Module 1: Intro to Managerial Accounting & Using Costs Flashcards
what is management accounting?
process of supplying managers and employees in an org with relevant info, both financial and nonfinancial, for making decisions, allocating resources, monitoring, evaluating and rewarding performance
financial accounting vs managerial accounting
1) financial: retrospective, primarily oriented towards external stakeholders, stresses the form it is communicated in
2) management: retrospective and prospective, primarily oriented to needs of managers/employees, no prescribed form or rules about content
what is a balanced scorecard?
- provides system for measuring/managing all aspects of company performance
- balances financial measures of success (profits etc) with non financial measures (customer loyalty)
- measures org performance across different perspectives
4 perspectives of balanced scorecard?
- perspectives are linked and are derived from org mission, vision, strategy
- financial
- customer
- process
- learning and growth
what does a balanced scorecard enable org to do?
- track financial growth
- monitor how they are building capabilities for future growth and profitability (with customers, processes, employees, systems)
behavioural implications: measurements
- as measurements are made, behaviour changes
- people react to being measured
- people focus on variables and behaviour measured
behavioural implications: changes
- employees familiar with current system may resist changes
- employees have expertise in old system
- employees may feel committed to decisions on the info old system produced
behavioural implications: managers
1) Management accountants must understand and anticipate the reactions of individuals to information and measurements.
2) When the measurements are used not only for information, planning, and decision-making, but also for control, evaluation, and reward, employees and managers place great emphasis on the measurements themselves.
define cost driver
common term used for a variable or activity that causes a cost
explain variable cost (2 points)
One that increases proportionally with changes in the activity level of some variable; = variable cost per unit of the cost driver x cost driver units
graph of variable cost
Graph with x axis is volume and y axis is $, graph is linear, increasing
Slope = variable cost per unit of cost driver
variable cost in real life
not linear, but increasing due to economies, diseconomies of scale
define fixed asset/cost (3 points)
1) an asset not wholly consumed when 1 unit of product is made;
2) The cost that is associated with capacity-related resources.
3) The amount of fixed costs is related to the planned rather than the actual level of activities
4) provides capacity to produce
graph of fixed cost
horizontal for relevant range
explain mixed cost with example
variable cost component and fixed cost component ex. phone cost with fixed phone plan and extra data is variable
explain step variable cost with example
Increases in steps as quantity increases; ex. 1 supervisor for every 20 workers
explain relevant cost
ANY cost that changes as a result of a decision/change in a course of action
explain incremental cost (2 definitions)
1) Cost of the next unit of production (marginal cost in economics);
2) The amount by which the total costs of production and sales increase when one additional unit of a product is produced and sold
explain avoidable cost
A cost that can be avoided when undertaking a course of action
example of avoidable cost
if production ceases, all variable costs associated with that production process are avoided and the salaries of the production workers, which is a fixed cost
explain opportunity cost
Maximum value foregone when a course of action is chosen
what is opportunity cost for each option: Option A - profit $10, option B - profit $12, option C - profit $14
A - 14, B - 14, C - 12
explain sunk cost (2pts)
1) Cost from a previous commitment that can’t be recovered;
2) Sunk costs should not be considered in subsequent decisions because they can’t be changed
example of sunk cost
rent (year lease), phone plan (2 year contract), depreciation on a building
sunk cost phenomenon
People who stick with a course of action that is hopeless because they take into account sunk costs (ex. A car that they keep repairing)
what kind of cost is depreciation?
fixed cost