Midterm 1 Review Flashcards
on what type of user does managerial accounting focus on?
internal users to support planning, controlling, and decision-making
what type of data does managerial accounting emphasize?
future-oriented data
what are the key functions of managerial accounting?
- planning
- controlling
- decision-making
what is the planning function on managerial accounting?
establishing goals and determining strategies
what is the controlling function of managerial accounting?
monitoring performance, comparing actual results with budgets
what is the decision-making function of managerial accounting?
choosing between alternatives based on relevant costs
what are the the ethical considerations of managerial accounting?
- competence
- confidentiality
- integrity
- credibility
what does the competence consideration of managerial accounting refer to?
maintaining professional knowledge
what does the confidentiality consideration of managerial accounting refer to?
keeping information secure
what does the integrity consideration of managerial accounting refer to?
avoiding conflicts of interest
what does the credibility consideration of managerial accounting refer to?
providing accurate, fair, and timely reports
what are the types of costs?
- indirect
- direct
what are direct costs?
costs that can be directly traced to a product (eg. direct materials, direct labor)
what are indirect costs?
costs that cannot be easily traced (eg. factory rent, supervisor salaries)
what are the types of manufacturing costs?
- direct materials (DM)
- direct labor (DL)
- manufacturing overhead (MOH)
what are direct materials?
raw materials used in production
what is direct labor?
labor costs of workers who directly manufacture the product
what is manufacturing overhead?
indirect costs such as factory utilities, depreciation
what are the types of non-manufacturing costs?
- selling costs
- administrative costs
what are selling costs?
costs to market, distribute, and service products
what are administrative costs?
costs related to general business operations
what are product (inventoriable) costs?
costs reported as inventory until sold (eg. direct materials, direct labor, manufacturing overhead)
what are period costs?
costs expensed immediately in the period incurred (eg. office rent)
what are variable costs?
costs that change in total activity (eg. sales commissions, raw materials)
what are fixed costs?
remain constant in total (eg. rent, salaries)
what are the types of fixed costs?
- committed fixed costs
- discretionary fixed costs
what are committed fixed costs?
cannot be changed short-term (lease payments)
what are discretionary costs?
can be adjusted (eg. advertising expenses)
what are mixed costs?
costs that contain both variable and fixed components
what is the formula to solve for mixed cost?
Y = a + bX
Where:
- y = total mixed cost
- a = total fixed cost
- b = variable cost per unit
- X = level of activity
what are the types of cost behavior analysis?
- high-low method
- scattergraph plot
- regression analysis
how does the high-low method work?
estimates variable and fixed components using the highest and lowest activity levels
what are cost drivers?
activity base that causes variable costs to change (eg. units produced, machine hours)
what are step-variable costs?
costs that remain fixed over a range of activity but jump to a higher level when a threshold is reached (eg. maintenance staff salaries)
what is the formula to solve for variable cost per unit using the high-low method?
variable cost per unit = change in total cost / change in activity
what is the contribution format income statement?
separates costs into variable and fixed instead of functions
what is the formula to solve for net operating income using the contribution margin?
net operating income = contribution margin - fixed expenses
what are the key elements of cost-volume-profit?
- selling price
- volume/activity level
- variable costs per unit
- total fixed costs
- sales mix (for multiple products)
what is the formula to solve for the contribution margin?
CM = sales revenue - variable costs
what is the formula to solve for the contribution margin ratio?
CM = total CM / total sales revenue
what is the formula to solve for break-even in units?
break-even sales (units) = total fixed costs / unit CM
what is the formula to solve for break-even in dollars?
break-even sales ($) = total fixed costs / CM ratio
what is the formula to solve for target profit required sales in units?
required sales (units) = (total fixed costs + target profit) / unit CM
what is the formula to solve for target profit required sales in dollars?
required sales ($) = (total fixed costs + target profit) / CM ratio
what is the margin of safety?
the excess of actual or budgeted sales over break-even sales
what is the formula to solve for the margin of safety in dollars?
margin of safety ($) = total sales - breakeven sales
what is the formula to solve for the margin of safety percent?
margin of safety (%) = margin of safety ($) / total sales
what is operating leverage?
measures the sensitivity of net income to sales changes
what is the formula to solve for operating leverage?
degree of operating leverage = contribution margin / net operating income
what costs are considered product costs under absorption costing?
- direct materials
- direct labor
- variable manufacturing overhead
- fixed manufacturing overhead
what costs are considered period costs under absorption costing?
- selling expenses
- administrative expenses
what costs are considered product costs under variable costing?
- direct materials
- direct labor
- variable manufacturing overhead
what costs are considered period costs under absorption costing?
- fixed manufacturing overhead
- selling expenses
- administrative expenses
what is the function of absorption costing?
required for external financial reporting
what is the function of variable costing?
preferred for internal decision-making
if production > sales…
absorption net income is higher (fixed MOH is deferred in inventory)
if production < sales…
variable net income is higher (fixed MOH is expensed immediately)
what is the impact of absorption costing on decision making?
absorption costing can distort pricing and profitability decisions by spreading fixed costs across units
what are the advantages of variable costing?
- more accurate profit measurement
- easier to perform CVP analysis
- consistent with cash flow
