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acc 301 > Midterm 1 > Flashcards

Midterm 1 Flashcards

1
Q

Cost Accounting Definition

A

the process of collecting, analyzing, and reporting financial and nonfinancial information related to the costs of acquiring or using resources in an organization

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2
Q

Strategy

A

specifies how a firm matches its own capabilities with the opportunities in the marketplace

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3
Q

cost leadership

A

providing high quality products at the lowest cost possible

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4
Q

product differentiation

A

providing unique or differentiated products that appeal to customers

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5
Q

Questions asked by Management

A

Who are our most important customers, and how can we be competitive and deliver value to them?

What substitute products exist in the marketplace, and how do they differ from our own?

Will adequate cash be available to fund the strategy or will additional funds need to be raised?

What is our most critical capability?

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6
Q

Value

A

the usefulness a customer gains from a company’s product or service

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7
Q

Value Chain

A

sequence of steps is necessary to create value

Inbound Logistics, Operations, Outbound Logistics, Marketing Sales, Services

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8
Q

Supply-Chain

A

Production and Distribution functions of the Value Chain

Supply chain activities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer

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9
Q

Key Success Factors

A 
Cost and efficiency
Quality 
Time
Innovation
Sustainability
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10
Q

The Five Step Decision-Making Process

A
  1. Identify the problem and uncertainties
  2. Obtain information
  3. Make predictions about the future
  4. Make decisions by choosing alternatives
  5. Implement the decision, evaluate performance, and learn

Planning through 1-4 and take control on step 5

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11
Q

Cost object

A

anything for which a cost measurement is desired

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12
Q

Cost Object BMW Example

A

Product: BMW Car

Service: Telephone hotline providing info and assistance to BMW dealers

Project: R&D project on GPS systems for cars

Customer: South Motors, a dealer

Activity: Setting up machines for production or maintaining production equipment

Department: Assembly, Quality Control, Customer service

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13
Q

Cost accumulation

A

collection of data in an organized way by means of an accounting system

Examples: Raw materials + Production + Quality check + Packaging = accumulated cost

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14
Q

Cost assignment

A

General term that encompasses the gathering of accumulated costs to cost an object in two ways

  • Tracing accumulated costs with direct relationship to the cost object
  • Allocating costs with indirect relationship
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15
Q

Direct Costs

A

Can be conveniently and economically traced to a cost object. These expenses go into directly producing goods/providing services

Ex: Direct Labor, Direct materials, manufacturing supplies

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16
Q

Indirect Costs

A

Cannot be traced easily, instead requires judgement . General business expenses that keep you operating

Ex: Rent, Utilities, General office expenses

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17
Q

Factors that affect Direct/Indirect Costs

A
  • Materiality of the cost
  • Available info-gathering technology
  • Design of operations

Electricity is direct for whole factory while it’s also indirect for each department

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18
Q

Cost driver

A

variable, such as level of activity or volume, that casually affects cost at a given time span

of miles, # of units, square feet that increases costs

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19
Q

Variable costs

A

remain unchanged in total, for a given time period, despite changes in the related level of activity of output produced
More output = lower cost per unit

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20
Q

Merchandising companies

A

purchase and sell tangible products without changing basic form
- merchandise inventory

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21
Q

Manufacturing companies

A

purchase materials and components and convert them to finished products

  • Raw materials
  • Work in Process
  • Finished goods
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22
Q

Service companies

A

provide services (intangible) like legal advice or audits

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23
Q

Raw materials

A

resources in-stock and available for use

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24
Q

Work-in-process (WIP)

A

Products started but not let completed

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25
Q

Finished goods

A

products ready for sale

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26
Q

Direct Materials

A

acquisition costs of all materials that will become part of the cost object

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27
Q

Direct Labor

A

Compensation of all manufacturing labor that can be traced to cost objects

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28
Q

Overhead Costs

A

factory costs that are not traceable to the product in an economically feasible way
Includes lubricants, indirect manufacturing labor, utilities, and supplies

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29
Q

Inventoriable Costs

A

Costs of a product that are considered assets in a company’s balance sheet when costs are incurred and that are expensed as cost of goods sold only when the product is sold

All manufacturing costs are inventoriable costs for manufacturing companies

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30
Q

Period Costs

A

All costs in the income statement other than COGS. Treated as expenses of the accounting period that they occurred

31
Q

Used Inventory Formula

A

Beginning Inventory + New Inventory - Ending Inventory

32
Q

Prime Costs Formula

A

Direct Materials + Direct Labor

33
Q

Conversion Costs

A

Direct Labor + Overhead

34
Q

Overtime Labor

A

Considered part of indirect overhead costs

35
Q

Costs of Goods Sold Formula (Other)

A

Beg Inv + Purchases + Freight-In Costs - End Inv

36
Q

Direct Materials Inventory Formula

A

DM Beg + DM Purch - DM Used

37
Q

Fixed Over Head Costs Formula

A

Total MO - Var MO

38
Q

WIP Formula

A

Beg WIP + Total MO Incurred - Cost of Goods Manuf

39
Q

Objective for Cost-Volume-Profit Analysis

A

To see how profits will change as the units sold of a product or service changes

Understanding the relationship among the selling price, variable costs, and fixed costs

40
Q

Operating Leverage

A

Describes the degree to which to which fixed costs exist in a company’s cost structure

How sensitive your company is to fixed costs

Contribution Margin / Operating Income

41
Q

Effects of multiple products on CVP

A

Use weighted average contribution margin of a product

Assumes a constant mix of different levels of total unit sales

42
Q

Assumptions for CVP

A

Number of units sold is the only revenue and cost driver

Total costs consist of fixed and variable costs

Revenue and costs behave and can be graphed as a linear function

Selling price, variable cost per unit, and fixed costs are ll known and constant

Single product (unless weights are known)

