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Theory of constraints (TOC)

answer

A management approach that emphasizes the importance of managing constraints.

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Segment

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Any part of an organization that can be evaluated independently of other parts and about which the manager seeks financial data. Examples are a product line, a sales territory, a division, or a department.

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Plan-do-check-act (PDCA) cycle or Deming Wheel'

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A systematic approach to continuous improvement that applies the scientific method to problem solving.

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Sarbanes-Oxley Act

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U.S. legislation of 2002 that was intended to protect the interests of those who invest in publicly traded companies by improving reliability and accuracy of corporate financial reports and disclosures.

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Non-value-added activities

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Activities that do not add value to a product or service that customers are willing to pay for.

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Financial accounting

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The discipline of accounting concerned with providing information to shareholders, creditors, and others outside the organization.

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Control

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The process of instituting procedures and then obtaining feedback to ensure that all parts of the organization are functioning effectively and moving toward overall company goals.

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Zero defects

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A policy of striving for no defects or as few as possible.

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Strategy

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The general direction in which an organization plans to move to achieve its goals and objectives.

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Performance report

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A report which compares budgeted with actual results.

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Budget

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A detailed plan for the future, usually expressed in formal quantitative terms.

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Financial accounting

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The discipline of accounting concerned with providing information to shareholders, creditors, and others outside the organization.

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Business process

answer

Any series of steps that are followed in order to carry out a task in a business.

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Cost driver

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An event that causes the occurrence of a variable cost.

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Committed costs

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Type of fixed cost that is long-term and cannot be reduced in the short-term.

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Discretionary fixed cost

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Type of fixed cost that may be altered in the short-term by current managerial decisions.

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Mixed costs

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These combine both fixed cost and variable cost components.

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Absorption costing

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This costing method includes both fixed and variable costs and is used to determine the profitability of products.

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Normal costing

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This costing method is where managers use budgeted overhead costs and apply them to the product, using estimates only; requires reconciliation later.

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POHR (Predetermined overhead rate)

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This is used to apply the manufacturing overhead to jobs and is determined before the period begins; an estimate only.

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Managerial accounting

answer

Provides information for managers of an organization who direct and control its operations

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Planning, implementation, control

answer

The three main functions of management are ...

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Planning

answer

Selecting course of action and how it will be implemented.

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Implementation

answer

Carrying out daily activities, making short/long-term decisions, organizing/allocating resources, and directing/motivating others.

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Control

answer

Applying the plan to use and using feedback to review results

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Lean business model

answer

This consists of 4 kinds of improvement programs to offer better and faster products/services.

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Total Quality Management

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This improvement program involves studying the current process (PLAN), implementing a new plan to improve (DO), evaluating its effectiveness (CHECK), and making any successful changes permanent or trying again (ACT).

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JIT (Just in Time)

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This improvement program involves scheduling production and delivery of products as a company receives customer orders. Benefits: reduced inventory costs, greater customer satisfaction, higher quality products, more rapid response to customer orders, less warehouse space needed.

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Process reengineering

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Deals with completely redesigning the business processes in order to remove unnecessary steps and minimize waste.

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Process reengineering

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This improvement program involves diagramming a business process in detail, ensuring every step is justified, and redesigning so only justified steps that make the product more valuable are kept.

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Theory of Constraints

answer

A sequential process of identifying and removing constraints in a system.

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Constraints

answer

Restrictions or barriers that impede progress toward an objective

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Theory of Constraints

answer

This improvement program involves identifying the constraint (weakest link) in a process, limiting the how much that constraint strains the system, and focusing on strengthening the weakest link.

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Direct costs

answer

Costs that can be easily and conveniently traced to a unit of product or other cost objectives. Examples: direct material and direct labour.

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Indirect costs

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Costs cannot be easily and conveniently traced to a unit of product or other cost object. Example: manufacturing overhead.

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Differential costs

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Costs and revenues that differ among alternatives.

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Opportunity costs

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The potential benefit that is given up when one alternative is selected over another.

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Sunk cost

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Already incurred and cannot be changed by any decision. They are not differential costs and should be ignored when making decisions.

