question

CH: 1 What is managerial accounting?

answer

1. Planning - setting goals for figuring out how to achieve them 2. Directing - day to day operations 3. Controlling - after things have happened, let's analyze the results (FEEDBACK)

question

Who are the primary users if financial accounting information?

answer

-external users = stakeholders = investors, banks, employees -Investing and lending decisions: should I invest in this stock?

question

Who are the primary users of managerial accounting information?

answer

internal users = making profit for the company, doing their own job to the best of their ability: how do I make planning, directing, and controlling decisions?

question

What is the primary accounting product of financial accounting?

answer

Financial statements

question

What is the primary accounting product of managerial accounting?

answer

Any internal accounting report that managers deem to be okay

question

What information characteristic is emphasized for financial accounting?

answer

The information must be reliable and objective = people are investing their life savings based on these decisions

question

How often are the reports prepared in financial accounting?

answer

Annually and quarterly

question

How often are the reports prepared in managerial accounting?

answer

Some may be daily and some may be one time... It all depends

question

Does anyone verify the financial accounting information?

answer

Yes, independent CPA audits

question

Does anyone verify the managerial accounting information?

answer

No independent audits, the company wants the information to come quickly and it's all internal

question

Is the information required by an outside group/agency for financial accounting?

answer

Yes, the SEC requires public companies to issue annual audited financial statements

question

Is the information required by an outside group/agency for managerial accounting?

answer

No authoritative body requires managerial accounting reports

question

What "rules" must the company follow when preparing the information for financial vs. managerial accounting?

answer

financial = GAAP managerial = NO RULES

question

CH 2: Business Sectors What are the three basic business models?

answer

Service, Merchandising, and Manufacturing

question

What is service?

answer

Provide a service: they're selling intangible products -Taxi services -> service is carrying people from place to place -Do they carry inventory? not really -GEICO

question

What is merchandising? (middle man)

answer

Merchandisers don't produce their own product. Sells -> Premade products -APPLE -Makes iPhones and other products -Buy from someone else -They're the middle man and sell it off -They also carry inventory

question

What is manufacturing?

answer

Sells -> Newly made products -TESLA -Has huge amounts of money in manufacturing their cars -Raw materials, work in process, finished goods = inventory

question

What is the value chain?

answer

-The activities across a company that add value to products and services and cost money..... -Research and development, Design, Production of purchases, Marketing, Distribution, Customer Service -Toyota: a lot of their costs are related to research and development , an aspect of the value chain -Production of purchases -> making the cars for Toyota

question

Are we focusing on a cost related to production or purchasing?

answer

Production = for a manufacturer Purchasing = for a merchandiser

question

CH:2 Defining costs What is a cost object?

answer

Anything for which managers want a separate measurement of cost. Cost by individual product = what is the cost of an individual Lucky Charms Cost by product = all of Lucky Charms, how much does the cost of all Lucky Charms make Cost by division = Cost of ALL cereals, like Lucky Charms, Cinnamon Toast, Crunch

question

What is a direct cost?

answer

-A cost that can be traced to the cost object... ex. cost of marshmallows in Lucky Charms, cardboard to make boxes -we can directly trace these costs

question

What is an indirect cost?

answer

A cost that relates to the cost object, but cannot be traced to it.

question

What is a cost object example?

answer

Lucky Charms cereal as a product = considering the whole product line, and the products that go along with it

question

What is the cost object of electricity in relation to Lucky Charms?

answer

-Indirect cost..... It's difficult to trace it as a direct cost attributed to Lucky Charms -Cereal factory makes all the Lucky Charms in the world and Cinnamon Toast a world. It's tough to trace it along the Lucky Charms cost line.

question

Is depreciation expense a direct/indirect cost related to a product such as Lucky Charms?

answer

indirect

question

Cost object: factory Is marshmellow ingredient, cardboard to make boxes, electricity a direct cost of the factory?

answer

-Marshmellow ingredient: indirect -Cardboard: indirect -Electricity to run cereal factory: direct -Depreciation expense of factory: direct

question

What do you called costs related as a manufacturer?

answer

If you're involved in production, you can call these costs inventory

question

What are period costs?

answer

Selling, general, and administrative expenses?

question

What is the difference between inventoriable product cost or period cost?

answer

Inventoriable product cost: asset (hits income statement once it's sold). Cost for item and all other costs like direct labor. Period cost: Prepaid expenses like advertising, selling expenses. Sold next time period; hits income statement next time period

question

Is this an inventoriable product cost or period cost for Target as a merchandiser?

answer

For Target as as a MERCHANDISER: Purchase prices from merchandise suppliers? inventoriable product cost Salaries of store managers? period cost Cost to run weekly sales ad in newspaper? period cost Shipping costs to get merchandise to the stores? inventoriable product cost Import duties paid on merchandise purchased overseas? inventoriable product cost Rent paid to lease the story building? period cost Shipping costs to get products to customers for online orders? period cost -Not the shipping freight in of the inventory, it no longer costs as purchasing.

question

What are the three types of costs considered inventoriable product costs?

answer

A. Direct materials: the four tires, the windshields for Toyota.... materials directly traced to that car B. Direct labor: Someone's hourly wages - someone works on Toyota Corolla machine everyday for 12 hours. People working in a factory on a machine to produce this product. It's directly related to this cost object. C. Manufacturing overhead -Indirect materials: any materials that go into making our product that are too tough to trace ex. machine maker for cars - you need oil to run them and that costs money but it's hard to trace -Indirect labor - security staff at the factory. You can't really tie the cost of each security to that product. -Other: A. depreciation expense: the cost that hits every year on machinery... If you own the factory building and that had depreciation that would also fall B. Property taxes on the building C. Target: utilities like electricity to run the product

question

What are the costs of the machine?

