FINAL DECK Flashcards
Managerial Accounting involves gathering accounting data primarily for external users
False, Why and How?
Managerial Accounting aids management in planning, controlling and making sound business decisions regarding company operations.
True, Why and How?
Managerial Accounting can add substantial value to essentially all business majors - regardless of his or her major
True, Why and How?
Managerial Accounting is applicable solely to large corporations.
False, Why and How?
Financial Accounting provides financial information primarily to external users, but can be useful for internal users as well.
True, Why and How?
Managerial Accounting emphasizes relevance, timeliness,precision, and verifiability.
False, Why and How?
Financial Accounting focuses primarily on segment operations.
False, Why and How?
Management and Leadership essentially mean the same thing.
False, Why and How?
Business Ethics is a subordinate concept that can be lightly understood and should be used in both the US and Worldwide economy only when desired (i.e. Competence, Integrity, Credibility).
False, Why and How?
Corporate Social Responsibility focuses only on the needs of customers, employees and, shareholders.
False, Why and How?
Business Ethics and Integrity have been very highly regarded in US business operations over the past decade.
False, Why and How?
The three primary functions of management are - Planning, Controlling, and Decision Making.
True, Why and How?
What are the 3 basic classes of manufacturing costs:
Direct Materials, Direct Labor and Manufacturing Overhead
A Manufacturing Company President’s salary is part of direct labor.
False, Why and How?
The salary of a janitor working in the manufacturing plant is considered a manufacturing overhead cost
True, Why and How?
The cost of glue, nuts, and bolts for a manufacturing company are classified as DM.
False, Why and How?
Direct materials are product costs
True, Why and How?
The salary of a company sales associate is a product cost.
False, Why and How?
Non-manufacturing costs are period costs.
True, Why and How?
Manufacturing overhead costs are period costs.
False, Why and How?
Periods costs are reflected on the balance sheet.
False, Why and How?
Product costs are reflected on both the balance sheet and income statement.
True, Why and How?
Prime Costs are Product Costs.
True, Why and How?
Conversion Costs are Period Costs.
False, Why and How?
MO are Prime costs.
False, Why and How?
DL are Prime Costs / Are Conversion Costs / Period Costs. (Provide 3 T/F answers).
True, True, False
What are the Classes of Costs based on Cost Behavior?
Variable, Mixed, Fixed
Variable Costs per unit increases or decreases as activity increases or decreases.
False, Why and How?
Fixed cost per unit remains the same as volume increases or decreases.
False, Why and How?
In the Mixed Cost formula Y=a+bx, Y=Total Manufacturing Costs, a = Total Fixed Manufacturing Costs, b= Variable Costs per unit, x = volume
True, Why and How?
Indirect Costs as MO costs are period costs.
False, Why and How?
Direct Costs includes DM, DL and MO.
False, Why and How?
The contribution format income statement is primarily used for internal management decision making.
True, Why and How?
The fair market valueof an assetis a sunk cost.
False, Why and How?
Costs that impact decision making the same way are differential costs.
False, Why and How?
Opportunity costs address the benefit given up as a result of incurring a given cost.
True, Why and How?
What are Prime Costs?
Direct Labor & Direct Materials
What are Product Costs?
Direct Materials, Direct Labor and Manufacturing Overhead
What are non manufacturing costs?
Administrative + Selling Expenses
What are manufacturing costs?
Direct Materials, Direct Labor and Manufacturing Overhead
What are conversion costs?
Direct Labor & Manufacturing Overhead
What are period costs?
Administrative + Selling Expenses
Job Order Costing is used in companies that manufacture products to customer specifications.
True, Why and How?
Job Order Costing is only used in manufacturing companies
False, Why and How?
Job Order Costing captures all costs in bulk for assignment to jobs.
False, Why and How?
Direct Materials and Direct Labor are allocated to jobs.
False, Why and How?
All pending jobs are reflected in the Work In Process account.
True, Why and How?
