MyBECNotes Flashcards
Direct cost?
DM and DL
Indirect Cost?
Indirect M, Indirect L and Factory O/H
prime cost and conversion cost?
DM (purchased,freight-in,(returns)) plus DL. DL plus O/H applied (could be used when furnishing material used in manufacturing a product)
When is depreciation, rent, taxes, utilities and insurance part of inventory cost?
part of other indirect cost that are related to the factory. may go either way (B/S or G/A)
How many and what are the ERM components?
RISK CONTROL. 4 objectives and 8 components(criteria to evaluate effectiveness). internal environment (authority and responsibility)/control activity (policies and procedures)/ info and communication(identification of info)/ monitoring (addresses deficiencies).
Control environment component suggest stronger controls by
financial reporting competency retaining qualified personnel to handle financial reporting
Issuer must have a financial expert or if not then
disclose the existence of financial expert or reasons why not
To be considered a financial expert must have the following requirements:
understand GAAP and FS’s, assess application of principles, experience compared to other similar entities, understand internal controls and audit committee.
Public companies are required to establish an
audit committee that addresses problems related to inadequate board oversight
SEC standards for code of ethics includes
provisions of internal control and accountability. Not required by SOX
Mgt is not required to disclose
Any disagreements b/w mgt and auditor, if any.
SOX focuses more on issues like
audit committee competence, ethical behavior and adequacy of internal controls
Communication from external auditor to mgt and BOD regarding achievement of internal control objectives complies w/ principle of
external communication
COSO (Treadway) was established by
private sponsoring organizations on 1992. issued the integrated framework to help business develop EFFECTIVE INTERNAL CONTROLS
insuring against losses or entering in a joint venture to address risk is known as
risk sharing
Method for identifying risks from an event from a specific industry is called
event inventory. mgt brainstorm is called a facilitated workshop
Residual risk is
the risk that remains after management responds to such risk
control activity is the method used to implement
response to risk
Evaluation of EE’s for competence is linked w/
HR policies and financial objectives
The BOD has the responsibility to act on behalf and in the best interest of the Co. as a
fiduciary in relation to the Co.
Co.’s will not go beyond risk appetite, but it is exceeded if
negative events exceeds residual risks(still negative after procedures performed)
Strategic objective refers to
broad company-wide, to produce a service in top quartile. related objectives are more specific prepared in support of broader strategic.
Does a Co. director follow info provided by mgt?
No. Director may or may not follow info provided by corporation officers(mgt)
If a director has conflict of interest in a certain transaction, then is consider
a void transaction unless it can be prove it was fair to the Co.
The business judgment rule refers to
principle that protects directors (and not shareholders) for acting in good faith and having such power to take action
Some ERM goals are
provide assurance of objectives and that goals are achieved, achieve financial and performance target. considers both negative (risks) and positive (opportunities) events
Change controls considers
how mgt monitors and authorizes change in info tech manners
Data integrity requires
data to be accurate and complete
Change mgt refers to
outside individuals who specialized in providing expertise to Co. undergoing significant changes as new system implementations
ERM is define as a
process effected by BOD, mgt and other personnel
Effective internal controls should not fail if
design changes as process changes. should adapt to such change
Benchmark is when
a Co. compares financial info to the one published
Total Productivity Ratio/ partial productivity ratio considers
all inputs and prices of those inputs calculated as qty produced in period divided by cost of inputs/ concerned only w/ qty of single input calculated as output produces divided by qty of single input
Effective performance measures should
balance both long and short term issues
performance feat that managers understand and can manage easier than financial performance are
nonfinancial measures
Tool used to evaluate error (individual and cumulative) rates and process that combines both histogram and line graph is
Pareto diagram
Net sales value at split-off is defined as
sales price less the cost to complete(deductible cost). does not equal to joint costs
Changing acct from by-product to joint product affects overall gross margin?
Yes. by-product net’s the selling cost to COGS thus causing a lower gross margin. joint product selling expense is subtracted from gross margin after computed thus not affecting the prior formula.