answer

Look for examples of inventorial product costs: -Direct materials - the black stamp on the football, the leather stamp, the lace in the football, the machines that puff up the football, cardboard boxes for retail -Direct labor -> Loretta does stamping for 37 years... the logo into the leather , Deb cuts the panels, Tina does bladder and lacing, Emma Mae does molding, Glyn ties the football together, Emmett's job turn balls inside out (stressful job), Pam picks out balls for the NFL game (weighs ball, has to be perfect cosmetically no flaws), Michelle -> puts ball in retail package so the fans can purchase them also ... does boxing -Manufacturing overhead A. indirect materials = the air that goes inside the footballs B. indirect labor = the manager himself ; if he has several roles in youth AND NFL football factory then the factory cannot figure out exactly how his salary directly ties into the production of the football if our cost object was the factory, then he would be the cost object C. other = electricity for the machine because it's not really a material, property taxes

question

What are period costs in this NFL example?

answer

All costs in cities outside of Aoto, Ohio because all production occurs there. -Depreciation expense for people in Chicago

question

How would costs affect the F/S for a SERVICE company?

answer

-They don't have any inventory Income statement: +Service revenue - ____________________________ Income Income Statement: +Sales -Cost of goods sold _______________________________ =Gross profit - Operating expenses _______________________________ Operating income

question

How would costs affect F/S for a manufacturing company?

answer

-They have three inventory account -Same as merchandiser's income statement Income statement: +Service revenue - ____________________________ Income Income Statement: +Sales -Cost of goods sold -> much more complicated to calculate _______________________________ =Gross profit - Operating expenses _______________________________ Operating income COGS: 1. Calculate direct materials 2. Calculate cost of goods manufactured 3. Calculate cost of goods sold

question

How would you calculate how many LaCroix waters you used last month?

answer

-Started with 8 in the fridge -Purchased 2 12 packs during the month -Now only 4 left in the fridge 8 BEG 24 PURCHASES _______________________ 32 available to use 4 end USED 28 -Pretty simple

question

What is the formula for cost of goods sold?

answer

Beginning Inventory + Inventory Purchases - End Inventory

question

How are inventorial product costs recorded?

answer

Inventoriable product costs are in raw materials used, work in process inventory, and go into finished goods and when they're sold -> goes into cost of goods sold -> AKA hits the income statement

question

Ch:3 Job Costing What are profits made up of?

answer

Revenues - costs Costs = a little tougher for companies to calculate

question

What are the two product costing systems for manufacturers?

answer

1. Process Costing (CH5) 2. Job costing (today)

question

What is process costing?

answer

Process costing - Companies have mass production of very similar goods. Formula: Take all costs total / the number of products they make. EXAMPLES -oil refineries -cereal manufacturers (makes millions of boxes of Lucky Charms cereal in mass production)

question

What is job costing?

answer

-These companies have more unique custom products that they are going to create in small batches -Doesn't make sense to total all their costs -Accumulate their cost by jobs, by batches, and average the cost specific to that batch EXAMPLES -Dell computers -Custom home builders -Advertising agency

question

What is the flow of inventory?

answer

Wilson Football factory 1. RAW MATERIALS INVENTORY -> buys laces, purchase their materials Product is physically sitting in a storeroom When the cow leather is taken out of storage to be turned into footballs, that's when our direct material costs travels into 2. WORK IN PROCESS (includes direct labor and MOH) a. Storeroom -> production department (to be used) *DIRECT LABOR Pegg, Glenn, Emmett = when they start working on a product those costs are accumulated in work in process *MOH (MANUFACTURING OVERHEAD) Use of: indirect materials indirect labor other We allocate out these MOH costs to individual jobs -> Work in Process Inventory 4. FINISHED GOODS INVENTORY When we finish our production of a product, then that actual product is ready for sale -When the football is in the cardboard box waiting to go to a customer When it's sold it hits 5. COST OF GOOD SOLD -in Income Statement

question

Where does a job (batch of production begin)?

answer

-First they'll have one job like 50 cross trainers -They'll do another job where they do 60 treadmills -Have some orders from the Chicago Bears 603 (they need to make 15 cross trainers for Chicago Bears) 604 (they need to make 12 stair climbs for Chicago Bears)

question

How do they purchase and keep track of raw materials?

answer

-They think about all the materials they'll need (purchase) -When they're received into the storeroom, from the customer to the supplier, they're indicated that they received -When they start to use them -> always keeps a running balance A.K.A Materials Requisition -When production actually starts, they create a materials requisition (request from the store room to the factory) -Triggers materials moving from one portion of the storeroom to the factory

question

What is a job cost record?

answer

-Keeps track of all the costs for 603 (a specific job) -For job 603, we're going to keep track of our direct labor costs, MOH, etc. for our cross trainer jobs

question

What is our work in process inventory balance?

answer

-For all the jobs that are incomplete, we add the current running total to the job cost record

question

What is our finished goods inventory balance?

answer

-Keeps track of all the complete jobs

question

How do you trace direct material costs to a job?

answer

-Direct materials are easy to trace to a job from request materials -Raw materials inventory account must be updated -Increases WIP account (work in process)

question

How do you trace direct labor costs to a job?

answer

-Directly trace the time of people like Glynn and Pam who work specifically in a job -Now we have extra costs that are involved in making this product

question

How do we allocate MOH?

answer

-We requested materials from material request form so it's easy to calculate -We had people swiping their card so we know job labor costs as well -MOH? difficult -Example: say you were looking for a place to live and rent/utilities will be about $1500 -What will be one reasonable way to split the costs of this? -Master bedroom = probably larger and they have their own bedroom (maybe you allocate more of the rent for the person who has their own bathroom) -Bedroom 2: maybe if this person has their boyfriend over, you charge them more -This estimate isn't changing - there are many ways to reasonably allocate costs

question

For MOH, why don't we take the total and divide it by the number of jobs?

