question

Financial vs. Managerial

answer

Outside -- Inside Past -- Future Precision -- Timeliness Objectivity and verifiability -- Relevance Companywide -- Segment MUST follow GAAP/IFRS -- Doesn't Mandatory for reports -- Not mandatory

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segment

answer

a part or activity of an organization about which managers would like cost, revenue, or profit data (e.g, product groups, customer groups)

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planning

answer

establishing goals and specifying how to achieve them

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controlling

answer

gathering feedback to ensure that the plan is being properly executed or modified as circumstances change

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decision making

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selecting a course of action from competing alternatives

question

budget

answer

a detailed plan for the future that is usually expressed in formal quantitative terms

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performance report

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compares budgeted data to actual data in an effort to identify and learn from excellent performance and to identify and eliminate sources of unsatisfactory performance

question

strategy

answer

a "game plan" that enables a company to attract customers by distinguishing itself from competitors.

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enterprise risk management

answer

process used by a company to identify those risks and develop responses to them that enable it to be reasonably assured of meeting its goals

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business process

answer

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

question

value chain

answer

describes how an organization's functional departments interact with one another to form business processes. also consist of the major business functions that add value to a company's products.

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lean production

answer

a management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders. aka JIT; just-in-tie production

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constraint

answer

anything that prevents you from getting more of what you want

question

theory of constraints

answer

(TOC) based on the insight that effectively managing the constraint is a key to success. idea that to be effective, improvement efforts must be focused on the constraint.

question

leadership skills

answer

-technically competent -person of high integrity -effectively implement organizational change -strong communication skills -motivating and mentoring other individuals -effectively manage team-based decision processes

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corporate social responsibility

answer

concept whereby organizations consider the needs of all stakeholders when making decisions. extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.

question

corporate governance

answer

system by which a company is directed and controlled. if properly implemented, the corporate governance system should provide incentives for the board of directors and top management to pursue objectivity that are in the interests of the company's owners.

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Sarbanes-Oxley Act of 2002

answer

intended to protect the interests of those who invest in publicly traded companies by improving the reliability and accuracy of corporate financial reports and disclosures. 1. requires both CEO and CFO certify in writing that their company's financial statements and accompanying disclosures fairly represent the results of operations. 2. Establishes the Public Company Accounting Oversight Board to provide additional oversight over the audit profession. Authorizes the Board to conduct investigations, to take disciplinary actions against audit firms. 3. Places power to hire, compensate, and terminate the public accounting firm that audits a company's financial reports in the hands of the audit committee of the board of directors. 4. Places important restrictions on audit firms. 5. Requires a company's annual report contain an internal control report. Report must state that it is management's responsibility to establish and maintain adequate internal controls and it must contain an assessment by management of the effectiveness of its internal control structure. 6. Establishes severe penalties of as many as 20 years in prison

question

internal control

answer

a process designed to provide reasonable assurance that objectives are being achieved.

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preventive control

answer

deters undesirable events from occurring

question

detective control

answer

detects undesirable events that may have already occurred

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3 manufacturing costs

answer

direct materials, direct labor, manufacturing overhead.

question

direct materials

answer

materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product

question

raw materials

answer

materials that go into the final product

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direct labor

answer

labor that can be easily traced to individual units of product

question

manufacturing overhead

answer

includes all manufacturing costs that are not direct materials or direct labor. includes things like indirect materials, indirect labor, maintenance and repairs of production equipment and etc. Things that are associated with OPERATING THE FACTORY go under here.

question

nonmanufacturing costs

answer

selling cost and administrative costs

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selling cost

answer

all costs incurred to secure customer orders and get the finished product to the customer

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administrative costs

answer

include all costs associated with the general management of an organization. e.g. secretaries, public relations, and etc.

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product costs

answer

all costs involved in acquiring or making a product

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period costs

answer

all costs that are not product costs. things like rent and stuff that don't change.

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prime cost

answer

the sum of direct materials cost and direct labor cost

question

conversion cost

answer

the sum of direct labor cost and manufacturing overhead cost

question

cost behavior

answer

refers to how a cost reacts to changes in the level of activity

question

variable cost

answer

varies in direct proportion to changes in level of activity

question

activity base

answer

the measure of whatever causes the incurrence of a variable cost

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fixed cost

answer

a cost that remains constant in total regardless of changes in the level of activity

question

committed fixed costs

answer

represent organizational investments with a multiyear planning horizon that can't be significantly reduced or even for short periods of time without making fundamental changes

question

discretionary fixed costs

answer

usually arise from annual decisions by management to spend on certain fixed cost items

question

relevant range

answer

range of activity within which the assumption that cost behavior is strictly linear is reasonably valid

question

mixed cost

answer

contains both variable and fixed cost elements; aka semivariable costs

question

account analysis

answer

account is classified as either variable or fixed based on the analyst's prior knowledge of howt he cost in the account behaves

question

engineering approach

answer

involves a detailed analysis of what cost behavior should be based on an engineer's evaluation of the product methods to be used and etc.

