Management Accounting Flashcards
1
Q
What is the Contribution Margin calculation?
A
Sales - Variable costs = CM
2
Q
What’s the Contribution Margin ratio caluculation?
A
CM ratio % = CM/Sales price
3
Q
How do you calculate break-even in units?
A
Break-even units = fixed cost / CM per unit
4
Q
How do you calculate break-even in dollars?
A
Break-even dollars = fixed cost / CM ratio
5
Q
When the Contribution margin increases, how does this affect the break-even point?
A
The break-even point decreases
6
Q
When the Contribution margin decreases, how does this affect the break-even point?
A
The break-even point increases
7
Q
When a company is highly automated, does it usually have lower variable costs or higher variable costs?
A
Lower variable costs (direct labour)
8
Q
What is WACM used to calculate?
A
Break-even with multiple products
9
Q
How do you calculate WACM per unit?
A
WACM per unit = Total CM / Total units
10
Q
How do you calculate the WACM ratio?
A
WACM ratio = Total CM / Total sales
11
Q
How do you calculate UNIT sales necessary to obtain a target profit?
A
Target profit sales (units) = (Fixed cost + Target profit) / CM per unit
12
Q
How do you calculate DOLLAR sales necessary to obtain a target profit?
A
Target profit sales (dollars) = (Fixed cost + Target profit) / CM ratio
13
Q
What’s the formula for the Cost Function?
A
TC = (VC × X) + FC
Where: TC = total cost VC = variable cost X = activity level FC = fixed cost
14
Q
How do you make decisions with a constrained resource?
A
Calculate CM per the constrained resource.
15
Q
What is the COGM formula?
A
COGM = beginning WIP + DM used + DL used + OH applied - ending WIP
16
Q
What’s the COGS formula?
A
COGS = beginning finished goods + COGM - ending finished goods
17
Q
what’s the difference between job costing and process costing, in terms of when they’re used?
A
Job costing is when product is unique. Process costing is when products are identical.
18
Q
What are the 2 methods used for Job Costing?
A
Variable costing and absorption costing
19
Q
What is the presentation like when using variable costing?
A
CM format
20
Q
What is the presentation like when using absorption costing?
A
IS format
21
Q
Which Job Costing method is required under IFRS and ASPE?
A
Absorption costing method
22
Q
Which costing method requires that spoilage is accounted for?
A
Job costing, not variable costing
23
Q
What are the 2 methods that could be used under Process costing?
A
Weighted average method and FIFO method. Both use EU’s
24
Q
What are the differences between using Weighted Ave method for process costing, and FIFo method? (3 differences)
A
- Under the weighted-average method, the cost per EU includes beginning inventory. Under the FIFO method, the cost per EU includes only the costs for work performed during the period
- for WA, when calculating EU’s, only look at beg WIP and units started. for FIFO, look at beg WIP, units started and finished, and units started but not finished.
- In step 5 when assigning total costs to units completed and ending WIP, you have to add the total costs incurred for beg WIP since they weren’t included in the EU per unit.
25
What are the 5 steps for Process costing?
- 5 step guide to process costing:
1. Compute units to be accounted for
2. Compute output in terms of EU
3. Compute costs to account for
4. Compute cost per EU
5. Assign total costs to units complete and to ending WIP
26
What are the 5 steps for ABC?
i. Identify the cost objective (ex. Costs by product line, by customer, etc.)
ii. Identify activities (called cost pools) and cost drivers (ex. If activity is packaging, cost driver could be # of skids)
iii. Calculate total indirect costs, and assign the indirect costs to activity cost pools based on the indirect costs spent on that activity
iv. Calculate activity rates by taking total indirect costs used for the activity, and dividing by the total volume of the cost driver (which is the sum of the cost drivers for all cost objectives)
v. Assign indirect costs to cost objectives (make mini income statements for all cost objectives if the info is given, or just calculate the total OH costs per unit, and then total per unit costs)
27
What kind of company is ABC most useful for?
ABC is most likely to be beneficial in organizations with a high proportion of indirect costs and high variation in resource usage across products, customers, facilities, and so on
28
What's the normal balance when OH is incurred?
Debit
29
WHat's the normal balance when OH is applied?
Credit
30
Wht's the normal balance when OH is over applied?
Credit
31
What's the normal balance when OH is under applied?
Debit
32
How do you get rid of an over-application of OH?
need to debit Manuf. OH and credit COGS (for % sold) and WIP or FG (for %s in progress or finished but not sold)
33
How do you get rid of an under application of OH?
need to credit Manuf. OH and debit COGS (for % sold) and WIP or FG (for %s in progress or finished but not sold)
34
What are the 3 methods for join cost allocation?
physical output method, sales value at split off point method, and NRV method
35
When can the sales value at split off point not be used?
When some products are not sold at the split off point
36
What's the actg treatment for byproducts or waste that occur before the split-off point?
included in joint costs of all products after split off point
37
What's the actg treatment for byproducts or waste that occur after the split-off point?
included in separate costs of the product it's associated with
38
What are the 3 methods to allocate service dept costs to other depts they serve?