answer

-If you divide by number of jobs, one job could be for 1000 custom treadmills and one job could be for 5 normal treadmills

question

How do we allocate manufacturing overhead (MOH)?

answer

1. Company will estimate how much total MOH costs will be for the whole year 2. Company selects an allocation base: some kind of measure they think will move in the same direction as their actual manufacturing overhead cost -Estimates total amount of allocation base that will be used during the year -Management can say we don't have a great way to tie MOH to an individual job -As we use more direct labor hours (Pam, Glenn, etc.) we think -Estimate how many direct labor hours do we think we'll use for the whole year? 3. Comes up with predetermined manufacturing overhead rate Predetermined MOH rate = Total MOH costs / Estimated total amount of allocation base (a rate much like miles per hour) 4. Company allocated MOH to each job as they're being produced in the year MOH allocated job = Predetermined MOH rate x actual amount of allocation base used by job individual job of making treadmills? -5000 direct labor hours x predetermined rate ($50 per hour) -> goes onto job cost record

question

How do people calculate allocating manufacturing overhead?

answer

They estimate $1,000,000 over the whole year -They select direct labor hours -Look at total amount they think they will use -Uses 62,500 DL hours -CALCULATION: $16/ DL hour ($16 MOH costs for every 1 hour of job) = $1,000,000 / 62,500 DL hours -As jobs start getting produced, we determine how much Jobs used 500 DL hours x rate ($16/DL hour) = we think $8000 MOH should be allocated to that one job -Remember that these 500 DL hours = $8,000

question

What happens when we use direct labor? Assume that Life Fitness incurred $30,000 of direct labor on jobs. Assume that Life Fitness used $112,000 of materials in December

answer

Work in process inventory 30,000 (D) Wages payable 30,000 (C)

question

What happens when we use indirect labor? Assume that Life Fitness incurred $13,000 of indirect labor on jobs.

answer

Manufacturing overhead 13,000 (D) Wages payable 13,000 (C)

question

How do we show the purchase of raw materials? Assume that Life fitness ordered and received $90,000 of raw materials in December

answer

Raw materials inventory 90,000 (D) Accounts payable 90,000 (C)

question

What happens when we use indirect materials? Assume Life Fitness used $2,000 of indirect raw materials in December

answer

Manufacturing overhead $2,000 (D) Raw materials $2,000 (C)

question

What happens when the job is done?

answer

Finished goods inventory 10,000 (D) Work in Process Inventory 10,000 (C)

question

What happens when we actually sell the product?

answer

Triggers two types of journal entries: Accounts receivable 207,000 (D) Sales Revenue 207,000 (C) Cost of foods sold 154,400 (D) Finished goods inventory 154,400 (C)

question

What's another close synonym for operating expenses?

answer

Period costs... marketing, design

question

How do you know if you undercoated or over allocated?

answer

The true actual manufacturing overhead cost is higher or lower compared to how much you have allocated for each job

question

What happens if you have under allocated?

answer

Adjust the journal entry for manufacturing overhead and cost of good sold Cost of good sold (D) Manufacturing overhead (C) ^ as a result, the account is closed

question

What happens if you have over allocated?

answer

Adjust the entry

question

Which of the following is false about managerial accounting?

answer

Managerial accounting reports must be verified by CPA

question

Which of the follow is an inventorial product cost?

answer

Taxes paid to foreign country to import novels for sale in store from overseas -> getting stuff to shelves

question

Shipping expenses for inventory received from suppliers?

answer

inventoriable

question

Hourly wages of employees stocking shelves in store?

answer

Distribution

question

Direct labor costs?

answer

never go through raw materials inventory -> direct labors costs only go through process inventory and finished goods inventory

question

What is glass blowing?

answer

Turning MOH into work in process inventory with the use of direct labor; adding to work in process by converting raw materials into work in process; work in process is an asset so you debit it when it increases

question

What is adding to MOH?

answer

MOH is an expense so when you add to MOH, you debit it

question

Why are seller's salaries and delivery drivers not MOH?

answer

they are example of DL because of freight in, and aren't related to development/prepaid costs

question

What is credited when work in process and MOH is debited?

answer

wages payable because you are paying for a job to be done

question

What is the difference between dealing with direct jobs/labor (work in process) and direct jobs/labor (labor)?

answer

Indirect still affects MOH and direct still affect work in process.... the difference is raw materials is credited when dealing with working on converting with materials and wages payable is credited when dealing with paying for direct/indirect labor

question

Ch:4 What is job distortion?

answer

In our simple one MOH rate -> leads to cost distortion ...companies use more refined cost allocation systems so that they're more detailed

question

What's an example of a cost distortion?

answer

Before $98,000 w/4500 DL hours Now $298,000 w/estimate of DL 4500 hours what is the effect? Was $21.78 per DL hour and now $49..67 per DL hour -The cost per unit has gone up for both Choc. Chip Cookies & Wafer cookies -Why would a worker be upset by this change in cost? -It makes Choc. Chip cookies is being overcosted for MOH and PB & B is being undercosted for MOH because it's using a slicing machine -however they're under the same MOH rate, (higher) with the same amount of hours

question

What do companies do to avoid cost distortion?

answer

They make an overhead rate for each department : one for icing, one for peanut butter spreading -do the same steps you did before except for each department

question

When would we not do the extra mile to go to divide the jobs by department?

answer

if the cost difference is significant, otherwise it's not worth it

question

What is activity based costing?

answer

departments: defined by the organization activities: actual activities, more flexibility with what you pick and highlight

question

How do we focus on activities rather than department?

