final exam

Question 1

3 activities

Answer 1

operating
investing
financing

Question 2

operating activities

Answer 2

day to day profit making activities

- includes interest paid and received and dividends received

Question 3

investing activities

Answer 3

buying or selling long-term assets

Question 4

financing activities

Answer 4

generate capital or pay it back (debt or equity)

Question 5

direct vs. indirect methods

Answer 5

only operating section differs

Question 6

direct method

Answer 6

• calculate various items using income statement and balance sheet information
• recommended by FASB and IASB
• must present reconciliation using indirect method

Question 7

indirect method

Answer 7

• operating activities starts with net income and adjusts to cash flow
• most companies use this method

Question 8

Horizontal Analysis

Answer 8

• the difference between two years divided by a base year = % change
• percentage changes in comparative financial statements (year to year)

Question 9

Vertical Analysis

Answer 9

• shows relationship of each item to a base amount (which is 100%) on financial statements
• analysis that converts items on a financial statement to percentages of a base

Question 10

Decision making

Answer 10

• occurs during planing, directing, and controlling

- managers responsibilities

Question 11

Planning

Answer 11

• setting goals and objectives and determining how to achieve them
• report: budget

Question 12

Directing

Answer 12

• implementing plans and overseeing daily operations

- report: Daily sales report

Question 13

Controlling

Answer 13

• evaluating actual results against the plan and making adjustments as necessary
• report: budget performance

Question 14

Financial accounting puropse

Answer 14

• to help external users make investing and lending decisions

Question 15

Managerial accounting purpose

Answer 15

• to help managers plan, direct, and control business operations and make decisions

Question 16

Managerial accounting reports and frequency

Answer 16

• management determines content and format

- as needed (daily, weekly, monthly, quarterly, annually)

Question 17

Financial accounting reports and frequency

Answer 17

• GAAP determines content and format

- Emphasis on annual report; quarterly reports also prepared

Question 18

Direct cost

Answer 18

• can be traced directly to the cost object
• a main part of the object or someone working directly on it
• costs are traced
• ex. tires on a car

Question 19

indirect cost

Answer 19

• costs that relates to the cost object but cannot be easily traced to it
• costs must be allocated
• ex. production supervisors salary or screw in a car

Question 20

Inventoriable product costs

Answer 20

• used for external reporting
• all costs incurred to produce a product (both direct and indirect costs)
• product costing stops when the product is completely finished and transferred to finished goods inventory
• Direct materials, Direct Labor, Manufacturing overhead

Question 21

Period costs

Answer 21

• expensed in period incurred
• all costs along the value chain except “production or purchases”
• often called operating costs, or general, selling, and administrative costs

Question 22

manufacturing costs

Answer 22

direct materials
direct labor
manufacturing overhead

Question 23

cost of goods manufactured

Answer 23

beginning WIP inventory + DM, DL, MOH - ending WIP inventory

Question 24

cost of goods sold

Answer 24

beginning FG inventory + COGM - ending FG inventory

Question 25

sunk costs

Answer 25

• costs that have already been incurred and cannot be changed
• ex. boyfriend breaks up with you. cant get that time back
• Irrelevant costs

Question 26

Fixed costs

Answer 26

• total fixed costs stay constant over a wide range of volume
• fixed cost per unit varies inversely with changes in volume
• ex. straight line depreciation, managers salary, insurance on your car

Question 27

Variable costs

Answer 27

• total fixed costs stay constant over a wide range of volume
• fixed cost per unit varies inversely with changes in volume
• ex. straight line depreciation, managers salary, insurance on your car

Question 28

Process costing

Answer 28

• mass production of identical items
• cost for each production process (or department)
• ex: paint and chemical manufacturers, limestone quarry, cereal manufacturers, lumber mill

Question 29

Job Costing

Answer 29

• unique custom products or small batches of different products
• total cost for that job
• ex: custom home builders, furniture manufacturer, hospitals, professional firms

Question 30

Direct Materials and labor (recording transactions)

Answer 30

Debit - WIP

Credit - Wages Payable, inventory

Question 31

Allocated Overhead (recording transactions)

Answer 31

Debit - WIP

Credit - MOH

Question 32

departmental overhead rates

Answer 32

• Separate predetermined manufacturing overhead rates for each department
• useful when:
  o Departments incur different amounts and types of MOH
  o Different jobs or products use the department resources to a different extent

Question 33

Activity based costing

Answer 33

• ABC
• breaks overhead into activities
• calculate an activity cost rate for each activity
• allocate to cost object (products) using activity rate and actual amount of cost driver

Question 34

Relevant Information

Answer 34

• Future oriented

* Differs between alternatives

Question 35

Irrelevant Information

Answer 35

• Do not differ between alternatives

* Sunk Costs – incurred in past and cannot be changed

Question 36

• Financial Budget

Answer 36

o Cash Budget

o Budgeted Balance Sheet

Question 37

Cash Budget

Answer 37

• Determine cash collections and cash payments

* Determine financing needs

Question 38

Budgeted Balance Sheet

Answer 38

• Determine accounts receivable and payable

* Determine retained earnings

Question 39

Types of responsibility centers

Answer 39

Revenue, Cost, Profit, Investment

Static vs. Flexible Budgets