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Yaegar BEC > Memo Terms > Flashcards

Memo Terms Flashcards

1
Q

How does the direct method allocate costs?

A

Allocates costs of each service department to production

Departments based on relative level of use

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2
Q

When can the direct method result in inaccurate costing?

A

When service departments provide significant amounts of services
To other service departments

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3
Q

Reciprocal method, how do they allocate costs?

A

Simultaneous equations to allocate costs to production departments

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4
Q

Using simultaneous equations to allocate costs to production departments results in a more accurate allocation of costs when…

A

Service departments provide services to other departments

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5
Q

Step method allocates service department costs to…

A

Other service departments and production departments

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6
Q

Performance measurement systems 3

A

1 Compensation

2 resource allocation

3 business unit performance

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7
Q

Performance measurement system that is used for multiple purposes?

A

Balanced score card

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8
Q

It is important that all performance measures reflect…

A

Strategy of the company

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9
Q

Performance measures must represent…

A

Economic reality

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10
Q

A system of performance measures to evaluate and compensate managers should be sensitive to…

2) not sensitive to…

A

Factors in the managers control

Not sensitive to factors beyond the manager’s control

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11
Q

An advantage of issuing preferred stock is that preferred shareholders…

A

Do not generally participate in superior earnings of the firm

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12
Q

Product cost info is very important input into a number of business decisions including those involving…3

A

1 product pricing

2 inventory levels

3 allocation of productive resources

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13
Q

A competent and independent audit committee is critical to an effective system of…

A

Corporate governance and internal control

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14
Q

The audit committee should have the responsibility to appoint and discharge…

A

External auditors

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15
Q

The audit committee, 2 responsibilities with external auditors

A

1 determine their compensation

2 oversee their work

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16
Q

The audit committee should have direct access to both external auditors and internal auditors and should…

A

Approve the scope of their work

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17
Q

The audit committee should oversee the financial reporting and internal control systems of the company, including establishing procedures for receipt and treatment of complaints about…

A

1 internal control

2 accounting or

3 auditing matters

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18
Q

A responsibility accounting system is one that evaluates center managers based on reports that include…

A

Only revenues and costs a particular manager can control

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19
Q

If the manager is responsible for both profits and costs, the center is referred to as…

A

Profit center

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20
Q

Cost center is one where…

A

Manager is only responsible for costs

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21
Q

Primary advantage of responsibility accounting system…

A

Managers rewarded based on factors within their control

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22
Q

Total fixed cost in the flexible budget would be…

A

Constant within the relevant range

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23
Q

If the market value of P at split off increases and all other costs and selling prices remain unchanged, then gross margin of P…

Gross margin of Q…

A

P decreases

Q increases

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24
Q

If the market value at split off (sales value) of joint product increases, than a for product A…

Or product B?

A

Larger portion of total joint costs will be allocated to that product A

Smaller amount of costs allocated to product B

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25
Q

Total production costs to split off point. $110,000
Gasoline sales. 280,000
By product sales. 30,000
Gasoline inventory. 15,000
Additional by product costs:
Marketing. 10,000
Production 13,000

Mig accounts for the by product at the time of production. What are Mig’s 2013 cost of sales for gasoline and the byproduct? 5 steps

A

Total production (joint) costs. 110,000
Less: NRV of by-product (30 - (10 +13). 7,000
= Net production cost. 103,000
Less: cost of inventory. 15,000
= cost of sales. 88,000

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26
Q

Hedging is a technique used in risk management in which…

A

The risk of price volatility of material is shared with another party

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27
Q

To hedge the cost of raw materials the company can purchase…

A

Forwards or futures to lock in prices

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28
Q

A forward is a…

A

Negotiated contract to purchase a commodity at a fixed price

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29
Q

Future is a…

A

Standardized contract to take delivery of commodity at future
Date at specified price

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30
Q

The primary benefit of hedging is that the company can…

A

Fix the price it will pay for a commodity over an extended period of time

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31
Q

Hedging may be used to ensure…

A

Sufficient availability of raw material

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32
Q

A system of corporate governance is designed to help ensure that management of the company…

A

Acts in the best interest of owners of the company

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33
Q

Effective corporate governance involves developing devices to…

A

Prevent self serving activities on part of managers of the company

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34
Q

Corporate governance:

The board of directors should take an active role in…2

A

Overseeing management and determining management compensation

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35
Q

Corporate governance:

The audit committee should oversee…

A

1 financial reporting and

2 responsibility to appoint and determine compensation for
External auditor

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36
Q

Corporate governance:

The internal audit chief executive should report…

A

Directly to this committee

37
Q

Traditional costing uses only…

A

Variable and fixed overhead cost pools

38
Q

Traditional costing uses only variable and fixed or total overhead cost pools and allocates costs based on…

A

Direct labor hours/or direct machine hours

39
Q

Activity based costing is based on 2 principles

A

1 activities consume resources

2 resources are consumed by products, services or
Other cost objectives

40
Q

Activity based costing allocates overhead costs to products on the basis of resources consumed by each activity involved in…3