answer

Under the plantwide rate, we get the rate and allocate it out to jobs: a 4 step process 1. We take the same $1 million dollars, consider the department 2. Each of those rates apply to each of those jobs. 3. Take million dollars, spread out across these activities such as machine set up, inspecting, packaging, and each activity has its own allocation rate. 4. The indirect cost allocated to the cost object like Job 202: treadmill = $ + $ + $

question

Why is the cost driver of material purchasing # of purchase orders in this example?

answer

The number of purchase orders they make and do ... that's a good driver of material purchasing costs -company just determines its primary activities

question

How do you do activity based costing?

answer

1. Identify your primary activity then estimate total MOH cost for each activity 2. select allocation base predetermined costs/ hours of activity 3. get determined rate 4. allocate to jobs

question

Why is activity based costing accurate?

answer

looks at the type of resources the product uses and the extent in which they're used for example. 1. if one jobs takes in more parts than one parts than another 2. uses parts and you look at how much you use them to different extents

question

When would ABC be good and bad?

answer

-when you're creating a budget, you want precise information from last year. ABC costing helps you do that -Must pass cost benefit test -If you're in a competitive market, it's very sensitive -costs of ABC are lower with high technology -ABC doesn't help you reduce cost but rather helps you understand it

question

CH 4: What is lean thinking?

answer

Eliminating some part of the product that customers don't want - just eliminating stuff we don't need

question

What is just in time inventory?

answer

Picture this giant warehouse ready to go, tons of stuff -> when they were done with production there were tons of stuff if companies wanted them. That could be a waste of time & money though if we had all these finished goods if customer tastes change 1. They're going to try to have their supplier ready to go, so that when they want something the raw materials go in process as soon as the order is placed 2. Finished goods inventory: when they're done producing manufacturing a product, it doesn't go to finished goods sitting around, it goes right to the customer

question

What is the traditional system?

answer

1. big space that held materials 2. people held materials from warehouse to production 3. would go to finished good warehouses 4. people would have to send finished goods to the actual customer

question

What is the just in time system?

answer

The materials from the suppliers go right into the production floor instead of sitting around in the warehouse ISSUES: You have some risk of some slow down happening or you're trusting your supplier to go right when you need them. Maybe you won't get the product to your customer in time

question

What are self contained production cells?

answer

Teams working in their own little cell where they can do everything and the product doesn't have to move long distances -little teams doing all the required roles

question

How do we determine the cost driver?

answer

When you pick your cost driver or your allocation base, it has to be something that as jobs are worked on, you can allocate manufacturing overhead based on how much it can use

question

Can cost drivers be indirect?

answer

No; you don't know how many indirect labor hours someone used

question

Chapter 5 Process Costing:

answer

Process costing = mass production of similar products -Total manufacturing costs are averaged over ALL units

question

What is the process costing of Jelly Bean?

answer

Centers process -> shells process -> packaging process -everything works in the same way on how we book this process

question

Store room moves out of factory floor what is the journal entry?

answer

Raw materials is credited (asset going down) Work in process inventory debited (asset going up)

question

What is the journal entry for indirect labor?

answer

MOH is debited and wages payable and credited

question

Increasing for indirect materials?

answer

MOH is debited Raw materials is credited

question

How do we allocate MOH -> work in process inventory?

answer

work in process inventory is debited and MOH is credited

question

What are the two different processes for Austin company?

answer

frosting and packaging

question

How do we figure out how much cost went from work in process frosting - work in process packaging - > finished good inventory

answer

Put all the costs in WIP inv and move them out

question

What are conversion costs? DL and MOH

answer

Combine direct labor and manufacturing overhead, rather than saying direct labor and MOH = say conversion cost -occur evenly throughout the process

question

What are equivalent units?

answer

The amount of work done during a period in terms of fully completed units of output # of physical units x % of completion 8 half done products = 4 equivalent units, like if you had four full products

question

Direct material costs

answer

Can be incurred at the beginning or at the end

question

Callaway Golf manufactures golf balls. At the end of the period there are 5,000 partially completed gold balls in Work in Process inventory. Each ball is 80% of the way through the production process. What is the equivalent unit amount?

answer

5,000 x 80% of completion = 4,000 units

question

How many equivalent units are there of rubber?

answer

Rubber is added at the beginning so there are 5,000 x 100% of completion =5,000 complete units

question

For direct materials it will either be:

answer

100% or 0% because they're either added at the beginning or the end

question

What are the five steps of process costing?

answer

1. Summarize the flow of physical units: -let's take inventory, figure out what happened during the accounting period "how much did we start with, how many did we end with, how many were finished and transferred out" 2. Computer output in terms of equivalent units 3. Summarize total costs to account for 4. Computer cost equivalent unit =figures out how much cost left from work in process -> goes into finished good inventory

question

If they're completed and transferred out?

answer

it's always 100% always matches the amount of physical units

question

If you add direct materials at the beginning of the process what percent are they done at direct materials?

answer

100% done for direct materials

question

Why are conversion costs and direct materials different

answer

Conversion costs: The percentage of the way they are through the process -> constant Direct materials: either all or nothing, all put on the beginning or at the end

question

What is step 3?

answer

Gathering cost information

question

What is step 4?

answer

Computing the cost per equivalent unit Total costs to account for / total equivalent units = cost per equivalent unit

question

If we requisitioned materials for use by the processing department, which work in process account would be increasing?

answer

Shaping

question

What is that the current balance in WIP - shaping account?

answer

All these increase work in process during the accounting period. We have to figure out what costs are moving onto the next process. 1. How do we DECREASE work in process

question

Quiz 2: Which of the following companies would accumulate its costs using a process costing system?

answer

Bottled water manufacturer that makes one product that comes in 12 oz. and 24 oz. sizes

question

What was Smart's predetermined manufacturing overhead rate during 2016?

answer

Manufacturing overhead costs allocated to Job 301 = $630 / Machine hours used on Job 301 = 30 Machine hours OR $21/machine hour

question

Which of the following is the journal entry to close the temporary manufacturing overhead account at the end of a period if the company under-allocated jobs by $3,000?