The omission of manufacturing overhead cost seriously impairs the determination of total product cost
True, Why and How?
The job cost sheet is used to capture DM, DL, MO, and total cost per unit for each job.
True, Why and How?
Manufacturing Overhead costs are recorded on the job cost sheet based on actual costs.
False, Why and How?
Predetermined Overhead Rate is based on actual manufacturing overhead costs and actual allocation base.
False, Why and How?
The Allocation Base is the same as the Cost Driver.
True, Why and How?
Plantwide POHR provides a more accurate allocation of MO than departmental POHRs.
False, Why and How?
The 4-step process to compute the predetermined overhead rate involves the formula: Y = a + bx.
True, Why and How?
Total estimated manufacturing costs and total fixed estimated manufacturing costs are the same.
False, Why and How?
Assigning manufacturing costs to products reasonably ensures profits.
False, Why and How?
Actual and Estimated MO usually equals, and rarely require account adjustments at year end.
False, Why and How?
Under-applied MO occurs when actual MO is greater than applied MO.
True, Why and How?
Over-applied MO results in an overstatement of COGS and an understatement of Net Profit.
True, Why and How?
The correction of an under-applied MO results in an increase in COGS and a decrease in Net Profit.
True, Why and How?
What is Overapplied overhead?
Overapplied means that we assumed our expenses were higher, than the actual. Which means we understated net income
What is Underapplied overhead?
Underapplied means we assumed our expenses were lower, than the actual. Which means we overstated net income
How does one fix a overapplied or under applied adjustment?
You can either do a fix by crediting crediting COGS, and Debiting MO , or you can split it by WIP, Finished Goods and Cogs , MO
What is a sunk cost?
Cost that has already been incurred and cannot be changed
What is a opportunity cost?
Loss of benefit from another alternative if one alternative is chosen
Work in process consists of units of production that are partially complete and will require further work before they are ready for sale to customers.
True, Why and How?
Finished goods consist of completed units of product that have been sold to customers.
False, Why and How?
Raw materials immediately after purchase goes straight to Work in Process inventory
False, Why and How?
Selling and Administrative expenses first go through the manufacturing overhead account and then to work in process.
False, Why and How?
Selling and Administrative expenses are reflected on the income statement only.
True, Why and How?
While direct materials go to WIP as needed for a particular job, indirect materials for the same job go to manufacturing overhead as incurred.
True, Why and How?
When raw materials are purchased on credit, the company’s raw materials account is debited and their accounts payable account is credited.
True, Why and How?
As direct labor is incurred , the work in process account is debited and wages payable account is credited.
True, Why and How?
As indirect labor is incurred, the work in process account is also debited and wages payable account is credited.
False, Why and How?
As other manufacturing overhead costs are incurred (i.e. insurance premiums, rents), the manufacturing overhead account is debited and the work in process account is credited
False, Why and How?
When MO is applied, the MO account is credited and WIP is debited.
True, Why and How?
When good are completed, WIP is credited and the Finished Goods Account is debited.
True, Why and How?
When goods are sold, two journal entries are required - one for recording the sale, and the other for recording the cost of goods sold.
True, Why and How?
When recording the cost of goods sold, the company will debit the Finished Goods account and credit the Cost of Goods Sold account.
False, Why and How?
Estimated MO will almost never equal Actual MO.
True, Why and How?
When actual MO is greater than estimated MO, the company has overapplied MO.
False, Why and How?
An underapplied MO situation results in an overstatement of net income.
True, Why and How?
The correction of an overapplied MO situation results a decrease to cost of goods sold and a decrease to net income.
False, Why and How?
Overapplied or Underapplied overhead can be closed out directly to cost of goods sold or proportionately to Work In Process, Finished Goods and Cost of Goods Sold.
True, Why and How?
What is POHR?
Predetermined OverHead Rate
Process Costing is used by companies that make customized products.
False, Why and How?
Process Costing has some similarities with Job Order Costing.
True, Why and How?
Both Process and Job Order Costing seek to determine the proper product unit cost.