Time value of money is ignored

43
Q

Job-costing system

A

Cost object is a unit or multiple units of a distinct and unique product or service

Each job uses different amounts of resources

44
Q

Process-costing system

A

Cost object is masses of identical or similar units of a product or service

45
Q

Flow of costs in job costing

A

Purchase materials and other manufacturing inputs
Conversion into work in process inventory
Conversion into finished goods inventory
Sale of finished goods

46
Q

Journal Entries

A

Every job/product is unique, so journal entries are made at each step of the process

Supposed to reflect the actual state of business, its inventories, and its production process

All product costs are accumulated in the work-in-process account (DM used, DL incurred, Factory overhead allocated)

Actual indirect costs (overhead) are accumulated in the manufacturing overhead account

Actual overhead never posted in WIP

47
Q

Why are Traditional Cost Systems used

A

Manufacturing processes were mainly labor intensive

Allocated through company-wide overhead rate

48
Q

Labor Intensive Process

A

Overhead costs are small

Overhead allocations may be inaccurate, but the amounts are relatively insignificant

49
Q

Automated Process

A

Overhead costs are large

Inaccurate overhead allocation can lead to misleading product cost information

50
Q

Activity Based Costing

A

Taking a closer look at the manufacturing process to understand what exactly drives OH costs

51
Q

Cost pool

A

cost of economic resources needed or consumed in performing an activity

Ex: personnel, supplies, salaries

52
Q

Cost object

A

any product, service, customer, activity, or organizational unit to which costs are accumulated for some management purposes

Ex: any item for which you are separately measuring costs

53
Q

Types of Production Activities

A

Unit Level
Batch Level
Facility Level
Product Level

54
Q

Unit Level

A

Performed for each unit
Inserting a component
Labeling each unit produced

55
Q

Batch level

A

Performed for each batch of product
Setting up equipment
Inspecting a batch

56
Q

Facility Level

A

Required for the entire manufacturing process to occur

Factory Utilities, Rent, Security

57
Q

Product Level

A 
Performed to support each type of product
Ex: Fitbit, iPhone, Caramel Frappuccino 
Designing the product
Engineering the product
Marketing or advertising the product
58
Q

ABC effects on Employees

A

May lead to cost-cutting, which could be lay-offs

Impacts employee personal lives and morale

Could lead to employees being less cooperative which leads to inaccurate data

59
Q

ABC effects on Management

A

They seek to use ABC to improve the value of products and increase the firm’s competitiveness and profitability

60
Q

Two types of ABM

A

Operational

Strategic

61
Q

Operational ABM

A

Performing activities more efficiently to lower costs

Use techniques like business engineering, total quality management, performance measurement, and activity analysis

62
Q

Strategic ABM

A

Increase demand for certain activities and increase profitability

Achieved by eliminating non-essential activities and selecting the most profitable customers

63
Q

Value-Added Analysis

A

Eliminating activities that add little to no value reduces resource consumption and allows the firm to focus on activities that will increase customer satisfaction

High-value added
Low-value added

64
Q

High-Value Added

A

Significantly increases the value of the product or service to customers

Essential to the process

Accuracy or effectiveness would be effected if eliminated

Contribute to customer satisfaction

Ex: Designing a product, Order Processing, Delivering product

65
Q

Low-Value Added

A

Consumes time, resources, or space but adds little to no value and does not contribute to satisfying the customer

Duplicates work

Produces an unnecessary or unwanted output

Performed by request of an unhappy customer

Ex: Setting up Machines, Moving Inventory, Storing, Inspecting

66
Q

Customer Profitability Analysis

A

ABC is useful for satisfying customers (advertising, sales calls, delivery, billing, and other customer services)

Customers are the cost objects

Activities are the customer services needed to complete the sale and satisfy the customer

CPA helps identify most profitable customers and market towards them and away from unprofitable customers

67
Q

Process Costing Objective

A

To match manufacturing COSTS to UNITS produced

Costs are accumulated according to processes or departments, NOT jobs

Units move along a conveyor belt through the departments – as units travel through the departments, they acquire costs

68
Q

Account WIP

A

Shows the dollar value of all materials, labor, and overhead that has been issued to production but has not yet produced a finished good.

69
Q

Production Cost Report

A

summarizes the physical units of a department, the costs incurred during the period, and the costs assigned to units completed and to units in ending work-in-process inventories.

70
Q

Weighted Average

A

Assumes all beginning WIP was produced this period

Incorrect assumption but acceptable when prices (e.g., cost of labor, cost of raw materials, etc.) do not fluctuate from period to period

71
Q

FIFO

A

FIFO takes into account that this period’s beginning WIP was produced last period (at last period’s prices).

More accurate accounting for unfinished inventory when prices change dramatically from period to period
Follows FIFO like in financial accounting.

72
Q

Handling of partially completed beginning WIP

A

WA: No separate treatment

FIFO: Separates the units in the beginning WIP (and their costs) from the units started and completed during the period

73
Q

Ease of calculation and appropriateness

A

WA: Easier; best in situations where WIP is small and prices/costs are stable

FIFO: More difficult; best in situations where prices/costs fluctuate; better for “control” purposes

74
Q

Backflush Costing

A

simplified approach to determining cost that charges current production costs directly to finished goods inventory using a standard unit cost (without accounting for WIP and/or flow in and out of WIP)

For companies that have little to no raw materials, WIP, or finished goods

No process costing needed

acc 301 (7 decks)

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