answer

Cost of goods sold $3,000 (D) Manufacturing overhead $3,000 (C)

question

Which of the following journal entries is made to capture an employee providing $1,000 worth of custodial services at a factory (the factory produces several products and considers its cost object to be individual product units)?

answer

Manufacturing overhead $1,000 (D) Wages payable $1,000 (C)

question

The total amount of manufacturing overhead allocated to job 345 is?

answer

$3,000 if your allocation base is number of parts and direct labor hours and you're only given direct labor hours, don't use the MOH calculation for number of parts

question

What is the activity based costing for materials handling?

answer

Number of parts

question

What is the activity based costing for general supervision of factory employees?

answer

Direct labor hours

question

What is the activity based costing for machine maintenance?

answer

Machine hours

question

How do you know if you've over allocated?

answer

there is a credit balance in MOH

question

what does cost per unit mean?

answer

add DL + DM + MOH / per unit

question

Cost behavior CH.6: What is a variable cost?

answer

Variable costs will change in direct proportion to changes in volume -if hotel guests double, total variable cost will double as well -as volume increases, per unit variable cost is going to remain constant -the cost PER UNIT is going to remain the same

question

What is our total variable cost (y) ?

answer

Variable cost PER unit of activity (v) x Volume of activity (x)

question

What is a fixed cost?

answer

Costs that do not change in total despite wide changes in volume

question

How does cost per unit change in response to volume?

answer

Find cost per unit is inversely proportional to changes in volume -the total is staying the same -as we have more units, the cost per unit is going to decrease

question

What is a committed fixed cost for a hotel?

answer

-Property taxes and insurance -Pool and fitness room upkeep -Advertising expenses

question

If we graph our fixed cost what would it look like?

answer

Volume (thousands of guests x) by Total fixed costs (thousands y)

question

What is our equation for a fixed cost line?

answer

Y = fixed cost amount over a period of time (super easy)

question

What is a mixed cost?

answer

A sort of blend of the two types of cost -like a variable cost, as we have more hotel guests our mixed cost will increase per unit -mixed cost per unit decreases as volume per unit, like a fixed cost

question

What would a graph of a mixed cost be like?

answer

This is a mixed cost line because it's crossing the y axis at $8,000 instead of 0 starts at $8,000 due to our fixed cost variable

question

What is a step cost?

answer

You could have something like step costs, like stairs. This occurs when there are fixed costs over smaller ranges of output - like at a daycare center if they're thinking about their salary for their teachers there has to be one adult for every 7 kids

question

What is a curvilinear cost?

answer

Costs that do not fit a neat pattern of straight lines very well

question

How do managers determine cost behavior?

answer

Account analysis, graphing methods: scatter plots, high low method, regression analysis

question

What does the positive slope suggest?

answer

it's a variable cost

question

What does a straight horizontal line that suddenly goes up suggest?

answer

It is a mixed cost

question

What is the high low method?

answer

An easy way of estimating by hand the variable and fixed component of a mixed cost

question

What is the high low method?

answer

Take two points, solve for the y intercept, put them all together in our cost equation What is one of the issues with doing this? there could be outliers

question

What would be our high point?

answer

July

question

What is our slope?

answer

Rise over run or change in cost/change in volume

question

How do managers determine cost analysis?

answer

A statistical procedure for determining the line, and associated cost equation that best fits all of the data points in the data set... The line of best fit

question

What is r square statistic?

answer

How well your line of best fit actually fits your data.... It can range from 0 to 1 (the highest possible value). You want to be closest to 1 as possible

question

How do managers determine cost behavior?

answer

Look at the trends -> excel will give you an output What you need to be able to do: take the output, identify the R square. This coefficient intercept means the Y intercept (the fixed cost amount). The coefficient on the x variable (the slope) From these two numbers you should be able to write a COST EQUATION LINE

question

What does the slope represent to a manager?

answer

The variable cost per unit, for every extra unit that you add, you would have $7.8 extra variable cost.

question

Which one would you choose?

answer

y = $8x+8,000 y=$7.85+14,538 regression takes into account all your data points while high low only takes into account two, regression is better

question

What do we learn from this from running regression analysis?

answer

The r^2 is really close to 0 so the line does not really fit our data that well. We would not want to depend on this cost equation to depend on future costs.

question

How do managers take into account their seasonal variations?

answer

If you know inflation is going to go up a lot, you want to account for that as well

question

With outliers, how will they affect either method?

answer

The high low line will be way off and the regression line will be pulled towards that outlier as well. If it makes sense you might want to get rid of it to make your data make more sense.

question

What is absorption costing?

answer

They matter in the presentation of income statement: it's not really changing the accounting. Assign all manufacturing costs to products (DM, DL, Variable MOH, and fixed MOH)

question

What are examples of fixed MOH?

answer

Rent -> factory rent would qualify as fixed MOH, electricity to run the building, depreciation on the factory

question

What is variable costing used for?

answer

Used for internal reporting and does not follow GAAP: would never be in external statement.

question

What does variable costing do?

answer

Assigns only VARIABLE manufacturing costs to products (DM, DL, and Variable MOH)

question

What is fixed MOH treated as?

answer

A period cost

question

What is a contribution margin income statement?

answer

A new income statement that will represent variable costing

question

What is our regular income statement using?

answer

Absorption costing SALES -COST OF GOODS SOLD (variable and fixed COGS) ________________________________________________________________ Gross profit - Operating expenses (variable and fixed Op. ex) _________________________________________________________________ Operating income Contribution margin income statement (variable costing) SALES -All variable costs _____________________________ Contribution margin -All applicable FIXED expenses (fixed MOH and Operating expenses) _______________________________ Operating income absorption costing and variable costing may not give you the same operating income

question

How is variable costing different?