Managerial acct focuses on internal/external users, future or historical costs?
internal users (mgt) and future profits. FS and other financial reports, historical cost is focused the financial accounting.
If under applied O/H procedures should be to,
closed out to COGS. If consider material then it will be allocated to ending WIP, FG and COGS
What’s costing by activity base costing?
collects financing and operating data on nature of cost drivers. uses either job costing or process costing. the production process assumes activity based resources. multiple cause and effect may exist which is not acceptable for external reporting but helpful for internal. emphasizes LT product analysis. normally results in greater unit cost for low volume than traditional and greater cost pool
Would the issue of indirect materials increase O/H control?
It would decrease store controls thus increase O/H controls
Non value added cost can be
moving, handling and storing a product are considered one of the most significant activities
Joint cost will must likely be allocated based on
unit volume, sales at spin off and NRV
Cost driver is defined as
casual factor that increases the total cost of a cost objective. causes cost to increase as activities increases
Cost that varies in total but is fixed in unit
A variable cost
Spoilage allocation will considered
normal spoilage to product cost and abnormal spoilage to I/S
Cost that bears an observable and known relationship to a quantifiable activity base
engineered cost
Target cost
a predetermined standard cost that should be attained
Process costing
method of allocating production costs to products and services, usually accumulated by department rather than job
One purpose of cost allocation is to
measure income and assets for external reporting
Departmental rate rather than plant-wide rate would be use if
manufactured products differs in resources consumed from departments
Can cost allocation analysis explain why sales increase?
No. ex: whether manager deserves bonus, product line discontinued, particular dept expanded
What cost base should be used for more than one product produced and not uniformly consume
Activity base costing. Limitation to ABC, expense of obtaining cost data is high
When is absorption costing income greater than variable costing income?
When production is greater than sales causing inventory to increase. When production is less than sales, inventory declines causes lower net income. GAAP use for external reporting purposes
Analysis that assumes all variable cost and revenues are constant on a per unit basis and linear over a range.
Breakeven analysis. Total fixed cost are assume to be constant
How is fixed manufactured O/H treated under variable cost and under absorption(full cost)?
as period cost and expensed and as product cost and inventoried.
Is contribution margin a better measure of profit than gross profit?
Yes. gross profit includes COGS but excludes other variable costs
Which costing base produces lower inventory value?
variable cost. other cost base includes fixed cost resulting in greater value than variable cost
Cost volume profit assumptions
total variable cost are directly proportional to volume over range
Relevant range/ relevant cost
range of activity where relationship of fixed cost and variable cost are valid/ expected future cost that vary w/ the action taken
What is opportunity cost?
Potential benefit lost by taking an action. Cost that would have been saved or profit earned if another decision had been taken. Financial acct does not incorporates opportunity cost. Ex. implicit cost (not explicit). value of next best use. Not possible if excess capacity is available
What is the lowest unit price that Co. may accept when producing?
Total variable cost (DM,DL,VO/H,V/expense)
Coefficient of determination is
R-squared, proportion of total variation in dependent variable explained by the independent variable. independent variable not explained by dependent variable. statistical measure use to evaluate results of regression analysis
Statistical model that estimates the dependent variables based on changes in independent variables
Regression equation. best that separates costs into fixed and variable
Independent variable is assumed in regression analysis based on
activity rather than cost
Point at which independent variable in terms of dependent variable intercepts y axis
intercept value
Delphi method
forecast method that relies most on judement. use multiple teams in remote locations
Learning curve method
increases efficiency by experience gained, typically better for long production runs. as qty doubles avg cost decreases by percentage of previous cost. Continues probability uses trial and error
Positive coefficient of correlation measures
Strong relationship were VC increases w/ volume. negative indicates VC decreases as volume increases. 0 indicates no relationship (as expected for FA not VC). Strongest number from 1 to -1
Last budget to produce is
Financial budget as cash and pro forma derived from operating budgets which are done first. (selling exp). sales volume is first step in budgeting development.