True, Why and How?
Process Costing accumulates costs based on jobs completed.
False, Why and How?
MO is an important cost element of Process Costing.
True, Why and How?
What is EUP?
Equivalent Units of Production
EU is a vitally important concept in determining units produced and unit costs in Process Costing.
True, Why and How?
EUP computed under the Weghted-Average Method requires the use of beginning inventory and units added to production for the period.
TRUE, Why and How?
EU computed under the Weighted-Average Method focuses on units completed and transferred, and beginning inventory.
False, Why and How?
Total EUs require the determination of units completed and transferred + the percentage of DM and Conversion in ending inventory.
True, Why and How?
What is a Mixed Cost?
A cost behavior. Can have both variable and fixed elements. to determine mixed cost you would use the Y = a + bX formula
What is a variable Cost?
Total variable costs varies when there are changes to activity , however if its by unit, its constant. They are cost behaviors
What is a Fixed Cost?
Another cost behavior. In total, it remains the same, and per unit, it changes based off of level of activity
What is GAAP
Generally Accepted Accounting Principles
What is IFRS
International Financial Reporting Standards
What are differential costs
future costs between two alternative choices
What is the meaning of each of these letters in the formula Y = A + BX
Y = Total mixed Cost, A = Total fixed cost, B = Variable cost per UNIT of activity, and X = level of activity
The Traditional Format Income Statement is vital in performing a Cost-Volume-Profit (CVP) Analysis.
FALSE, Why, How would you switch this statement for it to be true
Sales less Variable Costs equals Gross Margin or Gross Profit.
FALSE, Why, How would you switch this statement for it to be true
The Contribution Margin is a critical concept in understanding CVP analysis.
TRUE, Why, How would you switch this statement for it to be false
Breakeven is achieved when Sales less Variable Costs equals zero.
FALSE, Why, How would you switch this statement for it to be true
Fixed Costs are used to determine contribution margin.
FALSE, Why, How would you switch this statement for it to be true
Contribution margin can be determined using total sales and total variable expense amounts as well as sales per unit and variable costs per unit amounts.
TRUE, Why, How would you switch this statement for it to be false
Net Operating Income increases or decreases at the rate of contribution margin.
TRUE, Why, How would you switch this statement for it to be false
The higher the contribution margin, the faster net operating income grows.
TRUE, Why, How would you switch this statement for it to be false
Changes in fixed costs impact contribution margin.
FALSE, Why, How would you switch this statement for it to be true
The contribution margin ratio can be determined by dividing Sales per unit by CM per unit.
FALSE, Why, How would you switch this statement for it to be true
Net Operating Income is usually achieved after CM is greater than zero.
FALSE, Why, How would you switch this statement for it to be true
CM per unit is equal to Sales per unit less Variable Expenses per unit.
TRUE, Why, How would you switch this statement for it to be false
When a company has fixed costs, the company’s net operating income is zero when CM is zero.
FALSE, Why, How would you switch this statement for it to be true
The CM ratio can be computed by dividing the contribution margin per unit by the sales price per unit.
TRUE, Why, How would you switch this statement for it to be false
The CM ratio can be computed by dividing the total contribution margin by total sales.
TRUE, Why, How would you switch this statement for it to be false
The CM ratio can be computed by dividing sales per unit less variable expenses per unit by sales per unit.
TRUE, Why, How would you switch this statement for it to be false
Given a constant Sales level, a decrease in Variable Expenses will result in an increase in CM.
TRUE, Why, How would you switch this statement for it to be false
An increase in fixed costs typically results in an decrease in net operating income.
TRUE, Why, How would you switch this statement for it to be false
In considering the CVP graph, a decrease in the sales price would result in a lower breakeven point.
FALSE, Why, How would you switch this statement for it to be true
In considering the CVP graph, a decrease in variable costs would result in a lower breakeven point.
TRUE, Why, How would you switch this statement for it to be false
When determining target profit in terms of units, the CM per unit is used for both the equation and formula methods.