answer

Variable cost per unit and fixed MOH is separate

question

Absorption costing: 5,000 units x times $75/unit = $375,000 <- will it actually cost you this much to make an extra 5k units?

answer

It will NOT cost you an extra $375,000 because it's also taking into account your fixed cost... Use variable costing

question

What is a contribution margin?

answer

Same thing as a gross profit when you take Sales Revenue - Variable cost of goods sold (40,000 x $50)

question

How could there be differences in the operating income of variable costing vs. absorption costing

answer

Due to the timing of when we recognize the cost of fixed MOH Contribution margin: hits income instantly

question

How do you know how much MOH was incurred in the process?

answer

You would know how to allocate it You can use ABC to figure out the cost of MOH

question

14 first step of developing ABC

answer

identify the primary activities and estimate a total cost pool for each

question

How do you know what is the difference between operating and manufacturing expenses?

answer

Operating = period costs all operating expenses = period costs, but not all costs treated as period costs are operating expenses manufacturing = inventoriable (DM (freight in), DL, MOH)

question

What is distribution? period cost

answer

getting it to customer and is not involved in production, including cost of tax to get to the customer

question

What is cost volume profit analysis?

answer

Managers can use this analysis to better understand what sales volume they need to achieve, in order to achieve certain targets

question

For CVP to be accurate, certain assumptions must be met:

answer

Volume is the only factor that is going to affect our costs... There's probably lots of other things that could affect your cost

question

What else are we assuming?

answer

Managers can classify each cost as variable or fixed... Costs are linear. Revenue is linear in relevant range. Inventory levels will not change (if beginning inventory is 100,000 our ending inventory is still 100,000). We also assume sales mix will not change (the ratio of two products we're selling is constant, for every 5 x products we sell, we sell 2 y products)

question

What if a question asks you for a contribution margin versus a unit contribution margin or a contribution margin ratio - what would be the contribution margin per unit?

answer

Take our contribution margin / units you sold

question

Kay has a e-tail poster business. She currently sells each poster for $35, while each poster has a variable cost of $21. Kay has fixed costs of $7,000.

answer

What is her contribution margin per unit? $14 OR $25-$21

question

What is the point of having a unit contribution margin?

answer

Managers can quickly forecast income at any unit of sale -More nimble -More flexible -Quicker calculation

question

What is the contribution margin ratio?

answer

contribution margin per unit / sales price per unit OR contribution/sales revenue percentage of every sales dollar that goes towards fixed expenses and earning a profit -For every $1 in sales, 60 cents -> variable costs and 6 cents -> fixed costs (FE) (think FIXED EXPENSES)

question

What is our income statement approach?

answer

Sales revenue - variable expenses - fixed expenses = operating income (Sales price per unit x units sold ) - (Variable cost per unit x units sold) - fixed expenses = operating income

question

What is our sales in dollars?

answer

Fixed expenses + operating income / contribution margin ratio

question

What is margin of safety?

answer

Expected sales in units - breakeven sales in units

question

What is an operating leverage factor?

answer

An actual measure for measuring operating leverage = contribution margin / operating income

question

What is operating income?

answer

Contribution margin - fixed costs

question

If we wanted to calculate firm A's operating leverage factor how would we do that?

answer

Contribution margin / Operating income

question

If you are purchasing a bucket of popcorn, will it affect your decision?

answer

Yes

question

Wha about the expected cost of dinner bill?

answer

Yes

question

What about the expected cost of gas?

answer

No; my price of gas - even if I uber out there it will be the same cost no matter what I go with

question

What about the cost of movie tickets purchased in advance?

answer

Irrelevant because it is a sunk cost

question

What about the expected "hurt feelings" caused by a hurt friend?

answer

relevant

question

What is relevant non financial information?

answer

Laying off employees - maybe you lay off a third of your work force and the rest of your work force feels less loyal

question

What are six decisions in this chapter?

answer

1) special sales order 2) pricing 3) discontinuing products 4) product mix 5) outsourcing 6) selling as is or processing further

question

What is something you should consider?

answer

special order - if you have the excess capacity to maintain this order, if the reduced price will cover it, will the special order affect regular sales

question

When should you fill this order?

answer

-order uses manufacturing capacity that would otherwise be idle -filling this order will not affect their regular says

question

What is target costing?

answer

Start with the market price of the product (what customers are willing to pay) - company's desired profit

question

Who makes the budget?

answer

Lower level managers may build slack into the budget, they may be directly evaluated based on the budget.

question

What are rolling budgets?

answer

They always have 12 months of a budget continually rolling

question

What is the starting point for the shorter term budgets?

answer

Look at last year's budget, we're releasing another product, if a department does that year after year, at the end of 5 years maybe no one knows where that money is going

question

What is the master budget?

answer

The comprehensive planning document that has a document for the entire organization that consists of all the supporting budgets

question

What is the sales budget?

answer

Make it as accurate as possible - many of the other budgets are based on expected sales

question

Why do we need a sales budget and a production budget? Why don't we produce the same amount of number that we expect to sale?

answer

You might want safety stock around

question

What is a safety stock?

answer

Sales just in case good -> Super Bowl sales are booming bad -> fire is happening and then we lose units

question

What is the safety stock typically calculated as?

answer

Maintain ending inventory as 10% of next months sales

question

What is our production budget?

answer

What's our desired ending inventory? We have to calculate that as a percentage of next month's predicted sales.

question

What should you know about this?

answer

You cannot find that number by adding that balance at the end of each month, so you have to pull over the ending March balance, then this next line item, you can't sum across, you have to add down.

question

What is our total quantity needed for flour of production?

answer

What if business is booming and we need more? Our desired ending inventory of next months' production

question

What is the manufacturing overhead budget?

