Final Flashcards
Management accounting objectives
To provide information for decision making; and planning, controlling, evaluating and continuous improvement; for cost services, products, and other objects of interest to management
Who occupies a line position?
VP of marketing
Primary objective of management accounting
To provide management with information useful for planning and control of operations
Investigating production variances and adjusting the production process is an example of
Controlling
Example of non-manufacturing costs
Marketing and admin
Costs are divided into what two major functional categories?
Production and non-production
Examples of product costs
Direct materials, direct labor, OH
Are manufacturing costs
Are inventoriable costs
Product costs are expensed when
The product is sold
Example of fixed cost
Property taxes
Variable costs within the relevant range
Stay constant on a per unit basis as output changes
Increase in total as output increases
Decrease in total as output decreases
The high-low method…
Is not as accurate as other methods
Can be affected by the presence of outliers
Has the advantage of objectivity
The relevant range
Is the normal range of output
Is the range of output where cost relationships or behaviors are valid
May change from period to period
Formula for mixed cost
Total cost = total fixed cost + (variable rate x amount of output)
Using the high-low method, the variable rate of a mixed cost equals
(High point cost - low point cost)
/ (High point output - low point output)
Contribution margin is…
Difference between sales and variable costs
Equation for operating income
(Price x units sold) - (unit variable cost x units sold) - fixed cost
If actual sales = break even sales then…
Margin of safety equals 0
Sales mix is the relative combination of
Products sold by a firm
On a cost-volume-profit graph, the break even point is where
The revenue line intersects the total cost line
A “what-if” technique that examines the impact of changes in underlying assumptions on an answer is:
Sensitivity analysis
If fixed costs increase, the break even point in units will…
Increase
Margin of safety in dollars is:
Expected sales minus sales at break even
Difference between financial and managerial accounting
Financial: external users, objective, according to GAAP, fixed intervals
Managerial: management users, obj./sub., according to management needs, prepared at fixed intervals and on as-needed basis
Product or non-product costs?
Manufacturing OH
non-manufacturing costs
Product
Non- product
Difference between direct and indirect costs?
Direct - identified w/and can be traced to a cost object
Indirect - can’t be identified or traced to a cost object
Difference between product and period costs
Product: manufacturing costs - DM, DL, and OH
Period: non-manufacturing costs - selling and admin. exp.
COGM statement
WIP DM DL FOH total man. Fact. Costs incurred Total man. Fact. Costs Less WIP COGM
Calculate predetermined OH rate
OH/DL cost
Applied overhead =
Predetermined OH x actual activity level
Provides product costs for each quantity of product that is manufactured
Job order cost system
Underapplied FOH has a debit or credit balance?
Debit
Manner in which a cost changes as a related activity changes
Cost behavior
Examples of mixed costs
Quality control dept. salaries
Purchasing dept. salaries
Maintenance expenses
Warehouse expenses
Examination of the relationships among selling prices, sales and production volume, costs, exp., and profits
Cost-volume profit analysis
Contribution format income statement
Sales
Less: variable exp.
Manufacturing
Selling
Admin.
Contribution margin
Less: fixed exp.
Manufacturing
Selling
Admin.
Net incomeCost-volume profit is also called
Break-even
Break even formula (dollars)
Fixed cost/ CM ratio
Integrated set of operating and financial budgets for a period of time
Master budget
Calculate sales budget
Budgeted revenue = expected sales volume x expected unit sales price
Production budget
Expected units to be sold
Plus desired units in ending inventory
Less estimated units in beginning inventory
Total units to be produced
DM Purchase budget
Budgeted DM required for production = budgeted production volume x DM qty expected per unit
Materials required for production(step1)
Plus desired ending materials inventory
Less estimated beginning materials inventory
Direct material quantity to be purchased
Budgeted DM to be purchased = DM qty to be purch. X unit price(step2)
DL cost budget
Budgeted DL hours required for production = budgeted production volume x DL hours expected per unit
DL cost = DL required for production(step1) x hourly rate
Factory OH cost budget
Add everything together
Estimates the expected receipts and payment of cash for a period of time
Cash budget
Calculate standard costs
Standard price x standard qty per unit = standard cost per unit
In a favorable cost variance the actual cost is greater or lesser than the standard cost at actual volume?
Lesser
Calculate - Materials price and usage (quantity) variance
Actual material used - standard material used = $ x standard price = $
In a favorable cost variance the actual cost is greater or lesser than the standard cost at actual volume?
Lesser
Calculate - Materials price and usage (quantity) variance
Actual material used - standard material used = $ x standard price = $
Calculate DM quantity variance
=(A qty - Std qty) x Std price
Calculate DL rate variance
= (A rate/hr. - Std rate/hr.) x A hrs.
Calculate DL time variance
= (A DL hrs - Std DL hrs) Std rate/hr
Price and rate are actual or standard?
Actual
Quantity and time are actual or standard?
Standard
Concerning hurdle rate, a positive number means…
We made hurdle rate
Define sunk costs
Costs that have been incurred in past, cannot be recouped, and are not relevant to future decisions
Define differential cost
Amount of increase or decrease in cost that is expected from a course of action as compared to an alternative
Define opportunity cost
Revenue that is forgone from an alternative use of an asset such as cash
Define sunk costs
Costs that have been incurred in past, cannot be recouped, and are not relevant to future decisions
Concerning hurdle rate, a positive number means…
We made hurdle rate
Quantity and time are actual or standard?
Standard
Price and rate are actual or standard?
Actual
Calculate DL time variance
= (A DL hrs - Std DL hrs) Std rate/hr
Calculate DL rate variance
= (A rate/hr. - Std rate/hr.) x A hrs.
Calculate DM quantity variance
=(A qty - Std qty) x Std price
Calculate - Materials price and usage (quantity) variance
Actual material used - standard material used = $ x standard price = $
Define opportunity cost
Revenue that is forgone from an alternative use of an asset such as cash
Operating activity examples
Purchase inventory Pay employees Pay taxes From sale of products From providing services
Investing activity examples
From sale of property, plant, and equipment
From sale of investments
To buy property, plant, equip.
To purchase investments
Financing activity examples
From issuing long term liabilities
From issuing stock
To pay dividends to shareholders
To repurchase common stock(treasury stock)
Net cash flow =
Ending balance - beginning balance
