Midterm studying Flashcards
What are the main roles of managers in managerial accounting?
pdmcd
Planning
Directing
Motivating
Controlling
Decision Making.
What activities are included in the planning function of managerial accounting?
Setting goals
identifying alternatives
selecting the best alternative
developing budgets.
In managerial accounting, what does the directing and motivating function involve?
MUCPE
- Managing daily activities
- using data for decision making, and employee tasks
- conflict resolution
- problem-solving
- effective communication.
What is the primary focus of the controlling function in managerial accounting?
Ensuring plans are followed through feedback and preparing performance reports.
What is the primary difference between managerial accounting and financial accounting?
Managerial accounting focuses on internal decision-making with timely data, while financial accounting is external, emphasizing accuracy in quarterly and yearly statements.
Describe the controlling function in managerial accounting.
It involves ensuring that plans are followed by gathering feedback and preparing performance reports to compare actual data with budgets.
What is the purpose of decision-making in managerial accounting?
To make intelligent, data-driven decisions that are guided by accounting data.
List the five “V’s” of big data.
Variety
Volume
Velocity
Veracity
Value.
What are the three main types of manufacturing costs?
Direct materials, Direct labor, and Manufacturing overhead.
Define ‘Direct materials’ in the context of manufacturing costs.
Materials that can be conveniently traced to the product and are integral parts of the final product.
What is included in ‘Manufacturing Overhead’?
Indirect materials, indirect labor, and other costs not directly traceable to a product, such as maintenance, utilities, and depreciation on production equipment.
Describe the ‘Cost of Goods Manufactured’ (COGM) calculation.
COGM = Beginning work in process inventory + Total manufacturing costs - Ending work in process inventory.
What is the formula for calculating ‘Cost of Goods Sold’ (COGS) in a manufacturing company?
COGS = Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory.
What is the difference between ‘Variable Costs’ and ‘Fixed Costs’?
Variable costs change in proportion to production volume, while fixed costs remain constant regardless of production levels.
Define ‘Relevant Range’ in cost behavior.
The range of activity within which the assumptions about variable and fixed cost behavior are valid.
Define ‘Variable Costs’ in managerial accounting.
Total variable costs change in direct proportion to changes in the activity level, but the cost per unit remains constant.
What is an ‘Activity Base’ in relation to variable costs?
An activity base is the measure that causes the variable cost to change, such as units produced, hours worked, or miles driven.
What are ‘Committed Fixed Costs’ and give an example.
Long-term fixed costs that cannot be easily reduced in the short term, such as depreciation on factory equipment.
Explain the ‘Relevant Range’ concept in fixed costs.
The relevant range is the range of activity within which total fixed costs remain constant.
what is the high low method formula to obtain variable cost
(cost at high activity - cost at low activity) / high activity-low activity
OR
change in cost/change in activity
Describe the ‘Contribution Margin’ and its formula.
Contribution Margin = Sales - Variable Costs; it represents the amount available to cover fixed costs and contribute to net operating income.
What is the formula for ‘Break-Even Point in Units’?
Break-Even Units = Fixed Costs / Contribution Margin per Unit.
Define ‘Step Variable Costs’ and give an example.
Costs that remain fixed over a small range of activity but jump to a new level when activity changes significantly, such as hiring additional staff once customer volume reaches a threshold.
What is the difference between ‘Contribution Format’ and ‘Traditional Format’ income statements?
Contribution Format categorizes costs as variable and fixed, focusing on contribution margin, while Traditional Format categorizes costs as COGS and operating expenses, focusing on gross margin.
What is the purpose of Cost-Volume-Profit (CVP) analysis?
To understand the relationship between costs, volume, and profit, helping managers make decisions about pricing, production levels, and cost management.
How is Contribution Margin (CM) calculated?
CM = Sales - Variable Costs
What does the Contribution Margin Ratio (CMR) indicate?
The proportion of sales that contributes to covering fixed costs and generating profit, calculated as CM / Sales.
How do you calculate the Break-Even Point in units?
Break-Even Point (units) = Fixed Costs / CM per Unit.
Define ‘Margin of Safety’ in CVP analysis.
The amount by which sales exceed the break-even point, indicating the buffer before a company would incur a loss.
What is Operating Leverage, and why is it important?
A measure of how sensitive net operating income is to a change in sales. High operating leverage means that a small change in sales results in a larger impact on profits.
How is the ‘Degree of Operating Leverage’ calculated?
Degree of Operating Leverage = CM / Operating Income.
What is the formula to determine the required sales to achieve a target profit?
Required Sales = (Fixed Costs + Target Profit) / CM Ratio.
Explain the concept of ‘Multi-Product CVP Analysis.’
It involves calculating a weighted average CM to determine the break-even point across multiple products with different sales volumes and margins.
What is the ‘Margin of Safety Percentage,’ and how is it calculated?
Margin of Safety Percentage = (Actual Sales - Break-Even Sales) / Actual Sales; it expresses the margin of safety as a percentage of actual sales.
What is Job-Order Costing used for?
It is used for costing when different products or services are produced in the same facility, with each job tracked individually for direct and indirect costs.
How does Process Costing differ from Job-Order Costing?
Process Costing is used for mass production of identical items in a continuous process, while Job-Order Costing is for unique jobs or batches with distinct requirements.
What is a Job Cost Sheet?
A document used to record direct materials, direct labor, and manufacturing overhead costs assigned to each specific job.