Static budget
Includes budget costs and outputs not adjusted for actual performance
Adjust budget amt for various activity levels
Flexible budget
Does inflation rates impact expenses?
Yes. except depreciation exp (historical value) and fixed costs
Standards imposed by mgt w/o EE input is called?
Authoritative standards
Budget based on sales w/ +/- inventory levels
Production budget
Master budget vs flexible budget
Master is overall budget based on one specific level of production. Flexible budget based on dif activity within relevant range.
Expected value statistic
Most useful when risk is priority since it assigns probabilities to potential outcome and single value outcome
Flexible budget
Budget based on dif activity within relevant range. good for any activity w/ variable cost. provides adj for dif levels of activities
Order of budget preparation
Sales, production, DM purchase, cash disbursements, I/S and B/S
Manufacturing industries as well as service industries may use what type of cost system
Standard cost
Balance scorecards
Measurement tool to evaluate multiple view of business outcomes from critical success factors such as HR innovation (learning and growth), business process, customer satisfaction(low values & target mkt) and financial reporting.
Return on investment
Evaluates business performance in terms of revenues, expense and investment
Controllable margin
Margin net of controllable fixed cost(cost that mgrs impact in less than 1 yr)
What affects a decision process?
disposal price, cost of new equip, operating cost of new equip.
Which method considers compounding returns?
NPV method. uses cash basis, reinvest positive cashflows measures capital in $ and time value of money. focuses on cashflows
Depreciation tax shield
When depreciation protects income from being taxable and may result in after tax inflow
NPV calculation is
PV inflow - PV outflow
Payback period calculation
Initial investment / annual inflow. relies on future data forecast
Profitability index
Use for capital rationing. variation of NPV. ratio to calculate PV of inflows compared to PV of outflows. Requires long term forecasts of project’s
Internal rate of return
Uses PV concepts to value investment and CFlow’s. called time adjusted rate of return
How many committees and which are they?
4 committees. executive, nominating, compensating, audit (3 which 1 should be consider expert)
Operating leverage
When Co uses fixed cost instead of VC to magnify results of dollars in sale
Financial leverage
Co uses debt to finance itself
Combined leverage
Co uses both fixed operating and fixed financing
Debt financing benefits compared to equity financing
int are tax deductible (hipotecas) so high taxes and high int will benefit debt financing. debt commands lower return than equity
Cost of debt most frequently used
int rate minus tax savings
WAC of capital
Maximizes the shareholders equity. optimal capitalization is determined by minimizing/lowering total WACC.
How capital investment increases value of the firm
if rate of return exceeds rate associated w/ Co. beta factor
Cost of capital considers all types of funds?
Yes. whether long term, short term, new or old.
Capital asset pricing model (CAPM)
method use to calculate rate of return on R/E’s
Disadvantage of ROI vs RI
ROI may lead to rejecting projects that return positive CF. No more nor less capable of being manipulated than other performance measures. Mgt should not decide to delay or avoid investing in new PPE. does not balance b/w long term and short term. May focused mgrs. on maximizing short term
How does investment of new asset @ yr end affects ROI and RI?
It decreases both since investment increases
Economic value added
Residual income in excess of the cost of capital
Technique which delays outflow of cash is called
draft. delays cash outflow and increases payable. lock box system accelerates inflow of funds
Mkt rate of int on treasury bill is
sum of risk free rate and inflation premium
If Co becomes conservative w/ capital, which ratio will increase?
current assets/ noncurrent assets
Average collection measures
to evaluate liquidity of the Co. through calculation of cash
Material requirement planning (MRP)
mgt technique to project and plan inventory level to control usage of RM and WIP in production process
Safety stock increases if
risk of running out increases
Economic order quantity increases if
carrying cost decreases or sales increases and cost per order increases. Anticipates order where carrying cost are near restocking cost. demand is known for formula
Why would a Co. finance temp assets w/ short term?
Matching maturities of assets and liab reduces risk. policy to minimize risk by matching maturity dates b/w assets and liab.