answer

Budget is highly dependent on cost behavior; indirect materials, some indirect labor, and some factory utilities are VARIABLE costs. Many other costs (e.g. depreciation, insurance, and property taxes; some indirect labor salaries; some minimum of factory utilities) are FIXED costs

question

What is an example of an operating variable cost?

answer

As you sale more you get more commission (sales commission)

question

What do operating expenses move with?

answer

The cases to be sold, not produced

question

What is net income?

answer

Sales revenue - cost of goods sold = Gross profit Gross profit - operating expenses = Operating income

question

How do you calculate cost of good sold?

answer

Number of unit sales x Manufacturing cost per unit = Cost of goods sold

question

What is fixed manufacturing overhead?

answer

We need to multiply that by 12 months and divide by total production all year to get a per case number

question

Which statement can we say with confidence?

answer

The percentage increase in operating income (from January) will be greater for Tony than Victor

question

What is irrelevant?

answer

Original purchase price of old vehicle in terms of choosing a new vehicle

question

What is fishing run corporation received a special order, how would we calculate the increase/decrease to operating income?

answer

Additional revenue - variable costs = increase/decrease to operating income

question

Which one action would help it achieve its target profit?

answer

Cut variable manufacturing costs by $1 per unit

question

Where would advertising expenses go into?

answer

Operating expense

question

For Deluxe treadmills, AllTreads should sell how many treadmills?

answer

90,000 Deluxe treadmills

question

What is a financial budget?

answer

Includes: -capital expenditures budget -cash budgets: -Cash collections (or receipts) budget -cash payments (or disbursements) budget -combined cash budget, complete with financing arrangements

question

What is a capital expenditures budget?

answer

-Big purchases for plant, property, and equipment -You're not gonna do it on a day to day basis -These big capital budgets have other effects -Sometimes to meet this large investment you need to borrow -it's good to think about how it affects other things

question

What is our cash collection budget?

answer

-They know what our sales are -When do they expect that money from sales to actually be received -They made this sale: net 30 terms -Are they actually going to get that money? -Companies have to think about, what percentage do we plan to actually collect -In January if 80% of our sales are in credit, how much do we plan to actually collect

question

What do the financial budgets teach you?

answer

Cash payments (or disbursements) budgets

question

What is in a cash payments (disbursements) budget?

answer

-One company what they send -Most of this you would have to be given in a problem -They expect to pay their direct materials -Direct labor they pay their employees twice a month -MOH you have depreciation as a part of manufacturing overhead; a non-cash expense; there's no cash going out the door for depreciation

question

How about a merchandiser?

answer

-They have one merchandising account -They have one combined budget (inventory and purchases) -What is our cost of good sold? -Add some safety stock

question

What is a segment margin?

answer

The operating income by a profit or investment center BEFORE subtracting common fixed costs that have been allocated to the center

question

What is decentralization?

answer

May go to younger audience or older audience

question

What are advantages to decentralization?

answer

You have to delocate the decisions to lower managers. Decentralizing encourages expert knowledge -Bring in someone who has experience reaching millennial -As you divide up the company, the managers can get to know the customer more -It provides a training ground to your employees -Know the whole company really well -Increases your employee's motivation so they feel important and accountable because they're given a specific category they're in charge of -Duplicating your cost -A lot of times companies tried to avoid this and consolidate their HR pay rolls

question

What is the issue of decentralization?

answer

They're thinking big picture and long term but then the smaller manager below, their goals could be very different. It's tough for the top person's goals to align with every single lower manager's goals.

question

How do managers know if they did well?

answer

Performance evaluation systems: get necessary feedback from their managers -big goal: reduce carbon emissions <- make that a part of your performance evaluation for lower level manager -Motivate segment managers (Bonuses for example) -communicate clearly

question

What is responsibility accounting?

answer

A responsibility center is a part of an organization whose manager is accountable for planning and controlling certain activites

question

What are the four types of responsibility centers?

answer

1. Cost center = cost only (Manager of Production of Gatorade and Distribution of Gatorade: how much money are we spending on the production and distribution of Gatorade?) -compares actual costs to budgeted 2. Revenue center = revenue only -How can I bring in more revenue for this company? keeps into account costs to achieve these sales but mainly focuses on revenue 3. Profit center = both revenues and costs 4. Investment center = revenues, costs, and assets -investment centers are treated almost as a stand alone company -they're just one division of a company Do we buy this huge piece of equipment or not?

question

How do we evaluate these managers?

answer

Performance reports that compare actual revenues and expenses against budgeted figures?

question

What is a favorable variance?

answer

Causes operating income to be higher

question

What is an unfavorable variance?

answer

Causes operating income to be lower than budgeted?

question

Why would an unfavorable variance be bad?

answer

A manager purchases lower quality materials to cut costs = just because it says favorable doesn't mean that it's a good thing

question

What is variance?

answer

Difference between actual and budgeted sales

question

What is management by exception?

answer

They're going to identify things that they would not have expected rather than looking at every single variance

question

Master budget = what you're supposed to get Actual = what you actually got

answer

The difference is the master budget variance

question

What is a flexible budget?

answer

The budget prepared for a different level of volume than that which was originally anticipated... Prepared for the sales volume actually achieved

question

What is return on investment?

answer

Operating income/ Total assets

question

What is sales margin?

answer

Operating income / Sales out of each sales dollar you earn, how much of that represents operating income

question

What is capital turnover?

answer

Sales/Total assets = how well did they take their total assets and turn them into sales

question

What is residual income?

answer

Actual operating income - minimum acceptable income (target rate of return (such as 20%) x total assets)

question

What were management's expectations?

answer

How much profit did they expect them to make vs. what did they actually do?

question

What are transfer prices?

