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Midterm 1- Managerial Accounting CH1
Terms in this set (53)
Three Main Activities that managerial accounting helps managers do
3. Decision Making
involves establishing goals and specifying how to achieve them.
involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.
involves selecting a course of action from competing alternatives.
Three common questions
(1) What should we be selling?
(2) Who should we be serving?
(3) How should we execute?
any expenses paid to make a product
Direct Materials (DM)
Raw materials that become an integral part of the finished product and whose costs can be conveniently traced to it
Example of DM with Apple
the battery, screen, etc
Direct Labor (DL)
Labor costs that can be easily traced to individual units of product.
Must be able to be assembled
Includes all manufacturing costs except direct materials and direct labor. These costs cannot be easily traced to specific units produced. Includes indirect material and indirect labor costs.
Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.
The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.
taxes, electricities, duties, tariffs, travel, insurance, legal, etc.
costs that include selling and administrative costs
Includes all costs necessary to secure customer orders and get the finished product into the hands of the customer.
Includes all costs associated with the general management of an organization.
Includes all the costs that are involved in acquiring or making a product. More specifically, it includes direct materials, direct labor, and manufacturing overhead. They are expensed in the income statement when the products are sold. (exactly the same as manufacturing costs)
Recording of Product costs
1. recorded as inventory which is an asset before it is sold
2. after it is sold, then it is recorded as cost of goods sold
Includes all selling and administrative costs. These costs are expensed in the income statement when incurred.
Recording of Period Costs
recorded as expenses
= Direct materials cost + Direct Labor cost
Direct Labor + Manufacturing Overhead
Anything for which cost data are desired including products, customers, jobs, business segments, etc
Example of Cost Object
Fordham is a cost object to staples
Costs that can be easily and conveniently traced to a specified cost object
Costs that cannot be easily and conveniently traced to a specified cost object
indirect costs incurred to support a number of cost objects, shared by many- cannot be traced to any individual cost object
the way in which a cost reacts to changes in the level of activity
A cost that increases, in total, in proportion to the increase in the level of activity. However, cost per unit is constant.
activity base or cost driver
a measure of what causes the incurrence of variable costs
A cost that remains constant, in total, regardless of changes in the level of the activity.
if expressed on a per unit basis, the average fixed cost per unit ___________ as activity increases
Committed fixed costs
represent investments with a multi-year planning horizon that cannot be easily adjusted in the short term.
ex. Like leasing a car
Discretionary fixed cost
usually arise from annual decisions by management and they can be easily reduced in the short term.
ex. Not like leasing a car, decided on an annual basis
Accountants usually assume that costs are strictly linear; however, economists point out that many costs are actually _________________. Nonetheless, within a narrow band of activity known as the _____________, a curvilinear cost can be satisfactorily approximated by a straight line.
curvilinear, relevant range
that range of activity within which the assumptions made about cost behavior are valid.
A cost that contains both variable and fixed elements.
Y = a + bX
can be used to calculate what the total mixed cost would be for any level of activity.
total mixed cost
total fixed cost or the intercept of the line
the variable cost per unit of activity aka the slope of the line
the level of activity
= saless - cogs
Net Operating Income (TA)
gross margin - selling and administrative expenses
separates product costs as required for external reporting purposes from selling and administrative expenses. It does not focus on cost behavior.
- calculated gross margin and net operating income
separates costs into fixed and variable categories.
Sales - total Variable Costs
net operating income (CA)
= contribution margin - fixed costs
Unit Contribution Margin
sales price per unit - variable cost per unit
A difference in cost between any two alternatives
a difference in revenue between two alternatives
The potential benefit that is given up when one alternative is selected over another.
*It is always relevant
A cost that has already been incurred and that cannot be changed now or in the future
THIS SET IS OFTEN IN FOLDERS WITH...
Midterm 1- Managerial Accounting Ch2&3
Midterm 1- Managerial Accounting Ch. 4
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