standard

A

provides allowances for normal waste and efficiency in the production process

Accounting 202 (4 decks)

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