Define ‘Bill of Materials’ in the context of Job-Order Costing.
A document listing the type and quantity of each material needed to complete a job.
What is a Predetermined Overhead Rate (POHR), and how is it calculated?
used to apply overhead costs to jobs.
POHR = Estimated Total Manufacturing Overhead / Estimated Total Allocation Base;
Explain the difference between Underapplied and Overapplied Overhead.
Underapplied overhead:
when actual overhead costs > applied costs,
Overapplied overhead
when actual overhead costs < applied costs
How is Manufacturing Overhead applied to jobs?
By multiplying the POHR by the actual amount of the allocation base incurred by the job.
Describe the purpose of a Materials Requisition Form.
It is a form used to request materials for production, specifying type, quantity, and identifying the job for allocation.
What is included in the journal entry to apply overhead to a job?
Debit Work in Process Inventory and credit Manufacturing Overhead.
What is the primary purpose of a job cost sheet in Job-Order Costing?
To track all costs associated with a specific job, including direct materials, direct labor, and applied overhead.
What is the primary purpose of Activity-Based Costing (ABC)?
To provide managers with detailed cost information for internal decision-making, focusing on non-manufacturing and manufacturing costs and both fixed and variable costs.
How does ABC differ from Traditional Costing?
ABC assigns costs to products based on specific activities and resources used, whereas Traditional Costing uses a single overhead rate, often leading to less accurate product costing.
What are the key levels of activities in ABC?
Unit-Level, Batch-Level, Product-Level, Customer-Level, and Organization-Sustaining activities.
Describe the ‘Unit-Level’ activities in ABC.
Activities performed each time a unit is produced, such as machine operations for each product made.
Explain ‘Batch-Level’ activities in ABC.
Activities performed for each batch of products, regardless of the number of units, like machine setups for each production batch.
What are ‘Product-Level’ activities?
Activities performed to support specific products, such as product design or quality testing.
What are the main steps in implementing ABC?
Identify activities
assign costs to activities
calculate activity rates
assign costs to products
prepare management reports.
What is a ‘Cost Pool’ in ABC?
A grouping of individual costs associated with an activity, used to accumulate overhead costs before assigning them to products.
What is ‘Activity Rate’ in ABC, and how is it calculated?
Activity Rate = Total Cost of each activity cost pool / Total activity measure
rate at which costs are assigned to activities based on the cost driver (a factor that causes the cost of an activity). It represents the cost per unit of activity and is use
two advantages of using Activity-Based Costing.
More accurate product costing and improved decision-making by highlighting resource usage and profitability per product or service.
What is the main difference between Absorption Costing and Variable Costing?
Absorption Costing includes fixed manufacturing overhead in product costs, while Variable Costing only includes variable manufacturing costs in product costs.
What are the advantages of Variable Costing?
It provides better insight for internal decision-making by showing the actual variable costs associated with production and preventing fixed costs from affecting per-unit costs.
How does Absorption Costing treat fixed manufacturing overhead?
It allocates fixed manufacturing overhead to each unit produced, affecting both inventory valuation and cost of goods sold.
When is fixed manufacturing overhead expensed under Variable Costing?
It is expensed in the period incurred, not assigned to individual units, affecting only the income statement.
How does the beginning inventory affect Absorption Costing?
If there is beginning inventory, some fixed manufacturing overhead costs carried over from prior periods will be included in COGS under Absorption Costing.
What is the key impact of production levels on income under Absorption Costing?
Income can increase simply by producing more units than are sold, as unsold units carry fixed costs into inventory rather than expensing them
What is the formula for calculating unit product cost under Absorption Costing?
Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead + (Fixed Manufacturing Overhead / Units Produced).
How does Variable Costing simplify cost behavior analysis?
By treating fixed manufacturing overhead as a period expense, Variable Costing allows managers to easily see the contribution margin and variable costs related to production
What impact does Variable Costing have on reported profit when sales volume changes?
Reported profit under Variable Costing is directly tied to sales volume, as only variable production costs are included in COGS, leading to clearer profit reporting.
Why might managers prefer Variable Costing for internal reporting?
It provides a clearer view of variable costs and contribution margin, aiding in decision-making related to pricing, production, and cost control.
schedule of COGM
write it down then compare with notes.
prime cost
direct materials + direct labour
conversion cost
direct labour + moh
schedule of COGS
write it down then compare with notes.
income statement contribution format vs traditional format
write both of them down then compare with notes.
multi product CVP analysis. overall CM ratio
OverallCMRatio= WeightedAverageCMU /
WeightedAverageSellingPriceperUnit
weighted average CMU
Cmu1salesmix + cmu2salesmix
absortion income effects. production = sales
no change in inventories. absortion and variable incomes are the same
absortion income effects. production > sales
inventories increase. absortion costing will be greater than variable costing income
absortion income effects. production < sales
inventories decrease. absortion will be less than variable income
reconciliation of variable cossting and absortion costing
variable costing operating income
+ fixed moh deffered
-fixed moh released
= absorption costing OI
WeightedAverageSellingPriceperUnit=
WeightedAverageSellingPriceperUnit=(SellingPrice1× SalesMix1)+(SellingPrice2× SalesMix2)
what do you do with underapplied moh and overapplied moh
underapplied =
debit the difference to COGS (the underapplied)
credit MOH
over applied =
debit MOH
credit the difference to COGS (the overapplied)