Just in time inventory model
reduces lag time b/w inv arrival and usage.
Kanban inv control model
prevents oversupply or interruption of process from lack of material
What it means to have a higher current ratio?
More liquidity
Cash conversion cycle is
inventory conversion period plus A/R collections less payable deferral.
Disadvantage of symmetric encrypt
Both sender and receiver must have private key for encryption to work
Asymmetric encryption
private key not shared which other half will have to obtain key to encrypt/decrypt. is use as public key to encrypt and private key to decrypt. anyone can encrypt only intended user can decrypt
Son, father, grandfather are what type of backups?
backups son is called for most recent backup, father second recent and so on. steps are to read previous file, record transactions and create new master file.
Public key infrastructure (PKI)
represents mechanism use to issue asymmetric keys and digital certificates
End user files running separately from mainframe may cause
problems w/ undetected errors
Program modification control
controls over the modification program being used, attempts to prevent changes and track changes for record. includes mgt tool and request tracking tool
Supply chain mgt concerned w/ 4 elements:
what, when and where of sales/transactions
CRM system
provide sales automation and services in order to increase customer satisfaction and customer revenue
Electronic data interchange (EDI) benefits
transmit data using standard controls all the time since its done by the system instead of a person (meaning transaction would need to be complete in order to work). exchange of info b/w two Co. (externally, never internally). requires organizations to enter into a contract and have prior relationship. uses same standard for same industries
E-cash (digital cash) benefits
web site that maintains financial privacy ex. paypal
Enterprise resource planning (ERP)
integrates multiple functional areas in business operations. coordinates info to ensure timely responsive reporting data support of decisions. cross functional system that is design to integrate data from all aspects of an organization activities. meant for mgrs not executives
Ad hoc report
report that does not exist but needs to be created under demand for specific requirements w/o having to get a software involved
Distributed processing environment most beneficial when
large volumes of data at dif locations and fast access is required
Sequence of events in an AIS
- data from source doc entered into AIS 2. original doc file 3.transactions recorded in appropriate journal 4.tranx posted to GL and subs 5.TB prepared 6. FS reports (best to solve problems to certain and clearly defined reporting requirements). customized to needs of particular Co. set up to handle large volume of tranx
Business info system (BIS)
general term for info tech that includes hardware, software, network, people and data. allows for data to be: collected, process, store, transform and distribute
Individual tranx cycles are for
numerous but similar and processed identical
Group codes
includes intelligence into identification numbers
Transaction logs
includes all tranx against master files. includes identification of personnel making the tranx. usually for large numbers.
Database management system
system used by others to store and manage data
Relevance
defines quality of data and info that has greater impact in mgtm decision making
Reasonableness
cks and edit for math errors
Online analytical system
allows users to retrieve data and perform analysis
Firewall
electronic device that maintains control of two networks. user id and authorization that prevents unauthorized users from gaining access a network. do not protect or prevent against viruses
Application control
specific to particular process that controls what websites can be viewed
System programmers
work with operating system and compilers. when developed internally a lot of money will be put on maintenance. maintenance is not simple. should not be combined w/ application programmers
Application programmers
should not be given full write off access only testing. should not be combined w/ system programmers. apply approved changes
Can data admi and network admi be the same person?
Yes, although not likely since very specialized skills are required
Decision support system (DSS)
computer based info system that provides interactive support to managers or others during decision-making
Executive information system (EIS)
provides strategic info tailored to the needs of top mgmt. designed to obtain data from dif sources, to combine, integrate data. provides immediate access to executives. NOT widely used throughout and organization.
MIS Steering committee
formed to guide and oversee system development and acquisition
Data elements
should always be included in system specification document
Control Objective for Information Related Technology (COBIT) framework
7 info criteria’s: Integrity, Confidentiality, Efficiency, Reliability, Availability, Compliance and Effectiveness.
COBIT five focus areas for IT governance
value delivery, strategic alignment, resource mgmt, risk mgmt, performance measure
System analyst
responsible for adapting and integrates new system w/ old system. trains EE to use it.