Direct allocation, step down method, and reciprocal allocation method
39
What's the formula to calculate minimum transfer price?
Minimum transfer price = Variable costs up to the point of transfer + Opportunity cost to the selling division
40
What's the minimum transfer price with idle capacity?
minimum transfer price is equal to the variable cost
41
WHat's the minimum transfer price with no idle capacity?
market price
42
If one dept sells to another, what is the max price the buying dept is willing to pay?
The external selling price
43
what are the 3 transfer pricing methods?
* cost-based transfer pricing
* market-based transfer pricing
* negotiated transfer pricing
44
how does the cost based (transfer) pricing method work?
takes the full cost + markup, or the variable cost + markup
45
what are the 3 conditions for market-based transfer pricing to result in an optimal decision?
A. immediate market must be perfectly competitive and information readily available
B. Interdependencies between the departments must be minimal
C. must be no additional costs or benefits to the organization as a whole in using the external market instead of transacting internally
46
When should an internal transfer definitely never be made?
when a company is operating at capacity and can sell its component for more than the internal division would pay to purchase the component externally
47
How does Variable product costing work? When is it applicable?
variable costs + markup.
applicable when fixed costs are low and not much competition
48
how does full absorption costing work?
full cost + markup
49
what is life cycle costing?
trying to maximize profits with the whole product life cycle in mind
50
How does target based costing work?
think of a target price to sell the product at, and then a target operating income. THen you do income-selling price to get the target costs. Try to lower costs to match target costs
51
What is predatory pricing?
Setting selling price below costs to drive out competition and then raising prices (illegal). ex. Walmart
52
What is penetration pricing?
when launching into new mkt to gian economies of scale.
Aim is to set lower price to gain market share, then eventually increasing price once market share is achieved
53
what is price skimming?
setting price high to earn back investment or to break even with fewer sales (possibly targetting early adopters). ex. think sea plane, or cell phones.
54
what is price bundling?
making it cheaper for customers to buy products together with another one
55
what is peak load pricing / dynamic pricing?
charging a higher price for the same product or service when demand approaches physical capacity limits
56
what's loss leader pricing?
selling a less profitable product at a loss to stimulate sales of other more profitable products
57
what is tender or contract pricing?
responding to a job/contract that's available. Price is based on labour and material costs to you and to make a profit
58
what's value based pricing?
pricing based on value perceived by the customer and focuses on differential features
59
what is the only way to truly cut costs?
eliminate the activity causing the cost to occur
60
What are the 4 levels of cost accumulation for costs of quality?
external failure, internal failure, appraisal/process costs, and prevention/planning costs
61
what's the largest cost of quality?
opportunity of lost sales because of low quality of the service/product delivered to the customer
62
What is the focus of lean mgmt?
Eliminating non-value added processes
63
Whats the focus of six sigma?
reducing waste in both value added and non value added processes
64
whats the goal of JIT inventory system? (lean mgmt)
resuce stock time for inventory, lowering costs
65
what is the goal of activity analysis (lean mgmt)?
To divide processes into acitivities and get rid of activities that don;t add value
66
what is the goal of the zero defects approach? (lean mgmt)
to get rid of defects before they move onto the next level of production
67
How do you calculate cash conversion cycle?
*in days*
Cycle = inventory holding period + AR collection period - AP payment period
68
How do you calculate operating cycle?
*in days*
Cycle = inventory holding period + AR collection period
69
Whats the most overaraching variance you could calculate to compare budget with actual?
static budget variance
70
what's the static budget variance formula?
AQ*AP - SQ*SP
71
which variance depicts variance due to sales price difference between budget and actual?
flexible budget variance
72
whats the flexible budget variance formula?
(AP-SP)*AQ
73
which variance depicts variance due to sales volume ?
sales volume variance
74
whats the sales volume variance formula?
(AQ-SQ)*SP
75
which variance compares the rates of inputs into production?
rate variance
76
what's the rate variance formula?
(AP-SP)*AQ
77
which 2 variances can the flexible budget be broken into?
rate and efficiency variances
78
whats the point of the efficiency variance?
To compare usage of inputs
79
whats the efficiency variance formula?
(AQ-SQ)*SP
80
what are the 4 perspectives in balanced scorecard?
1. Financial
2. Customer
3. Internal business process
4. Learning and growth
81
What are the steps in using balanced scorecard?
1. choose perspctives
2. choose 3-4 goals per persepctive
3. choose a measurement method
4. decide who is responsible
5. set a target
82
whats the difference between strategy mapping and balanced scorecard?
Strategy mapping is primarily used to set and communicate strategy, while the BSC is used to measure progress toward strategy
83
what are 2 types of controls? what are they?
general and application.
General - Includes general control env't and IT controls around physical security, logical access, and distributed computing
Application - built into software to ensure that data is maintained and processed accurately
84
what are the causes of data integrity being low?
○ Unintentional errors
○ Manipulation of data
○ Access of data by parties who do not have the right to view the information
