Final Exam Flashcards
Incremental Analysis
process of identifying financial data that change under different courses of action (NO TVM)
Joint Costs
all costs incurred, in joint products, up to the point in manufacturing where they are separately identifiable.
Joint Products
multiple end-products from single raw material, similar processes
Opportunity Cost
lost potential benefit
Relevant Costs and Revenues
costs and revenues that differ across alternatives
Sunk Cost
cost incurred in the past that can’t be changed, shouldn’t be factored into future decisions
Incremental Analysis uses what type of costing?
activity-based costing; identifies relevant costs accurately
Net income considerations for special orders within plant capacity ?
will not increase fixed costs, only consider variable costs for net income.
Accept special order at special price?
if at full capacity, likely for order to be rejected. Special order would have to absorb additional fixed costs and normal variable costs to be accepted.
Make or Buy?
buying eliminates all VC but only some of FC. Some FC will remain if product is bought. Opportunity cost of time/resources?
Sell or Process Further?
Process further if revenues > additional direct labor, materials, overhead, VC, FC
Repair, Replace, Retain
Is increased income from replacement/repair more than the cost of new, maintenance, minus sale of old?
In Repair, Replace Retain decision, the book value of the asset isn’t relevant to the decision because it is a __________.
sunk cost
If equipment is replaced, the ______ of the old equipment is recognized as a _______.
book value of the old equipment is recognized as a loss in the current period.
Target Cost Formula=
Market Price - Desired Profit
Desired Profit Formula=
Invested Assets x Min Rate Of Return
Cost-Plus Pricing
adding a markup to the cost base to determine target selling price
Markup Formula=
Selling Price - Cost
Target Selling Price Formula=
Cost + Markup
Markup is also known as ____________.
desired ROI per unit
Variable-Cost Pricing
add a markup to variable costs
Time-and-Material Pricing
two rates: labor rate and materials used (material loading charge)
Labor Rate includes ______.
direct labor costs (hourly + fringe), selling & admin, and desired ROI per hour
Material Loading Charge includes _______.
(annual costs for purchasing, receiving, handling and storing materials) / (costs of parts/materials) + desired profit margin
Transfer Price Definition
price when goods are transferred between divisions of the same company
Negotiated Transfer Price
agreement between division managers
Minimum Transfer Price
VC + Opportunity Cost (no excess capacity)
Transfer price does not account for ______ when producing in excess capacity.
contribution Margin (Opportunity Cost)
In excess capacity, the opportunity cost of transferring vs selling is the _________.
contribution margin
Minimum transfer price is _____ in excess capacity because Op Cost is ____.
less in excess capacity because opportunity cost is zero
Opportunity Cost when units transferred unequal to units forgone
= ((Selling $ - VC) x Units Forgone) / Units Transferred Internally
Cost Based Transfer Price does not reflect _____.
the division’s true profitability
Market-Based transfer prices are considered best because they are _____.
objective
Absorption-Cost Pricing
GAAP: includes both V and F manufacturing costs, excludes V and F selling & admin costs. Cover selling & admin with markup
Markup % =
(Desired ROI Per Unit + Selling & Admin Per Unit)/ Manufacturing Cost per Unit
Variable Cost Pricing markup must provide for ______.
FC and ROI
VC pricing is more consistent with _______ analysis.
cost-volume profit
VC pricing provides info needed for pricing ______ orders.
special
Budgetary Control does the following 4:
- Identifies report 2. states frequency 3. purpose 4. primary recipients
Static budget
single level of activity
Responsibility Accounting
reporting costs for where the manager has authority
Management by exception
actual vs planned objectives
Cost center
incurs costs but does not generate revenues. Production or service departments
Profit center
incurs costs AND generates revenues. Departments of retail store, branches of banks
Investment center
incurs costs, generates revenues, and has control over assets/ ROI
controllable margin
(Revenue - VC) - controllable fixed costs
Are noncontrollable fixed costs reported?
No
ROI formula=
Controllable margin / Avg operating assets
Residual income formula=
Controllable Margin - (Min Rate of Return x Avg Op Assets)
A standard is a ___ amount.
unit
A budget is a _____ amount.
total
direct materials price standard
cost per finished unit of product of direct materials that should be incurred
direct materials quantity standard
the quantity of direct materials that should be used per unit of finished goods.
direct labor price standard
rate per hour that should be incurred for direct labor
direct labor quantity standard
the amount of time that should be required to make one unit of product
predetermined overhead rate formula=
budgeted overhead costs / operating activity
Balanced scorecard definition
financial and nonfinancial info that links performance to goals
What are the 4 balanced scorecard perspectives?
financial, customer, internal, learning
standard cost accounting system definition
double-entry system. Standard costs in entries and recognize variances later
Cash payback period formula=
Cost of Capital Investment / Net Annual Cash Flow
What are the two discounted cash flow techniques?
NPV and IRR
NPV Discount method
compare present value with capital outlay required
NPV of investment formula=
NPV of cash flows - capital investment
Choosing a discount rate?
cost of capital, interest rate on loan
Profitability Index Formula=
PV of net cash flows / Initial Investment
IRR Definition=
interest rate that causes the PV of the proposed cap e expenditure to equal the present value of the expected cash flow
IRR formula (when cash flows are equal)=
Capital Investment / Net annual cash flows
If IRR is ___ than the required rate of return, reject the proposal.
less
Annual rate of return formula=
Expected annual net income / average investment
Annual rate of return method is different from NPV or IRR because it is on an _____ basis rather than ____.
accrual basis rather than cash
Average Investment formula=
(original investment + value at end of life) / 2
A major limitation of the Annual Rate of Return method is that it does not consider __________.
the time value of money