Emphasis on disaster restoration is
operating functionality
Factors for a disaster plan:
Alternate processing site, backup and offsite storage procedures, identification of critical applications, test of plan
Business continuity plan compared to disaster recovery plan
continuation of all areas of the business not just information system. daily bakups does not ensure a timely recovery.
Incremental backups
copies only data items that changed since last bakup
Off site mirror web servers
server that takes over almost immediately over a disaster
Redundant Array of Independent Disks (RAID)
use for disk storage
Intranets
connects separate LAN’s in dif. locations to and organization. generally use psswd and firewall. same web browser as internet browser
Database management System (DMS) advantages
data independence, one time entry, reduce data redundancy, ability to expand data fields, accessibility increases timeline/effectiveness/availability.
Database management System (DMS) disadvantages
more highly tech personnel required, audit trails obscured bz movement of data from one file to the other, breakdown in hardware more severe than having separate files.
Virtual memory
where portions of a program not being executed are stored but NOT real memory
Processing power measured in
(MIPS) millions of instructions per second
Multiprocessing factor
efficiency loss when multiple computers and processes at the same time
Ex. of program languages
C, C+, Java (can be included in web pages and downloaded in web browser
Pattern recognition
used to identify data trends and possible useful info
Extranet
network that links intranet of Co to other Co or individuals. not a software
Distributed database
database distributed on dif pieces on local or remote
Unix
runs interactive, time sharing, online applications divided in two pieces (kernel, allocation, security, access and shell, input, runs commands)
Concurrent data control
control that addresses conflicts when users simultaneously attempt to access data
Trough of business cycle
economic low point w/ no positive indicators in the future. caused by unused productive capacity and unwillingness to risk new investment
Recession can be caused by
period of falling GDP and rising unemployment. decrease in demand and in aggregate supply
Expansionary fiscal policy
increase gvt purchases (investment) or decrease taxes. int rates to decrease, increase inv and increase demand. increase in money supply ex. of monetary policy not fiscal.
A tax cut at the peak level will cause
price level to rise and inflation
An increase in payroll wages will cause
price level to increase and real GDP to decrease (shift to the left)
At the peak level capacity constraints and labor shortage will cause
pressure on overall price level
What industry is not affected by business cycles?
Healthcare industry. medical service will always be needed.
Real GDP per capita
standard use to compare economy across countries or time
GDP includes
total monetary value of all final goods and services produced in 1 yr
Cyclical unemployment
not consistent when economy is operating at full employment
Cost inflation (push)
shift left in supply. increase in cost ex. increase oil price
Demand inflation (pull)
shift right in demand
Frictional unemployment
can occur during good season. refers to time needed to match qualified job seekers w/ available jobs. moving b/w jobs
Structural unemployment
mismatch b/w EE skills and available EEment
GDP expenditure approach
gvt expenditures, capital investment, consumption & net exports
Discount rate
rate charged by federal reserve for loans to banks
How can federal reserve increase money supply?
purchasing or selling gvt securities, raising or lowering discount rates, changing reserve ratio
What will cause the selling gvt sec on the mkt, increase discount rate and increase reserve ratio?
it will decrease the money supply
Real interest rate
nominal int rate - inflation rate
Inflation measures
rate at which overall price increases
Stagflation
combination of rising unemployment and price level
Deflation
decline in overall price level (inflation rate negative). increase money supply will cause overall price level to rise
Consumer price index (CPI)
compares relative price change over time. monthly data that measures rate of inflation by cost of mkt of specific goods commonly purchased by consumers. concentrates on past data not future data
Disposable income
personal income net of personal taxes
On a perfectly competitive mkt, consumers
have goods and services produce at the lowest cost in the long term
Perfect competition assumptions
customers can buy from any Co, level of Co output is small related to industry total output, freedom of in and out of the industry. a “price taker” cannot change price.