TRUE, Why, How would you switch this statement for it to be false
When determining breakeven in sales dollars, the CM per unit is used for both the equation and formula method.
FALSE, Why, How would you switch this statement for it to be true
When determining target profit in terms of sales dollars, you can used the equation method to solve for “Q”.
FALSE, Why, How would you switch this statement for it to be true
The margin of safety is the excess of budgeted or actual sales over the breakeven point.
TRUE, Why, How would you switch this statement for it to be false
Operating leverage is the impact on net operating income given a percentage change in sales.
TRUE, Why, How would you switch this statement for it to be false
Variable Manufacturing Overhead Costs is the key difference between Absorption Costing and Variable Costing.
FALSE, Why, How would you switch this statement for it to be true
Variable Costing treats all Manufacturing Costs as product costs.
FALSE, Why, How would you switch this statement for it to be true
Absorption Costing uses the traditional income statement format.
TRUE, Why, How would you switch this statement for it to be false
Unit Product Costs under the Variable Costing approach include fixed manufacturing costs.
FALSE, Why, How would you switch this statement for it to be true
Selling and administrative expenses are period costs under both the Absorption and Variable Costing approaches.-
TRUE, Why, How would you switch this statement for it to be false
When units produced are greater than those sold in a given year, the company’s cost of goods sold will be less under the Absorption Costing approach.
TRUE, Why, How would you switch this statement for it to be false
When units produced are less than those sold in a given year, the Variable Costing Approach will show a lower net operating income than the Absorption Costing Approach.
FALSE, Why, How would you switch this statement for it to be true
Segment Margin equals sales minus variable expenses.
FALSE, Why, How would you switch this statement for it to be true
Common costs are allocated among segments before determining segment profitability in the long run.
FALSE, Why, How would you switch this statement for it to be true
Traceable costs are costs that are identifiable by a segment.
TRUE, Why, How would you switch this statement for it to be false
Segment Breakeven determination involves the use of allocated common costs.
FALSE, Why, How would you switch this statement for it to be true
Break Even Point
Level of sales at which profit is 0
Cost Volume Profit Graph
graph representation of the relationships between organizations revenue, costs, and profits on one side, and its sales volume on other side
Incremental Analysis
analytical approach that focuses only on those costs and revenues that change as a result of a decision
Margin of safety
excess of budgeted or actual dollar sales over the break even dollar sales
Operating leverage
Percent increase in sales x degree of operating leverage which gets you the percentage of how much net operating income increases
Sales Mix
Relative proportions in which a company’s products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.
Target Profit Analysis
estimating the level of sales needed to achieve a desired target profit.
Absorption Costing
method that includes all manufacturing costs such as direct materials, direct labor and fixed manufacturing costs as unit product costs. Also uses the traditional income statement
Common fixed cost
costs that support one business segment but not traceable in whole or in part to any one of the business segments
Segment
part or activity of an organization about which managers seeks cost, revenue and profit data (department)
Segment Margin
Sales - Variable expenses - traceable fixed costs
Traceable fixed cost
cost that can be incurred because of the existence of a particular business segment and would dissapear if segment was eleminated
Variable costing
costing method that includes variable dm, dl, and mo as product costs, and fixed mo as period cost
If units produced equal units sold
No change in inventory and absoption NOI would equal variable NOI
If units produced are greater than units sold
inventory increases, absorption NOI would be higher than variable
If units produced are less than units sold
inventory decreases, absorption NOI would be lower than variable NOI
What costing is better used for CVP analysis?
Variable costing, since it categorizes variable and fixed
What is variable costing only affected by
change in unit sales
What is absorption costing affected by
changes in unit sales and units of production
Companywide break-even point
company’s traceable fixed expense + common fixed expense divded by company’s overall CM ratio.
Segment break even point
traceable fixed expense divided by CM ratio (for that segment)
What makes up a value chain
R&D, Product Design, Manufacturing, Marketing, Distribution, Customer Service
What are the 3 tools for segmented income analysis ?
