Final Exam Accounting Hampshire
Terms in this set (66)
Identify managers three primary responsibilities (situation)
Plan- Setting goals
Direct- overseeing day to day
Control- evaluating results of business
Distinguish financial accounting from managerial accounting
External (release info to public) vs Internal Perspective (within the company)
Institute of Management Accountants (IMA) and its ethical standards
IMA: US professional association for management accountants.
Four ethical standards:
Distinguish among service, merchandising, and manufacturing companies. (inventory accounts)
Service Companies: Sell intangible services. (No inventory)
Merchandising Companies: Resell tangible products bought from suppliers. (one inventory account)
Manufacturing Companies: Convert raw material into finished goods using labor, plant, and equipment. (raw material, work in progress, finished goods inventory)
Identify product costs and period costs
-Product Costs: Direct Materials, Direct Labor, and Manufacturing overhead (all other manufacturing cost other than labor and materials)
-Overhead Period Costs: Every other cost that is not a product cost. (all the "operating expenses")
Conversion Costs vs Prime Costs
Prime cost vs. Conversion cost
-Prime: Direct Material and Direct Labor.
-Conversion: Direct labor and Overhead expenses. indirect cost incurred in the period.
Beginning merchandiser inventory
+ Merchandiser purchases
=Cost of inventory available for sale
-ending merchandiser inventory
COGS for merchandiser
COGS for manufacturer
1. Cost of direct materials used
2. Cost of goods manufactured
3. FG inventory
Used by companies that produce unique, custom-ordered products, or small batches of different products.
Used by manufacturers who produce large numbers of identical units.
Compute a predetermined manufacturing overhead rate and use it to allocate MOH to jobs.
1. Total Estimated OH Costs / Total estimated
activity = Predetermined OH Rate
2. Predetermined OH Rate * Actual Activity =
Determine the cost of a job.
Direct Materials + Direct Labor + Manufacturing OH applied
underallocated manufacturing overhead
IF: MOH Allocated < Actual MOH then Increase Cost of Goods Sold for the variance.
overallocated manufacturing overhead
IF: MOH Allocated > Actual MOH then Decrease Cost of Goods Sold for the variance.
Develop and use activity-based costing (ABC) to allocate indirect costs
1. Total Estimated OH Costs per activity / Total
Estimated Allocation per activity = Activity
2. Activity Allocation Rate * Actual Activity(s) =
Allocated OH per activity
Fixed Costs: Do not change in total with volume but per unit amount changes. (depreciation expense)
Change in total with volume but
per unit amount
does not change
Change in total with volume and per unit. Contain both variable and fixed.
Use cost equations to express and predict costs
Total Cost = Variable Cost per unit (X) + Fixed Costs
Use the high-low method to analyze cost behavior
1. (High cost - Low cost) / (High Activity - Low
Activity) = VC per unit
2. Plug high or low values into the formula to find TC = VC (x) + FC
3. Use TC formula to find the total cost at any
Absorption Costing income statement
Inventory remain constant in absorption and variable cost
Inventory increase in absorption and variable cost
Inventory decrease in absorption and variable cost
Difference in OI for absorption and variable
OI per unit(units produced-units sold)
Contribution margin per unit
Selling Price per unit - Variable Cost per unit
Contribution margin ratio
Contribution Margin / Sales Revenue
Income statement approach to finding break even point
SP- VC per unit- FC=0
Contribution Margin per unit shortcut to finding break even point
FC+OI/ Contribution margin per unit
Contribution margin ratio to finding breakeven point
FC+OI/Contribution Margin ratio
Finding breakeven target profit
Replace OI of zero with target profit amount
Information relevant to short-term business decisions
Must be future data that differs among alternatives
Find the cost, price is given.
-highly competitvie, very similar
Target pricing equation
Revenue at market price- Profit= Target total cost
You set the price.
-little competition, different products
Cost-plus pricing equation
Total cost(variable, fixed, OH,)+desired profit=cost-plus price
Decide whether to accept a special order
If incremental revenue exceeds incremental costs, accept order
Decide whether to discontinue a product, department, or store
If cost savings exceeds the lost revenue, then discontinue
Analyze outsourcing (make-or-buy) decisions
Outsource if incremental costs of making the product exceeds the incremental costs of outsourcing
1. Sales budget
3. DM, DL, OH budget
4. Operating expense budget
5. Budgeted income statement
-Capital expenditures budget.
- Cash budget
- Budgeted balance sheet
Production budget (probably need to calc this one on test)
Budgeted unit sales
+desired ending inventory
=total units needed
=Budgeted units to produce
unit selling price
*# of unit sales
units to produce
=materials needed for production
+desired DM EI
=total material needed
-Beginning material inventory
= Total DM needed to be purchased
=cost of DM purchases
Budgeted income statement
Combined Cash Budget
Beginning Cash balance
=cash balance before financing
=ending cash balance
COGS, Inventory, and Purchases budget for merchandiser equation
=Total inventory needed
=Budgeted inventory Purchases
Budgeted balance sheet
-depreciation and expenses
Splitting operations into different operating segments.
Four responsibility centers
-Cost center (cost only)
-Revenue Center (Revenues only)
-Profit Center (Cost and Revenue)
-Investment Center (efficiently managing company assets)
Segment Margin equation
-Direct Fixed Expenses
-Common Fixed Expenses
Direct Fixed expense
Fixed expenses that can be directly traced to the profit center. then allocated among the different divisions.
Common fixed expense
a fixed cost that supports the operations of more than one segment, but is not traceable in whole or in part to any one segment.
Actual sales- budgeted sales
Percent variance equation
When budgeted cost is more than actual cost; variance is _______.
When budgeted revenue is more than actual revenue; variance is _____.
Calculate ROI, sales margin, and capital turnover.
Sales Margin = OI / SR
Capital Turnover = SR / TA
ROI = OI / TA
Master budget variance
Difference between Actual Results and the Master Budget
Difference between Flexible Budget and Master Budget
Flexible budget variance
Difference between Actual Results and the Flexible Budget
Prepare flexible budget
Compute and evaluate direct materials variances
(Actual Price - Standard Price)
*Actual Quantity Purchased
DM Quantity Variance = (Actual Quantity - Standard Quantity) * Standard Price
Compute and evaluate direct labor variances
DL Rate Variance = (Actual Rate paid - Standard Rate) * Actual Hours
DL Efficiency Variance = (Actual Hours worked - Standard Hours) * Standard Rate
Advantages of using standard costs and variances
Creates cost benchmarks, usefulness in budgeting, motivation for employees ,and simplifies bookkeeping.
Disadvantages of using standard costs and variances
Can result in outdated standards, lack of timeliness, greater focus on operational
performance measures, lean thinking, increase in automation, and unintended behavioral