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