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Merchandisers

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Buy finished goods and sell finished goods.

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Manufacturers

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Buy raw materials while producing and selling finished goods.

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Manufacturing costs

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Consist of direct materials, direct labour, and manufacturing overhead

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Manufacturing overhead

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Manufacturing costs that cannot be traced directly to specific units produced. Ex: janitors/securities at the car dealerships

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Marketing and selling costs

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Costs incurred to secure orders, deliver the products to customers and follow up with them.

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Administrative costs

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Costs associated with the general management of the company. All executive, organizational, and clerical costs.

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Product costs

answer

Costs incurred to secure orders, deliver the products to customers and follow up with them. (Includes direct materials, direct labour, and manufacturing overhead.)

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Period costs

answer

Not included in product costs; they are expensed on the income statement.

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Job cost sheet

answer

The primary document for tracking the costs associated with a given job

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Materials requisition form

answer

Used to authorize the use of materials on a job

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Time tickets

answer

Used to record the time spent by workers on each job

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Overhead applied

answer

POHR X Actual activity

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Cost driver

answer

A factor that causes the overhead costs

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Actual overhead

answer

Indirect manufacturing costs that are current or incurred

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Applied overhead

answer

Estimated manufacturing costs

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High-low method

answer

This method of analysis of Mixed Costs looks at activity level, not cost. Compare highest activity period to the low activity period.

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Job-order costing

answer

Many different products are produced each period, products are manufactured to order, cost are traced or allocated to jobs, cost records must be maintained for each distinct product or job.

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Absorption costing

answer

This costing method includes both fixed and variable costs and is used to determine profitability of products.

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Variable costing

answer

This costing method only includes variable costs and is used when management wants to determine the additional cost of extra units of a product.

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Normal costing

answer

This costing method uses budgeted overhead costs and applies them to the product; actual overhead costs are never assigned to products and therefore these costs do not flow through the inventory accounts; will have to reconcile normal costs with actual costs at period-end.

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Actual costing

answer

Costing method where managers allocate actual overhead costs to jobs.

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Account Analysis

answer

This method of analysing mixed costs is where each account is classified as either variable or fixed based on the analyst's knowledge of how the account behaves

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Engineering approach

answer

This method of analysing mixed costs involves cost estimates that are based on evaluation of production methods, and material, labour, and overhead requirements.

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Scattergraph method

answer

This method of analysing mixed costs involves drawing a line through the data points with about an equal number of points above and below the line.

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Least-Squares Regression Method

answer

This method of analysing mixed costs involves software that can be used to fit a regression line through the data points, the cost analysis objective is the same as y= a+ bX.

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Product costs

answer

This is comprised of direct materials, direct labour, and manufacturing overhead, which become the cost of the finished product.

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Period costs

answer

These are non-manufacturing costs that are related to a specific time period rather than a saleable product; includes operating costs deducted from revenues in the period incurred; selling expense, administrative expenses.

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Raw materials, work in process, finished goods

answer

Inventory is comprised of these three inventory accounts.

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Variable costs

answer

Total _____ costs change when activity changes.

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Fixed costs

answer

Total _____ costs remain unchanged when activity changes.

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Fixed

answer

The average cost per unit decreases as more products are used/sold. This effect happens with ____ cost.

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Fixed

answer

Average _____ cost per unit goes down as activity level goes up.

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Fixed

answer

Total ___ cost remains the same even when the activity level changes.

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Variable

answer

Total ____ cost changes as activity level changes.

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Variable

answer

Average _____ cost per unit remains the same over wide ranges of activity.

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Differential costs

answer

Only those costs and benefits that differ between alternatives (i.e. ________) are relevant in a decision. All other costs and benefits can and should be ignored.

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Conversion cost

answer

Costs incurred to convert the direct material into a finished product.

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Product costs

answer

These include direct materials, direct labour, and manufacturing overhead.

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Period costs

answer

These are not included in product costs. They are expensed on the income statement.

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Increase

answer

If MOH is underapplied, _____ COGS.

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Decrease

answer

If MOH is overapplied, _____ COGS.

Managerial Accounting – Chapters 1-4 – Flashcards

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