Co’s maximizes its profit by producing at
marginal revenue = marginal cost and price exceeds both
Natural monopoly
when economic and technical conditions permit only one efficient supplier
Barrier to entry
prevents Co’s from entering the mkt to compete against existing Co.
Characteristics of monopolistic competition
numerous Co w/ dif products, easy entry- few barriers, Co influence over price and mkt, non-price competition frequent and critical. large sellers dif products. horizontal demand curve
Oligopoly
few sellers w/ dif products, high barriers to entry, dif products, fixed prices, kinked demand curve
Under perfect condition strategic plans focus on
maintaining mkt share and being responsive to mkt conditions related to sales price.
Under monopoly competition, strategic plans focus on
maintaining mkt shares and planning for enhanced product differentiation
Under monopoly, strategic plans focus on
profitability from product level that maximize profits
Under oligopoly, strategic plans focus on
production volume and price change
Elasticity of demand or supply
measure of how sensitive the demand for or supply of product is to change in its price
Value chain analysis
starts w/ supplier, then Co, then value created by customers and lastly w/ disposal and recycling of material. part of the strategic plan
Vertical linkage analysis
understanding the activities of suppliers and buyers
Competition becomes a stronger force by
mkt not growing fast. several equal firms, no brand preferences, cost of exiting exceeds cost of continuing, profits from making moves, dif strategy plans
Dif advantage occurs when Co
builds mkt share or increases prices
SCOR model
deliver- managing A/R and collections
plan- ability of supplier to supply resources
make- implements changes in engineering
source- collecting and processing vendor payments
What can determine elasticity?
number of substitutes for the product
Inelastic supply curve
vertical representing is insensitive to the change in price
SWOT analysis
evaluates internal and external factors
Theory of Constraints (TOC) analysis
evaluates techniques for optimizing throughput time
Economies of scale
for larger production process, process becomes more efficient causing productivity to increase. diminishing return is the exact opposite
Law of diminishing return
increase past some point causes less proportionate increase in production (ex. excess of pizza)
Microeconomic analysis of supply
in the long run all supply inputs are variable
Factors that contribute to economies of scale:
- labor/managerial specialization
- utilization of by products
- efficient use of capital
- volume discount purchasing
Michael Porter 5 forces that affects profitability:
- existence of substitute product
- barriers to mkt entry
- bairganing power of customers
- mkt competitiveness
- bargaining power of suppliers
Collusive pricing
maintains higher prices to external customers than it would be to competitive mkt
Game theory
study of mathematical models b/w rational decision makers
Inter industry competition
Co of dif industries competing one another
Quality control program includes:
- prevention (maintenance)
- appraisal (product testing)
- internal failure (rework)
- external failure (product repair-warranty)
Just in time purchase systems
reduces number of suppliers and very close relationship developed
Appraisal cost ex. of quality control
product testing, statistical sample, inspection
Total quality management (TQM)
organizational commitment to customers focused on performance that emphasizes quality and continuous improvement
Theory of constraints
maximized throughput(units of goods produced and sold) by alleviating constraints
Globalization
represents increased dispersion and integration of the world economies. growth in world as a % in GDP. increase specialization for individual economies
International monetary fund
stabilizes exchange rates but does not regulate currency values
Sourcing requirements
value added limits on the percentage of labor. compliance w/ limits results in tariff reductions
Foreign trade zone
delays tariff until products leave certain location
Unipolar
power concentrated in one nation
Global sourcing implications
use of worldwide supply chain
Floating rates
maintains constant mkt value
Internal auditing define by Institute of Internal Auditors (IIA) as
independent objective assurance and consulting activity that adds value and improve Co operations
Effective mgmt on internal audits must meet the following:
international standards, code of ethic and international professional practice framework,
Categories of risk
- diversifiable
- Unsystematic (non-mkt/Co specific)
- Nondiversifiable
- Systematic (mkt)
Call options
allows but not requires purchaser of call to acquire the currency at a specified time. 71
High low method advantage and disadvantages
easy and inexpensive to used but least accurate method
