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ACCOUNTING 2 exam 3: 19,20,21
Terms in this set (45)
focuses on the costs of activities as the building blocks of allocating indirect costs to products and services
Activity-based management (ABM)
using activity based cost information to make decisions that improve customer satisfaction while also increasing profits
costs incurred to detect poor-quality materials, goods, or services
Conversion costs account
a temporary account used in JIT management systems to accumulate direct labor and manufacturing overhead costs and then allocate these costs as units are completed
External failure costs
costs incurred when the company does not detect poor-quality goods or services until after delivery to customers
internal failure costs
costs incurred when the company detects and corrects poor-quality goods or services before delivery to customers
Just in time costing
A costing system that starts with out put completed and then assigns manufacturing costs to units sold and to inventories
Just in time management system
An inventory management system in which a company produces just in time to satisfy customer needs. Suppliers deliver raw materials just in time to begin production and finished units are completed just in time to be delivered to customers
predetermined overhead allocation rate
Estimated overhead cost per unit of the allocation base calculated at the begging of the accounting period.Total estimated overhead costs/total estimated quantity of the overhead allocation base
costs incurred to avoid poor quality goods or services
Quality Management system
A system that helps managers improve a businesses performance by providing quality products and services
Raw and In process inventory
A combined account for raw materials inventory and work in process inventory used in JIT management systems
The maximum cost to develop, produce, and deliver the product or service and earn the desired profit. Target price minus desired profit.
Reevaluating activities to reduce costs while satisfying customers needs
The sales level at which operating income is zero. Total revenues equals total costs
The amount that contributes to covering fixed costs and then to provide operating income. Net sales revenue-variable costs
Contribution margin income statement
The income statement that groups cost by behavior-variable or fixed-and highlights the contribution margin
Contribution Margin Ratio
The ratio of contribution margin to net sales revenue. Contribution margin/ net sales revenue.
The proportion of fixed costs to variable costs
Cost-volume-profit (CVP) analysis
A planning tool that expresses the relationship among costs, volume, and prices and their effects on profits and losses
Degree of operating leverage
the ratio that measures the effects that fixed costs have on changes in operating income when sales volume changes. Contribution margin/operating income
A cost that remains the same in total. regardless of changes over wide ranges of volume of activity.
A method used to separate mixed costs into their variable and fixed components, using the highest and lowest activity levels.
Margin of safety
The excess of expected sales over breakeven sales. The amount sales can decrease before the company incurs an operating loss.
a cost that has both fixed and variable comments
effects that fixed costs have on changes in operating income when sales volume changes
the range of volume where total fixed costs and variable cost per unit remain constant
The combination of products that make up total sales
A "what if" technique that estimates profit or loss results if selling price, costs, volume, or underlying assumptions change.
The operating income that results when sales revenue minus variable and fixed costs equals management's profit goal.
A cost that increases or decreases in total in direct proportion to increases or decreases in the volume of activity
the production costing method that assigns direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead to products. Required by the GAAP for external reporting
An identifiable part of the company for which financial information is available
The product costing method that assigns only variable manufacturing costs to products: DM,DL, variable manufacturing overhead. Used for internal reporting
Which statement is false
The predetermined overhead allocation rate is based on actual costs
What are the predetermined allocation rates
.03 and 1.1
Compute IT can use ABC info for what decisions?
Both pricing and product mix
Which is true for a service company?
ABC helps the co make more informed decisions about services.
Companies enjoy many benefits for using JIT. Which is not a benefit of adopting JIT?
Ability to continue production despite disruptions in deliveries of raw materials.
Which account is not used in JIT costing?
For franks funky sounds, straight line depreciation on the trucks is a
Primary difference between variable costing and absorption costing is
in absorption costing, fixed manufacturing overhead is a product cost
Winters, Inc. is preparing financial statements to be distributed to investors and creditors. The company should prepare the income statement using
Absorption costing because it follows GAAP
What is the unit product cost using variable method?
Add, DM, DL, MOH
What is the unit product cost using absoption method?
DM+ DL+VAR MOH+FIX MOH/Units produced
Recommended textbook explanations
Glencoe Accounting: First Year Course
Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Cost Accounting: A Managerial Emphasis
Charles T. Horngren, Srikant M. Datar
Charles T. Horngren
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