A

1 design

2 production

3 distribution of product

41
Q

In using activity based costing, costs are allocated using…

A

Cost drivers

42
Q

Cost drivers are those activities that have a…

A

Direct cause and effect relationship to a particular cost

43
Q

Activity based costing results in a more precise determination of…

A

Product costs than traditional costing methods

44
Q

Better information about product costs can result in…

A

Better production and pricing decisions by management

45
Q

Product differentiation strategy involves…

A

Customization of product to distinguish it to target market

46
Q

Differentiation may be accomplished with respect to…2

A

Differences between competing products and

Level of service

47
Q

Differentiation of product can be done through…2

A

1 advertising

2 brand loyalty

48
Q

Batch processing system is a very efficient method of processing transactions when…

A

Timeliness is not a major factor

49
Q

Under the batch processing systems accounting records are only up to date…

A

Once a week

50
Q

If an online real time processing g system is implemented accounting records would…

A

Constantly be up to date

51
Q

Online real time system benefits include:

Sales reps will…

A

Have mor timely information of inventory in stock

52
Q

Timely information about inventory systems from real time system will allow for…

A

Better inventory control

53
Q

Timely information about inventory systems from real time system will allow for better inventory control meaning management may be able to…

A

Make better revenue and cost saving decisions

54
Q

Publicly traded advantage:

Being on the stock market allows…3

A

1 business acquisition
2 easier transfer of ownership
3 employee stock based compensation

55
Q

Disadvantages of going public 3

A

1 Cost (SOX and reporting, SEC laws)

2 maximizing stock price might not be in best long term interest
Of company

3 info available to competitors

56
Q

Sale leaseback define2

A

1 company sells plant to another party and

2 leases it back under a long term agreement

57
Q

Advantages of a sale lease back…2

A

Financing and tax advantages

58
Q

Which is easier to obtain lease financing or bond financing?

A

Lease financing

59
Q

Which has more restrictions, bond or lease financing?

A

Bond financing

60
Q

Bonds typical maturity and interest payments?

A

20 year maturity with semiannual interest payments

61
Q

Bonds covenants place restrictions on…

A

Flexibility of the company

62
Q

Interest on bonds is…

A

Tax deductible

63
Q

ERM is a process designed to identify potential events that…2

A

1 may affect the corporation

2 manage risk within corporation’s risk appetite

64
Q

An enterprise risk management system established under the framework includes processes and controls that help ensure that risks are…4

A

1 identified
2 assessed
3 prioritized and
4 managed

65
Q

The ERM system benefits the corporation by…4

A

1 improving risk response decisions
2 reducing operational surprises/losses
3 helping corp seize opportunities
4 improving deployment of capital

66
Q

Budgeting system involves the development of…

A

Forecasts of revenues and expenses for a future period

67
Q

Budgeting system forecasts are used to plan future activities of…

A

1 sales
2 purchasing
3 production
4 investing

68
Q

Variance analysis may be used in conjunction with…

A

An effective budgeting system

69
Q

Variance analysis involves analyzing differences between…

A

Actual and budgeted amounts

70
Q

Variance analysis provides information on over and under use of…2

A

Materials

And over and under payment of purchase price

71
Q

Variance analysis determines over and under usage of materials and over and underpayment of prices allowing management to…

A

Improve decisions

72
Q

An effective internal audit department should have a charter that describes, what 3 aspects of internal audit activity?

A

1 purpose

2 authority

3 responsibility

73
Q

Internal audit organization:

Chief audit executive should establish risk based plans to determine…2

A

1 audit priorities

2 monitor audit results

74
Q

Internal auditors must be…2

A

1 competent and objective

To effectively perform their work

75
Q

Attitude of internal auditor should be…

A

Unbiased and avoid conflicts of interest

76
Q

Competence is achieved by internal auditor through…3

A

1 education

2 training

3 supervision

77
Q

If management uses the payback method or accounting rate of return that ignores investments, will lead management to select investments that…

A

Don’t provide the greatest return on investment

78
Q

Better alternatives that consider the time value of money:

Net present value evaluates alternative investments by calculating the present value of future cash flows discounted at the company’s…

A

Cost of capital

79
Q

Better alternatives that consider the time value of money:

Internal rate of return method determines the rate of discount at which the present value of future cash flows is…

A

Equal to present value of investment outlays

80
Q

Dividend policy considerations:

Dividend policy of a firm relates to management’s propensity to…

A

Distribute earnings to shareholders

81
Q

Dividend policy:

Appropriate dividend policy depends on a number of factors including the…4

A

1 life cycle stage of the company
2 financial position of the company
3 investment options available to the company
4 tax considerations

82
Q

Dividend policy:

To be in a position to pay dividends to shareholders, a company must reach a stage in its lifecycle at which it is no longer in need of…

A

Significant additional financing

83
Q

Dividend policy:

What lifecycle stages will a company usually not net significant additional financing?2

A

1 expansion stage

2 maturity stage of company’s life cycle

84
Q

Other considerations in dividend policy…2

A

1 can a higher return be earned with internal project

2 tax rates on wealthy shareholders

85
Q

Sales price variance

A

Number of units X change in price

86
Q

Cost price variance

A

Subtract cost of goods sold

87
Q

Sales volume variance affects…

A

The number of units sold per year

88
Q

4 conditions, if 1 met then capital lease

A

1 does ownership of leased equipment transfer after lease
2 bargain purchase option
3 lease term 75% or more of estimated life
4 present value of minimum lease payments equal to 90% or
more of fair value of leased equipment

89
Q

Business process re engineering is the search for and implementation of…

A

Radical change in business processes to achieve breakthrough results

Yaegar BEC (30 decks)

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