Managerial

Question 1

Variable Cost

Answer 1

as production increases, so does total cost. 1 unit =$5, 5 units = $25 - cost per unit does not change

Question 2

Fixed Cost

Answer 2

total costs are predetermined, producing more makes the cost per unit lower. fixed cost of $10 to produce 10 units = 1 dollar per, $10 to produce 100 units = 1- cents per

Question 3

Mixed Cost

Answer 3

The sum of the total fixed and variable costs

C = VX + F

Question 4

Product Cost

Answer 4

identifiable materials used in the end product - direct and indirect

Question 5

Direct Costs

Answer 5

costs that are directly involved in making the product - labor, materials

Question 6

Indirect Costs

Answer 6

almost anything other or not directly identifiable that cost to make the product - insurance, taxes, misc materials, manufacturing overhead

Question 7

Period Costs

Answer 7

normal non-manufacturing costs that are incurred every period, have nothing to do with making the product - ads, sales, admin expense

Question 8

2 types of manufacturing overhead allocation

Answer 8

Traditional and Activity Based

Question 9

POH rate

Answer 9

Predetermined overhead rate, used in traditional costing

Question 10

POH rate formula

Answer 10

Estimate of annual overhead / Estimated annual cost driver

Question 11

Activity based costing

Answer 11

assigning overhead costs to products based on how much they consume in each activity

Question 12

what type of firm should use activity based costing

Answer 12

firms where there is a difference in quality,

complexity, manufacturing process (built to order)

Question 13

steps to implement activity based costs (ABC)

Answer 13

1. Identify major activities in manufacturing process
2. Allocate overhead to each major activity
3. Identify cost drivers for each major activity
4. Calculate activity-based rates (AB rates = Allocated overhead / Estimated
   driver)
5. Apply overhead to each product (Applied OH = AB rate * Activity driver
   volume)

Question 14

Job order costing

Answer 14

costs are tracked on a per job/batch basis - used in high costs or unique item production, where costs differ from all other items the company is working on

Question 15

Process Costing

Answer 15

assumes all units are the same and cost the same to produce. cost is determined by total cost / number of units produced in a period

Question 16

CVP analysis - Cost-Volume-Profit

Answer 16

a process where decision makers estimate profitability based on changes in cost, pricing, and volume - needed for breakeven analysis and target profit analysis

Question 17

ways to calc CVP

Answer 17

a. Contribution margin per unit (CM) = Sales per unit – variable cost (VC)
per unit
b. Contribution margin ratio (CMR) = CM per unit / Sales price per unit
c. Break-even point in units = Fixed cost (FC) / CM per unit
d. Break-even point in dollars = FC / CM ratio
e. Target profit in units= (FC + target profit) / CM per unit
f. Target profit in dollars = (FC + target profit) / CM ratio
g. Net income = Sales – variable costs – fixed costs

Question 18

Contribution margin

Answer 18

portion of sales that is not absorbed by variable costs, used to cover fixed costs and contribute to bottom line

Question 19

Incremental Analysis

Answer 19

process of making a decision between alternatives based on the financial data

Question 20

Opportunity cost

Answer 20

cost of what is being given up by choosing an alternative

Question 21

Sunk Cost

Answer 21

costs already incurred and paid

Question 22

Responsibility Accounting

Answer 22

accumulation and reporting of relevant

information to a manager

Question 23

relevant information

Answer 23

relevant costs and relevant revenues

Question 24

responsibility center

Answer 24

segment/division/subunit of a company that a manager has control/authority over

Question 25

cost center

Answer 25

mngr only has control over costs incurred

Question 26

revenue center

Answer 26

mngr only has control over level of revenue

Question 27

profit center

Answer 27

mngr has control over rev and cost, but not amount invested

Question 28

investment center

Answer 28

mnge has control over revs, costs, and amount invested

Question 29

budget

Answer 29

formal written statement in financial terms of management’s plans for a specified future time period - used a comparison point for performance

Question 30

planning

Answer 30

involves determining steps or actions to meet the strategic or other goals of the company

Question 31

controlling

Answer 31

monitors and controls the direction, allocation, and usage of financial resources

Question 32

types of budgets

Answer 32

operating and financing

Question 33

master budget

Answer 33

collection of all the budgets that are prepared

Question 34

operating budgets

Answer 34

summary of expected operating activities - day to day activities

Question 35

financing budgets

Answer 35

how we plan to fund operations for the budget period - how are we going to pay for the day to day

Question 36

types of operating budgets

Answer 36

sales
production
direct material purchasing
direct labor
manufacturing overhead
selling and admin
budgeted income statement

Question 37

standard costing

Answer 37

a budgeted amount but for only one unit of product

Question 38

price standard

Answer 38

price per unit of the production input

direct material, direct labour

Question 39

quantity standard

Answer 39

how many units of the production input are required for each finished product unit

Question 40

direct material and quantity, direct labor and quantity standards

Answer 40

the price set, hours set, and amount of each expected to be used to produce one unit