- Review the Segment Margin. 2. Compute the CM ratio for each segment. 3. Determine the degree of operating leverage
A budget is a plan expressed in quantative terms showing how a cmopany’s financial and other pertinent resources are to be used to achieve a certain financial outcome for a specified period.
TRUE, Why, How would you switch this statement for it to be false
Budgets help to ensure alignment of financial and other resources to achieve a targeted outcome.
TRUE, Why, How would you switch this statement for it to be false
Top down prepared budgets are more effective than bottom-up budgets
FALSE, Why, How would you switch this statement for it to be true
Planning and Controlling functions are the same thing
FALSE, Why, How would you switch this statement for it to be true
Budgetary slack aids profit maximization
FALSE, Why, How would you switch this statement for it to be true
Self-Imposed budgets create opportunities for employees to assert that company objectives are unrealistic
FALSE, Why, How would you switch this statement for it to be true
Top Management’s attitude towards budgets can substantially affect employee performance.
TRUE, Why, How would you switch this statement for it to be false
Budgets can be used to promote employee effectiveness and can be used to demoralize employees
TRUE, Why, How would you switch this statement for it to be false
The master budget is a comprehensive layout of a company’s acquisition and use of financial and related resources
TRUE, Why, How would you switch this statement for it to be false
All sub-budgets within a master budget are interrelated
TRUE, Why, How would you switch this statement for it to be false
The sales budget and schedule of cash collections are the same
FALSE, Why, How would you switch this statement for it to be true
The timing of cash collections is not important if all the cash at the end of a given period (i.e quarter, half-year, year) is correct.
FALSE, Why, How would you switch this statement for it to be true
A company’s production needs for a given period is determined by adding the budgeted sales in units to the beginning period’s units and then subtracting the ending period’s units
FALSE, Why, How would you switch this statement for it to be true
The final cash disbursement total for the Selling and Administative Expense Budget includes all variable and all fixed selling and administrative expenses
TRUE, Why, How would you switch this statement for it to be false
In the cash budget, all cash proceeds (inflows) are included in the first section of the budget - including beginning cash.
FALSE, Why, How would you switch this statement for it to be true
All cash outflows must be included in the cash disbursement section of the cash budget - including loan repayments
FALSE, Why, How would you switch this statement for it to be true
The primary purpose of the cash budget is to determine the cash balance at the end of each period
FALSE, Why, How would you switch this statement for it to be true
Depreciation Expense must be included in the Cash Budget
FALSE, Why, How would you switch this statement for it to be true
Relevant costs are unavoidable costs
FALSE, Why, How would you switch this statement for it to be true
Sunk Costs are never relevant costs
TRUE, Why, How would you switch this statement for it to be false
Irrelevant Costs impact successful decision making
FALSE, Why, How would you switch this statement for it to be true
Once a relevant cost - always a relevant cost
FALSE, Why, How would you switch this statement for it to be true
In a decision to drop a segment or product line, contribution margin should be greater than all related avoidable costs.
FALSE, Why, How would you switch this statement for it to be true
Avoidable costs can be fixed of variable costs
TRUE, Why, How would you switch this statement for it to be false
Common Costs are irrelevant costs
TRUE, Why, How would you switch this statement for it to be false
Common costs are included in the decision to make v buy a product
FALSE, Why, How would you switch this statement for it to be true
When the cost to buy a product is less than the TOTAL UNIT COST of the same product to make, the decision should always be to buy the product
FALSE, Why, How would you switch this statement for it to be true
When the considering profit maximization for a company producing products, constrains should be considered and evaluated when determining the priority of products to make
TRUE, Why, How would you switch this statement for it to be false
The sale of additional units beyond the break even point produces profit at the rate of the contribution margin per unit
TRUE, Why, How would you switch this statement for it to be false
Variable Costing treats all variable costs as product costs
FALSE, Why, How would you switch this statement for it to be true
The costing method that treats all fixed costs as period costs is
Variable Costing