answer

If you had one company (Pepsi) and they had their beverage division and their snack division. What if they wanted potato chips? -let's say they want to buy potato chips from another company -internal exchange -revenue for another division (whatever you sell it at) -for the other it's a cost -they should buy whatever they want externally ^^^ this is all in the same company

question

What is the market price?

answer

advantage - seen fair disadvantages - you might be selling a product only your company can use, so there might not be another market price consideration - market price - operating expenses

question

What is the negotiated price?

answer

-falls between variable cost and market price -disadvantage = takes time and effort

question

What is the cost plus a markup?

answer

-useful if a market price is not available

question

What is the balance scorecard?

answer

A way of evaluating your manager's performance -in the early 1990's this came out as a new thing -they based only on that -financial performance - lag indicators -they may not be running the factory well -that's more of a lag indicator -if you had an indicator to help them predict future performance -the idea that numbers and money may not be the end all be all -more than just financial numbers -the balance scorecard is balanced between these 4 perspectives 1. financial 2. customer 3. internal business 4. learning and growth COMPANIES have these 4 perspectives -Separated into 4 areas -under each one they want some way to measure these things -numbers you can actually obtain and prepare -how all their metrics are doing, how all their KPI's are doing -they're each related to one key performance indicator -vague critical factor

question

What is the financial perspective?

answer

-How do we look to shareholders -increase revenues, control costs, increase productivity

question

What is the customer perspective?

answer

How do customers see us? -customers are concerned with four product/service attributes -price, quality, sales service, and delivery time

question

What is Common KPIs?

answer

Average customer satisfaction rating

question

What is the internal business perspective?

answer

Three factors: innovation, operations, and post-sales support

question

What are common KPIs?

answer

Number of new products developed, development time defect rate, manufacturing lead time, yield rate, and average repair time

question

What is learning and growth perspective?

answer

Three factors: -employee capabilities -information system capabilities -company's "climate for action" COMMON KPIs: hours of employee training, employee satisfaction, employee turnover, percentage of employees with access to real time data

question

What are standard costs around budgeting?

answer

What did you spend on these things last year?

question

How do managers computer standard costs?

answer

Total estimated variable MOH / total estimated amount of allocation base = standard price of variable MOH rate

question

What is the standard cost of fixed MOH per unit?

answer

Standard quantity of MH x Standard Price of Fixed MOH

question

What is the volume variance?

answer

All the variances due to sales volume

question

What can the direct materials variance be due to?

answer

-Paying a different price

question

What is the total standard cost allowed?

answer

Budgeted expectation

question

How do we split up the direct materials cost?

answer

Find the middle number (actual quantity x standard price) to split it up into the price variance and the quantity variance -Create this middle number

question

How is the total standard cost allowed calculated?

answer

Standard quantity x actual units produced

question

What is the price variance?

answer

The difference in the actual price paid and the standard price

question

Who is the right person to go and ask for a price variance?

answer

The purchasing supervisor -how would you be able to save all that money?

question

What is the total actual cost?

answer

Actual hours x actual rate

question

What are advantages to standard costs and variances?

answer

-Provides benchmarks, managers know what they are shooting for -That can help them increase their motivation -Standard costing systems can simplify bookkeeping

question

What are disadvantages to standard costs and variances?

answer

-You have to always update them and if you don't then they're not useful -If they tell you there are huge disadvantages in the factory floor, there's a bit of a movement to get more operational measures -With an increase in automation there's sometimes less need for standard costs and variances -There can be unintended consequences - people could achieve that standard by buying lower quality materials -You can have bad unintended consequences -The variable manufacturing overhead variances

question

How do you do the variable MOH variance?

answer

-They're different -rather than a rate we're paying humans -it's an overhead allocation rate -it's the best we have for allocating out manufacturing overhead -we're talking about machine hours - the allocation base tied -throws out the interpretation -we calculate it in the same way as direct labor variance -these rates are not actual rates that would show up on someone's pay check - they are overhead allocation rates and inside of that are tons of inputs (part of the utility bills, janitor's hourly wages, baggies, a lot that is wrapped up into calculating these rates) -you also have to calculate the overhead rate -what is our overhead allocation rate -everything else is done the same -hard to determine why the variance is there

question

What are financing activities? (cash flow)

answer

generating capitals

question

What are operating activities? (cash flow)

answer

day to day activities, transactions affecting net income

question

What are investing activities? (cash flow)

answer

ways to get money, loans

question

What is cash?

answer

cash equivalents count as well - very safe, highly liquid assets that are readily convertible to cash

question

What about non cash investing and financing activities?

answer

any significant non cash investing or financing activity must be disclosed separately because it affects future cash flow

question

What should the cash flow tell you about?

answer

Net increase Cash beginning of year Cash End of year

question

What is the direct method?

answer

What is all the cash that came from sales?

question

Will we cover the indirect method

answer

NO

question

What is the indirect method, how would we go about doing that?

answer

1. Start with whatever net income is from the income statement 2. Net income is already a pretty good estimate = reflects sales/expenses

question

What do we do with non cash expenses?

answer

Add back non cash expenses ADD BACK depreciation expense ADD BACK amortization of intangible assets ADD BACK depletion of natural resources

question

What do we do with gains and losses?

answer

Reverse a gain or loss in the sale of an asset -Deduct a gain on the sale of an asset -Add back a loss on the sale of an asset -The gain or loss is included in net income on the income statement -But this activity at the full cash amount belongs in the cash flows from investing activities section, not operating.....

question

What do we do with changes in current asset accounts?

answer

-Need to adjust net income to fit actual cash payments -Adjustment will move in opposite direction of account movement like if prepaid insurance increases put it in the credit side

question

What do we do with changes in current liabilities?

answer

Moves in same direction was balance sheet movement If interest payable increased, we add to net income if wages payable decrease

question

What should you know about net income?

answer

it increases retained earnings

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