Test One Flashcards
Management Accounting definition
is the process of measuring,
analyzing, and reporting financial and non-financial
information that helps managers make decisions
Financial accounting
External
Past-Oriented
GAAP
Quarterly/Annual
Cost accounting
Internal
Future-Oriented
Whatever
Whenever
Cost Accounting definition
is the process of measuring,
analyzing, and reporting financial and non-financial
information related to the costs of acquiring or using
resources
Cost Management definition
is the activities managers take to
use resources in a way that increases a productβs value
to customers and achieves an organizationβs goals
Strategy definition
is how the organization matches its own
capabilities with the opportunities in the marketplace
Value Chain
- R&D
- Design
- Production
- Marketing
- Distribution
- Customer Service
Success Factors
Cost & Efficiency
Quality
Time
Innovation
Sustainability
Five-Step Decision Making Process
- Identify Problem & Uncertainties
- Obtain Info
- Predict the Future
- Choose among alternatives
- Implement, Evaluate, Learn
Management Accounting Guidelines
Cost-Benefit Approach
Behavioral and Technical Considerations
Different Costs/Different Purposes
Behavioral and Technical Considerations
Technical:
Desired Info
Desired Format
Desired Frequency
Behavioral:
Motivation
Rewards
Improvement
Different Costs for Different Purposes
Concept that cost concept for external
reporting purposes is not appropriate for
internal purposes
Line Management
Directly responsible for achieving goals of the organization
Staff Management
Provides advice, support, and assistance to line management
Cost Objects
Point between budgeted costs and actual costs
Direct Costs:
Costs directly related to cost object and can be clearly traced to object
Indirect Costs:
Costs related to object but cannot be easily traced to object
Fixed Costs
costs that are unchanged regardless of production
Variable costs
costs that vary based on amount produced
Mixed costs
combination of both fixed and variable costs
Cost drivers
metric that helps allocate costs
Relevant range
costs that might be fixed or variable within some range but different outside
Inventory types
Service, merchandising, manufacturing
Product costs
appear on balance sheet as inventory, expensed as sold
Period costs
every other cost experienced during the period, on income statement not included in COGS
Cost of Goods Sold for a Merchandiser
Merchandise Inventory is sold and costs are recorded in Cost of Goods Sold
Manufacturing inventory types
Raw materials, Work in process, finished goods
Manufacturing costs
Direct materials, direct labor, indirect
Cost of Goods Sold for a Manufacturer
Raw Materials -> Work in Process -> Finished Goods -> [Sale]->
Cost of Goods Sold
On balance sheet until sold
Cost of Goods Sold =
Beginning Finished Goods + Cost of Goods Manufactured - Ending Finished Goods
Cost of Goods Manufactured =
Beginning work in process + Total Manufacturing Costs - Ending work in process
Total Manufacturing Costs =
Direct Materials + Direct Labor + Manufacturing Overhead
Cost Estimation Methods
Industrial Engineering
Account Analysis
Conference
Quantitative Analysis
Quantitative Analysis
1.ChooseDependentVariable
2.IdentifyIndependentVariable(CostDriver)
3.CollectDataonVariables
4.PlotData
5.EstimateCostFunction
6.EvaluateCostDriver
High/Low Method =
Change in total cost at High vs Low level / High - Low Activity level
Direct Material costs =
Beginning raw materials + purchases - ending raw materials
Mixed cost formula
y=a+bx
y=total costs
a=fixed costs
b=variable costs
x=quantity
CVP is
Cost Volume Profit
Regular income Statement
Sales
Cost of Sales
Gross Profit
SG&A
Operating Profit
Other income/expense
Net Income
CVP income statement
Sales
Variable Costs
Contribution Margin
Fixed Costs
Net Income
Contribution Margin definition
is the difference between
Total Revenues and Variable Costs that goes
toward covering remaining fixed expenses
Breakeven Point definition
is the quantity sold where total revenues = total expenses Profit = $0
set income equal to 0
CVP Equation
[(πππππ πππππ π₯ ππ’πππ‘ππ‘π¦) β (ππΆ π₯ ππ’πππ‘ππ‘π¦) β πΉππ₯ππ πΆππ π‘ = πΌπππππ
(πππππ πππππ β ππΆ) π₯ ππ’πππ‘ππ‘π¦ β πΉππ₯ππ πΆππ π‘ = πΌπππππ
Target Operating Income definition
is the operating income a company wants to generate during a
given time frame
Difference between Net Operating Income and Net Income
NI includes taxes and interest
Sales mix definition
the proportion of sales a single product accounts for in a companyβs total sales
Weighted Average Contribution Margin Formula
(Unit 1 CMβ πΌπππ π πΊππππ π΄ππ)+ (πΌπππ π πͺπ΄ β πΌπππ π πΊππππ π΄ππ) = πΎπ¨πͺπ΄
Sales mix with limited resources
Choose the option that has the highest contribution margin per limited resource
The Margin of Safety definition
represents how far revenues can fall below current level (or
budget) before the breakeven point is reached
Margin of safety formula
ππππππ ππ πππππ‘π¦ = π΄ππ‘π’ππ π΅π’ππππ‘ππ π ππ£πππ’π β π΅ππππππ£ππ π ππ£πππ’π
Margin of safety in units formula
ππππππ ππ πππππ‘π¦ ππ π’πππ‘π = π΄ππ‘π’ππ π΅π’ππππ‘ππ ππ’πππ‘ππ‘π¦ β π΅ππππππ£ππ ππ’πππ‘ππ‘π¦
Operating Leverage definition
is the effect fixed costs have on changes in operating income as sales
or contribution margin change
HIGH Fixed Costs β HIGH Operating Leverage
Margin of safety % formula
ππππππ ππ πππππ‘π¦ % = ππππππ ππ πππππ‘π¦ $ / π΄ππ‘π’ππ π΅π’ππππ‘ππ π ππ£πππ’ππ
Operating Leverage formula
ππππππ‘πππ πΏππ£πππππ = πΆπππ‘ππππ’π‘πππ ππππππ/ππππππ‘πππ πΌπππππ
Change in income formula
πΆβππππ ππ πΌπππππ = ππππππ‘πππ πΏππ£πππππ π₯ % πΆβππππ ππ πππππ
