Midterm Review Flashcards
What is the main characteristic of Just-In-Time approach?
Purchases and products built only to meet the customer demand
What are the two characteristics of Total Quality Management (TQM)?
1) Focus on serving customers
2) Systematic problem solving using front-line employees
Outline the Plan-Do-Check-Act (PDCA/Deming Wheel) process
1) Study, collect data, plan, plan measures
2) Test the plan on a small scale
3) Evaluate the test and see if it worked
4) Adjust plan and try again, or implement the change (depending on the result from the test)
What is process re-engineering?
Analyzing and implementing changes in a process to focus on simplification and elimination of wasted effort
Eliminate non-value adding activities
What is the theory of constraints? Three parts of the TOC chain?
That managing constraints is the path to success
1) ID the constraint
2) Limit the strain on the constraint
3) Focus on strengthening the weakest link
What was the main purpose of Sarbanes-Oxley Act?
Improve the reliability and accuracy of corporate financial reports and disclosures
What is the cost behaviour of variable costs with respect to level of activity?
They are constant per unit but increase as a total with an increase in level of activity
What is the cost behaviour of fixed costs with respect to level of activity?
They change per unit but stay constant as a total with an increase in level of activity (within the relevant range)
What is the difference between a direct and an indirect cost? An example of each?
Direct cost can be easily and economically traced to a cost object.
Direct: amount of fuel for a plane
Indirect: Salaries of baggage handlers
What is a differential (relevant) cost?
A cost that differs between two alternatives and occurs in the future
What is manufacturing overhead/factory overhead/factory burden/indirect manufacturing cost?
The costs that go into production that are indirect (indirect materials/labour, factory maintenance, utilities, property taxes, depreciation on factory equipment and factory buildings)
What is conversion cost?
Manufacturing overhead and direct labour
What is prime cost?
Direct labour and direct materials
What is the difference between product/inventoriable costs and period costs?
Product: Costs associated with acquiring or producing a product
Period: All non-manufacturing costs
What is the basic inventory flow equation?
Beginning balance + Additions to inventory - Withdrawals from inventory = Ending balance
What are the differences between the financial statements of a merchandising firm and a manufacturing firm?
Income statement: Purchases vs. Cost of Goods Manufactured, Merchandise inventory vs. Finished Goods inventory
Balance Sheet: Raw materials/Work in process/finished goods vs. merchandise inventory
How is the schedule of cost of goods manufactured assembled?
Direct materials + Direct labour + Manufacturing overhead = COGM (total man + beginning WIP - ending WIP = COGM)
What is a step-variable cost? Example?
Changes in response to more than a unit of activity change. Example: Wait staff at a restaurant
What is the difference between a committed fixed cost and a discretionary fixed cost?
Committed: Long-term, can’t be eliminated without huge changes in ability to achieve goals
Discretionary: Short-term, can be eliminated without huge changes in ability to achieve goals
What is a mixed cost? How does it behave as activity level increases?
Mix of fixed and variable costs (think two-part tariff pricing)
Decreases on a per unit basis as activity increases. Increases in total as activity increases.
How are mixed costs analyzed through the high-low method?
Change in cost / Change in activity = Variable Cost
FC = Total Cost - VC
Y = FC + VCx
Difference between contribution/variable costing and traditional/gross margin/absorption costing income statements
Contribution used the CM and distinguishes between variable and fixed costs whereas the trad format uses COGS and Gross Margin
What is the income statement format for variable costing?
Sales - VC = CM - FC = NI
Define break-even point and what will happen when sales increase over the BEP
Where net income = 0
After the BEP NI will increase by the amount of the contribution margin x the # of units
What is the CM ratio?
CM / Sales
What are the four CVP analysis assumptions?
1) Selling price constant
2) Costs are linear and can be separated into VC and FC
3) Sales mix is constant
4) Inventory doesn’t change
Define the two methods of BE analysis
1) Equation method
Profits = Sales - (VC + FC)
2) CM Method
FC / Unit CM or FC / CM Ratio
How does the target profit equation relate to the BE analysis equations?
Add profits to fixed expenses in the same equations
What is the margin of safety?
Margin of safety dollars / Total (budgeted) sales
What is operating leverage?
CM / NI
What are the 4 steps in CVP analysis?
1) Determine how the behaviour of the costs being changed (fixed, variable, mixed)
2) Determine change in sales that will occur
3) Determine change in VC and include on new fin statements
4) Determine NI
What is the difference between a forecast, projection, and budget?
Forecast: Assumptions based on facts
Projection: Different scenarios, what is hoped to happen
Budget: What is required, not expected
Incremental vs zero-based budgeting
Incremental: Based on the previous period
Zero: Everything needs to be justified again
Periodic vs continuous budgeting
Periodic: usually once a year
Continuous: Rebudgeting for 12 months out every month
Participative (self-imposed) budgeting
Managers prepare their own budgets rather than being dictated from above
Responsibility accounting
Managers held responsible for only the items that they can control
Master budget layout
Sales -> S&A, Production, Cash Production -> DM Budget, DL budget, MOH budget S&A -> Cash DM Budget -> Cash DL -> Cash MOH -> Cash Ending FG inventory Budget -> Production
Production budget format
Budgeted sales Add: Desired ending Total needs Deduct: Desired beginning Required production
DM Budget format
Raw materials needed Add: Desired ending Total needs Deduct: desired beginning Total purchases needed
DL Budget format
Required production Hours per case Hours needed Cost per hour Total direct labour cost
MOH Budget format
Budgeted hours Variable overhead rate Variable MOH Fixed MOH Total MOH Less: Depreciation Cash disburse for MOH
Total MOH
Budgeted DL hours
Overhead rate for the year
FG budget format
Unit product cost (DL, DM, MOH)
Ending inventory in units
Unit product cost (from above)
Ending FG in dollars
S&A Budget format
Budgeted sales Variable S&A per unit Total Variable S&A Budgeted fixed S&A Total S&A Less: Depreciation Cash for S&A
Cash budget format
Cash balance beginning Add: receipts Cash available before financing Deduct: Disbursements Excess of cash over disbursements
Financing (borrowing, repayments, interest)
Total financing
Cash balance, ending
Budgeted Income format
Sales Less: COGS Gross Margin Less: S&A NOI Less: interest NI
Budgeted balance format
Current assets
PPE
Total Assets
Liabilities
SH Equity
Total Liab & Equity
What is the target costing formula?
Estimated price - Target profit margin = Target cost
What’s the difference between COGM and COGS
COGM: Relates to units PRODUCED
COGS: Relates to units SOLD
Rarely the same
What are the 4 steps to profitably using a constrained resource?
1) Calc CM per unit
2) Calc how much of each constrained resource in each unit
3) CM / Unit of constrained resource
4) Rank the alternatives
What are the 3 steps for sell-or-process decision?
1) Calc sales value if processed further - sales value at split-off point
2) Cost of processing further
3) Step 1 - Step 2 = positive then process further; if negative don’t process further
What are the 6 benefits of budgeting
1) Systematic thinking
2) Potential impediment uncovering
3) Communicate plans
4) Coordinate plans
5) Resources used effectively
6) Create benchmarks for future performance
What are the two axes on the CVP graph?
X - Unit volume
Y - $
Sales Budget Format
Budgeted sales in units
Selling price per unit
Total Sales
Schedule of cash collections
