Final Exam Flashcards
What is the Value Chain?
set of activities that transform raw resources into the goods and services end-user purchase and consume
includes the treatment or disposal of any waste generated by the end users
Which users use Financial Accounting? Cost Accounting?
EXTERNAL/COMPARATIVE users use financial accounting
INTERNAL/MANAGEMENT Decision Making users use cost accounting
What are Budgets?
the financial plan of the revenues and resources needed to carry out activities and meet financial goals
-help manager decide whether goals can be achieved; may need modifications
What timeframe is a budget usually prepared?
for the upcoming period (usually 1 year)
TRUE/FALSE: budgets are very important to the financial success of individuals and organizations
TRUE
What is an Opportunity Cost?
the foregone benefit from alternative courses of action
-NOT recognized in an accounting system
What is an Outlay Cost?
past, present, or future cash outflow; “sacrifice”
-recognized as an asset or expense in an accounting system
When is an expense charged?
charged to P&L in period it’s incurred
What is a Product Cost?
Cost into the product
-Manufacturing/Inventory
-expensed as COGS
-DM, DL, MOH
What is a Period Cost?
Non-Manufacturing
-expense when incurred
-SG&A, abnormal spillage
What is the formula for a Prime Cost?
*KNOW THIS FOR COMPUTATIONAL
Direct Material + Direct Labor
What is the formula for Conversion Cost?
*KNOW THIS FOR COMPUTATIONAL
Direct Labor + MOH
-Variable Costs = Fixed per unit/variable in total
What is the Full Cost?
ALL manufacturing and sellings costs
What consists of the Full Absorption Cost?
ALL fixed and variable MANUFACTURING costs
“GROSS MARGIN”
What consists of the Variable Cost?
ALL variable manufacturing and selling costs
“CONTRIBUTION MARGIN”
What is the purpose of calculating individual product (and service) costs?
- computing the inventory values and the COGS for financial statements
- Helping various product managers make decisions regarding pricing, production, promotion, adding or dropping a product, whether to outsource selected products or services.
What is the Basic Cost Flow Model?
*KNOW THIS FOR COMPUTATIONAL
BB + TI - TO = EB
Raw Materials TI = ____________
Purchases
Raw Materials TO = ____________
requisitioned into production
WIP TI = ____________
raw materials requisitioned into production
WIP TO = ____________
cost of jobs completed during the period (COGM)
F/Gs TI = ____________
Cost of Goods Manufactured
F/Gs TO = ____________
COGS
What is the difference between Direct and Indirect Costs, and examples?
Direct = ASSIGNED to a product
-DM, DL
Indirect = allocated based on some measure of activity
-MOH, indirect mat., indirect labor, depreciation, utilities
What are the 3 common estimated allocation bases?
- Machine Hours
- DL $
- DL Hours
What is Job Costing?
“Job Shop”
-customized
-traces costs to individual units or specific jobs
What is Process Costing?
“Continuous Flow Process”
-homogenous/identical items
-no need to trace costs to the individual unit level
What is Operations Costing?
“Batch Production”
-hybrid of job and process costing
What are the THREE Inventory accounts?
- Raw Materials
- WIP
- Finished Goods
A debit to MOH reflects __________
ACTUAL indirect materials, indirect labor, or other
A credit to MOH reflects ____________
APPLIED overhead based on the predetermined overhead rate
What does Underapplied Overhead mean?
actual OH costs are in excess of the applied OH costs
Dr. COGS
Cr. MOH
What does Overapplied Overhead mean?
applied OH costs are in excess of the actual OH costs incurred
Dr. MOH
Cr. COGS
What are the Equivalent Units?
number of COMPLETE physical units to which units in inventories are equal in terms of work done to date
What is the 4 Step Process in assigning costs to production?
- Determine “physical flow” (BB + TI - TO = EB)
- Calculate Equivalent Units of Production (EUPs) - Materials and Conversion Costs
- Indetify product costs to account for
- Compute costs per EUP (then allocate to WIP and F/G inventories)
How do you find the EUPS?
of physical units x % of completion
What does Weighted-Average Process Costing do?
combines the work and costs for the two periods (previous and current) and computes a single cost
-makes it impossible to know how much it cost to make a product this period
What does FIFO Process Costing do?
keeps previous and current periods separate
-inventory numbers are more likely to reflect reality than under Weight-Avg because the units in ending WIP are likely to have been produced in the current period
Which Process Costing Method gives managers better information about the work done in the current period?
FIFO Process Costing
The Traditional/Plantwide allocation method uses __________
ONE cost pool for the entire plant as in a single-stage approach
-uses ONE OH allocation rate
What is ABC?
two-stage product costing method that first assigns costs to activities and then allocates them to products based on each product’s consumption of activities
-based on the concept that products consume activities and activities consume resources
Which costing, ABC or Traditional/Plantwide, provides more detailed measures of costs?
ABC
What is the cost/benefit tradeoff for ABC?
Provides more information about product costs but requires more record-keeping
What is a budget?
a financial plan of the resources needed to carry out activities and meet financial goals
What is the Master Budget comprised of?
(1) Operating Budgets
-sales budgets
-production “”
-COGS “”
-M&A “”
Income Statement “”
(2) Financial Budgets
-Cash budget
-Balance sheet
TRUE/FALSE: assembling a master budget is a complex process requiring careful coordination of many different organization segments
TRUE
What is a variance, and the difference between a favorable and unfavorable variance?
Variance = difference between planned result and actual outcome
Favorable = when taken alone, increases operating profit
Unfavorable - when taken alone, decreases operating profit
Does a Master Budget change after being developed?
NO
How many levels of sales volume is a Master Budget developed for
ONE level
A Flexible Budget is developed for __________ level(s) if sales volume
several
What is Sales Activity Variance?
difference between operating profit in MASTER BUDGET and operating profit in FLEXIBLE BUDGET that arises because the actual number of units sold is different from the budgeted number
What does the Cost-Volume Profit Analysis (CVP) show?
studies the relations among revenues, costs, and volumes and their effect on profit to help managers make decisions
What is the Profit Equation?
Total Revenues - Total Costs
Profit =
(P-V)X - F
Unit Contribution Margin =
P - V
TRUE/FALSE: the contribution margin should be large enough to cover the fixed costs
TRUE
How is the Break-Even Point found, in units?
*KNOW FOR COMPUTATIONAL
Fixed Costs / Cont. Margin per unit
How is the Break-Even Point found, in sales dollars?
*KNOW FOR COMPUTATIONAL
Fixed Costs / Cont. Margin ratio
((P-V)/P)
How is the Target Point found, in units?
*KNOW FOR COMPUTATIONAL
Fixed Costs + Target Profit / Cont. Margin per unit
How is the Target Point found, in sales dollars?
*KNOW FOR COMPUTATIONAL
Fixed Costs + Target Profit / Cont. Margin ratio
((P-V)/P)
What is Differential Analysis?
process of eliminating revenues and costs of alternative actions available to decision-makers and of comparing these estimates to the status quo
What are Differential Costs?
costs that differ among two or more alternatives
-CHANGE IN RESPONSE TO ALTERNATIVE COURSES OF ACTION
Can Differential costs be both variable and fixed costs?
YES!
What are Sunk Costs?
costs incurred in the past that cannot be changed by present or future decisions
What is a Special Order?
order that will not affect other sales and is usually a short-run occurrence
What costs do decision-makers focus on when deciding to accept a special order?
Differential Costs
When is a special order usually accpeted?
when idle capacity is adequate for the job
Do financial statements prepared in accordance with GAAP routinely provide differential cost information?
NO
