Lecture 08 - Part II – Managerial Accounting

Question 1

Are managerial accounting or financial accounting reports standardized? (2)

Answer 1

• Financial
  reports are standardized
• Managerial
  reports are as needed

Question 2

What costs can you differentiate? (4)

Answer 2

• Variable costs
• Fixed costs
• Mixed costs
• Step costs
  Step costs are expenses that remain constant within a certain range of activity or production, but then increase or decrease once a certain threshold is reached.

Question 3

In the following costs are presented. Classify them in …

• variable (bold),
• mixed (black),
• fixed costs (Underline)!

Answer 3

• Cost of food sold
• Wages and salaries
• Rent on Building
• Depreciation on equipment
• Utilities
• Supplies
• Miscellaneous

Solution:

• Cost of food sold
• Wages and salaries
• Rent on Building
• Depreciation on equipment
• Utilities
• Supplies
• Miscellaneous

Question 4

Define the total cost equation
(roughly)!

Answer 4

Total Cost =
Fixed Costs + (Variable Costs per Unit x Quantity of Units)

Question 5

Name three methods of estimating fixed and variable cost components!

Answer 5

• High-low method
• Scatter diagrams
• Least-squares regression analysis

Question 6

Why is least-squares regression analysis the best method? (2)

Answer 6

• Uses all data points
• Does not rely on subjective judgment

Question 7

Name three cautions regarding cost estimation!

Answer 7

• Not all data based on normal operating conditions
• Nonlinear relationships may exist
• Results should make sense

Question 8

What is the manufacturing cost hierarchy? (4)

• Also name an example for each hierarchy!

Answer 8

• Unit level activities: Cost of
  raw materials
• Batch level activities: Cost of
  processing sales orders
• Product level activities: Cost of
  product development
• Facility level activities: Cost of
  factory supervisor

Question 9

How do you do a high-low cost estimation and what is it? (3)

Answer 9

Question 10

How do scatter diagrams contribute to data analysis?

Answer 10

Scatter diagrams visually

• represent the relationship between two variables (cost, unit),
• aiding in identifying correlations and trends in data by plotting points on a graph.

Question 11

What does least-squares regression analysis aim to achieve in cost accounting? (2)

Answer 11

Statistical method that,

• helps to estimate the relationship between costs and activity levels.
• More accurate compared to simpler methods like the high-low technique.

Question 12

What is the purpose of the high-low method in cost accounting? (2)

Answer 12

• The high-low method is used to estimate fixed and variable costs
• by analyzing the highest and lowest activity levels and their corresponding costs.