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Bus302 > Managerial Accounting Concepts > Flashcards

Managerial Accounting Concepts Flashcards

1
Q

Internal Reporting

A

An accounting system that gives managers information needed for daily operations and also for long-range planning

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2
Q

Managerial Accounting

A
  • Internal: For managers, executives, employees
  • No regulations, requirement is determined by management
  • More subjective and judgmental; valid, relevant, accurate
  • Current and future oriented
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3
Q

Financial Accounting

A

External: For creditors, stockholders, tax authorities

  • Regulated by GAAP
  • Objective, reliable, consistent
  • Historical
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4
Q

Cost Behavior

A

how much cost will react or change as the level of business activity changes

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5
Q

Variable costs: In Total

A

Total variable cost changes as activity level changes

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6
Q

Variable Costs: Per Unit

A

Variable cost per unit remains the same over wide ranges of activity

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7
Q

Fixed Costs: In Total

A

Total fixed costs remains the same even when the activity level changes

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8
Q

Fixed costs: Per Unit

A

Fixed cost per unit goes down as activity level goes up

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9
Q

Product Costs

A
  • Costs assigned to goods produced
  • Include direct material, direct labor and manufacturing overhead
  • Assets
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10
Q

Period Costs

A
  • Include administrative, marketing and selling costs

- Expenses incurred

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11
Q

What are the manufacturing costs?

A

Direct material, Direct labor, and Manufacturing overhead

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12
Q

Direct Materials

A

The costs of all materials and parts that are directly and conveniently traced to items produced
Ex: Wood, parts, motors, and a variety of other items.

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13
Q

Direct Labor

A

The cost of labor that is directly and conveniently traced to items produced by labor
Ex: Labor costs of workers directly involved in production

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14
Q

Manufacturing Overhead

A

Indirect materials, indirect labor, all costs associated with manufacturing the goods other than direct materials and labor.
Ex: amortization of tools and buildings, utilities

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15
Q

Non-Manufacturing Costs (Period Costs)

A

a. distribution costs involved in delivering finished products to customers
b. marketing: advertising, and promotion expenses
c. General and administration costs

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16
Q

Overhead Allocation Rate

A

Overhead Allocation rate = Overhead Costs / Allocation Base

- Allocation Base: direct labor hours, direct labor costs, machine hours, direct material costs

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17
Q

Predetermined Overhead Rate

A

Best way of assigning overhead costs to a specific job to establish an overhead rate in advance

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18
Q

Overhead Application Rate

A

Used to assign a reasonable portion of factory overhead costs to each job

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19
Q

Budgeted Overhead

A

Estimated expected total overhead costs for the year

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20
Q

What is the predetermined overhead application rate equal to?

A

Budgeted overhead divided by the allocation base

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21
Q

Overhead rate

A

Estimated overhead costs/ Quantity of the allocation base

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22
Q

Manufacturing Overhead Costs

A

Sum of the overhead rate multiplied by the number of hours

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23
Q

Underapplied Manufacturing Overhead

A

If actual > applied, Debit balance results

24
Q

Overapplied Manufacturing Overhead

A

If actual

25
Q

Activity-Based Costing (ABC)

A

Identification of costs by activities. Helps assign overhead costs based on the amount of overhead each product truly cosumes

26
Q

Two stages of ABC

A
  1. Identifies activities and assigns the overhead costs on the basis of activities that have consumed resources
  2. Costs are allocated from each activity-cost pool to each product line in proportion to the amount of products consumed by the product line
27
Q

Break-even point definition

A

The point where total sales revenue equals total costs (variable and fixed) or the point where the total contribution margin equals total fixed costs

28
Q

Contribution margin apporach in units

A

Break-even point (in units) = Fixed costs / unit contribution margin

29
Q

Contribution margin approach in sales dollars

A

Break-even point (in sales dollars) = Fixed costs / Contribution margin ratio

30
Q

Profit

A

= Total Revenue - Total Costs

31
Q

Total Revenue

A

= Unit Sales Price x Sales Volume in units

32
Q

Total Costs

A

= Variable Costs + Fixed Costs

33
Q

Variable Costs

A

= Unit Variable Costs x Sales Volume in Units

34
Q

Fixed Costs

A

= Total fixed costs

35
Q

What is the area between the fixed cost line and the total cost represent?

A

The total variable cost in dollars for all levels of output

36
Q

What is the area between the total revenue line and the total cost line to the left of the break even point?

A

It represents to losses

37
Q

What is the break even point?

A

The intersection between total sales and total costs

38
Q

What is the area to the right of the break even point?

A

It represents the profit

39
Q

Target Net Profit

A

The targeted amount of income the company would like to earn

40
Q

What is used to determine the sales volume needed to achieve the planned target in units?

A

Cost-volume-profit analysis (Contribution margin approach) and the Profit volume graph

41
Q

What is the equation used to calculate the targeted income?

A

Units of sales to realize targeted income = (Fixed costs + target income) / Contribution margin per unit

42
Q

Formula of Contribution Margin

A

Sales - Variable costs

43
Q

What is used to determine the sales volume needed to achieve the planned target in dollars?

A

Dollar of sales to realize targeted income = (Fixed costs + targeted income) / Contribution margin ratio

44
Q

Formula of Contribution Margin Ratio

A

(Sales - Variable Costs) / Sales
or
Contribution Margin / Sales

45
Q

What is the Margin of Safety?

A

It is the excess of budgeted sales over the break-even sales.

46
Q

Margin of Safety Formula in Dollars

A

Total Sales (or Budgeted Sales) - Break-Even Sales

47
Q

Margin of Safety Formula in Units

A

Sales Units - Break-Even Units

48
Q

What is Cost Structure?

A

Refers to the relative proportion of fixed and variable costs existing in an organization.

49
Q

What is Operating Leverage?

A

The measure of the extent to which fixed costs are being used in an organization. It measures the sensitivity of profits to changes in sales

50
Q

Formula of Operating Leverage Factor

A

Contribution Margin / Income from Operation

51
Q

What does the Operating Leverage do?

A

It helps predict how much profit chages due to changes in sales

52
Q

What does a greater operating leverage mean?

A

It means that the lager the increase in profits as sales rise, and the greater the loss as sales fall

53
Q

How do we identify Revenue Expenditures and what should be done?

A

If the expenditure benefits solely the current period, then it should be expensed immediately

54
Q

How do we identify Capital Expenditures and what should be done?

A

If the expenditure benefits multiple periods, then is should be placed on the balance sheet and then allocated to the income statements for the periods it benefits.

55
Q

What is the Make or Buy Decision?

A

It is a decision used to determine whether it is more advantageous to purchase an item outside the company or make it internally. Comparing and contrasting the costs of making internally and buying it from another company.

56
Q

What is the Drop or Retain Decision?

A

It is a concept regarding whether a segment of business should be continued or not

Bus302 (4 decks)

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