question

dependent variable

answer

scattergraph: Y-axis, amount incurred depends on level of activity

question

independent variable

answer

scattergraph: X-axis; level of activity

question

high-low method

answer

variable cost = change in cost / change in activity

question

cost of goods sold formula

answer

cost of goods sold = beginning merchandise inventory + purchases - ending merchandise inventory

question

contribution margin

answer

amount remaining from sales revenues after variable expenses have been deducted

question

direct cost

answer

cost that can be easily and conveniently traced to a specified cost object

question

indirect cost

answer

cost that cannot be easily and conveniently traced to a specified cost object

question

common cost

answer

incurred to support a number of cost objects but cannot be traced to them individually

question

differential cost

answer

difference in costs between any two alternatives

question

differential revenue

answer

difference in revenues between any two alternatives

question

opportunity cost

answer

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

question

sunk cost

answer

cost that has already been incurred and cannot be changed by any decision made now or in the future

question

quality cost

answer

all of the costs that are incurred to prevent defects or that result from defects in products

question

prevention costs

answer

support activities whose purpose is to reduce number of defects

question

quality circles

answer

consist of small groups of employees that meet on a regular basis to discuss ways to improve quality

question

statistical process control

answer

technique that is used to detect whether a process is in or out of control

question

appraisal cost

answer

incurred to identify defective products before the products are shipped to customers

question

internal failure costs

answer

result from identifying defects before they are shipped to customers.

question

external failure costs

answer

result when a defective product is delivered to a customer

question

quality cost report

answer

details the prevention costs, appraisal cost, and costs of internal and external failures that arise from the company's current quality control efforts

question

ISO 9000 standards

answer

quality control requirements issued by the International Organization for Standardization that relate to products sold in European countries

question

absoprtion costing

answer

all manufacturing costs, both fixed and variable, are assigned to units of product--units are said to fully absorb manufacturing cost

question

job-order costing

answer

used in situations where many different products are produced each period

question

bill of materials

answer

document that lists the type and quantity of each type of direct material needed to complete a unit of product

question

materials requisition form

answer

document that specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of the materials

question

job cost sheet

answer

records the materials, labor, and manufacturing overhead costs charged to that object

question

time ticket

answer

hour-by-hour summary of an employee's activities throughout the day

question

allocation base

answer

a measure such as direct labor-hours or machine-hours used to assign overhead costs

question

predetermined overhead rate

answer

estimated total manufacturing overhead cost/estimated total of allocation base =

question

overhead application

answer

process of assigning overhead cost to jobs

question

overhead applied to a particular job

answer

predetermined overhead rate x actual DL-H charged to job

question

normal cost system

answer

applies overhead to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by jobs

question

cost driver

answer

an allocation base

question

work in process

answer

consists of units of product that are only partially complete and will require further work before they are ready to be sold

question

finished goods

answer

consist of completed units of product that have not yet been sold to customers

question

costs of goods manufactured

answer

amount transferred from Work in Process to Finished Goods. Includes the manufacturing costs associated with the goods that were finished during the period.

question

plantwide overhead rate

answer

a single predetermined overhead rate for an entire factory

question

multiple predetermined overhead rate

answer

system each production department may have its own predetermined overhead rate.

question

idle time

answer

goes into manufacturing overhead--doesn't count as DL-H.

question

fringe benefits

answer

insurance, retirement palns, various supplemental unemployment benefits

question

break-even point

answer

level of sales at which profit is zero

question

contribution margin ratio

answer

ratio computed by dividing CM over SALES

question

cost-volume-profit graph

answer

a graphical representation of the relationships between an organization's revenues, costs, and profits on the one hand and its sales volume on the other hand

question

degree of operating leverage

answer

a measure, at a given level of sales, of how a percentage change sales will affect profits. DoOL = CM/Net

question

Incremental analysis

answer

analytical approach that focuses only on those costs and revenues that change as a result of a decision

question

margin of safety percentage

answer

Excess of Budget/Actual $ divded by the BE-sales

question

operating leverage

answer

a measure of how sensitive net operating income is to a given percentage change in dollar sales

question

sales mix

answer

relative proportions in which a company's products are sold. sales mix is computed by expressing the sales of each product as a percentage of total sales

question

target profit analysis

answer

estimating what sales volume is needed to achieve a specific target profit

question

variable expense ratio

answer

a ratio computed by dividing variable expenses by dollar sales

Managerial Accounting — Midterm 1 – Flashcards

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