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Managerial Account test #1
Terms in this set (56)
concerned with reporting financial information to external parties, such as stockholders, creditors and regulators
-Reports to those outside the organization
-Emphasizes financial consequences of past activities
-Emphasizes objectivity and verifiability
-Emphasizes company wide reports.
-Must follow GAAP/IFRS
-Mandatory for external reports
concerned with providing information to managers for use within the organization.
-Reports to managers inside the organization for, Planning, Controlling, Decision Making
-Emphasizes decisions affecting the future.
-Emphasizes segment reports.
-Need not follow GAAP/IFRS
anything for which cost data are desired, including products, customers, jobs, and organizational subunits. Costs are classified as either direct of indirect
cost that can be easily and conveniently traced to a specified cost object.
cost that cannot be easily and conveniently traced to a specified cost object. Cost is not caused by the cost object.
cost that is incurred to support a number of cost objects but cannot be traced to them individually. Type of indirect cost.
Materials that go into the final product. Not unprocessed materials but are materials that are used in the final product; and the finished product of one company can become the raw materials of another company
materials that become an integral part of the finished product and whose costs can be EASILY traced to the finished product. Ex) seats that Airbus purchases from its subcontracts to install in its aircraft.
Ex) wood for a table
are included as part of manufacturing over head. not worth the effort to trace the costs of relatively insignificant materials.
consists of labor costs that can be easily traced to individual units of product, also called touch labor because direct labor workers typically TOUCH the product while it is being made
Labor costs that cannot be physically traced to particular products, or that can be traced only at cost and inconvenience. Includes costs of janitors, supervisors, night security guards
all other costs besides direct materials and direct labor. Ex) Salary of the fork lift driver
Includes items such as indirect materials, labor and maintenance repairs on manufacturing facilities. AKA- indirect manufacturing cost, factory overhead, factory burden.
includes all costs involved in acquiring or making a product. These costs "attach" to units of product as the goods are purchased or manufactured and remain attached as the goods go into inventory. (aka Inventoriable Costs- used because product costs are initially assigned to inventories)
Direct Materials+Direct Labor+Manufacturing Overhead
Deferred costs or Assets
Direct Materials+Direct Labor
Manufacturing cost that is the sum of direct materials cost and direct labor cost.
Selling Expenses+Administrative Expenses
the costs that are not the product costs, all selling and administrative expenses are treated as period costs. Ex.) sales commissions, advertising, executive salaries, public relations and rental costs of admin. offices
all costs necessary to secure orders and get the finished product or service into the hands of the customer. (advertises, promotes and distributes)
all costs that are incurred to secure customer orders and get the finished product to the customer. Either direct or indirect. AKA- order-getting, order-filling costs. Ex) advertising, shopping, sales travel etc.
all costs of general administration of the company as a whole
includes all costs associated with the general management of an organization rather than with manufacturing or selling. Ex) executive compensation, general accounting, public relations. Either indirect or direct.
Direct Labor+Manufacturing Overhead
Manufacturing cost that is the sum of direct labor cost and manufacturing overhead cost. Used to describe direct labor and manufacturing overhead because these costs are incurred to convert materials into the finished product.
refers to how a cost reacts to changes in the level of activity. To help make distinctions on whether the costs will increase and decrease they are categorized as either variable, fixed or mixed which is the Cost Structure.
varies, in total, in direct proportion to changes in the level of activity. The cost must be variable with respect to something, which is its activity base.
Variable Cost per unit remains constant
Ex) cost of goods sold, direct materials, direct labor.
measure of whatever causes the incurrence of a variable cost. Ex) direct labor-hours, machine-hours, units produced, units sold. Assume that the activity base is the total volume of g/s provided by the organization.
Ex) Salaries, Rent, straight-line depreciation, insurance, property taxes
- a cost that remains constant, in total, regardless of changes in the level of activity.
-Fixed cost per unit decreases as the activity level rises and increases and activity level falls.
Committed Fixed Costs
-Long term, cannot be significantly reduced in the short term
-represent organizational investments with a multiyear planning horizon that can't be significantly reduced even for short periods of time without making fundamental changes. Ex) Depreciation on buildings and equipment, investments in facilities and equipment, real estate taxes, salaries of top management.
Discretionary Fixed Costs
-May be altered in the short term by current managerial decisions
-easily cut, played off to save costs
-easy to take advantage of
-Arise from annual decisions by management to spend on certain fixed cost items, can be cut for short periods of time with minimal damage to the long-run goals of the organization. Aka managed fixed costs
Ex) advertising and Research development, managerial accountants, internships for students
The relation between COST and ACTIVITY is a curve, even if cost is not exactly linear it can be approximated within a narrow band of activity. Range of activity within which the assumption that cost behavior is strictly linear is reasonably valid.
contains both variable and fixed elements. Also known as semivariable costs. Fixed portion represents the minimum cost of having a service ready and available for use. The variable portion represents the cost incurred for actual consumption of the service, and varies in proportion to the amount of service actually consumed.
Ex) Utilities cost
y=Total Mixed cost
a=total fixed cost
b=variable cost per unit of activity (slop of line)
x=level of activity, independent variable
account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves.
Cost analysis involves a detailed analysis of what cost behavior should be, based on an industrial engineer's evaluation of the production methods to be used, materials specifications, labor requirements, equipment usage, production efficiency and power consumption.
Cost, because the amount of cost incurred during a period depends on the level of activity for the period. (As the level of activity increases, total cost will also ordinarily increase).
Activity, plotted on the horizontal axis, because it causes variation in the cost.
x=level of activity, independent variable
Based on rise/run formula for the slope of a straight line.
Slope of the straight line is equal to the variable cost per unit of activity.
Analyze by identifying the period with the lowest level of activity and the period with the highest level of activity.
Formula used to estimate variable cost:
Variable Cost=Slope of the line=Rise/Run=Y2-Y1/X2-X2=Change in cost/Change in activity
Fixed Maintenance Cost Element (a)
=Total Cost(high cost level) - Variable cost element (variable cost x high activity level)
Linear-Squares Regression model
uses ALL of the data to separate a mixed cost into its fixed and variable components. A regression line of the form Y=a+bx
Use computers for this computations
a measure of goodness of fit in least-squares regression analysis. It is the percentage of the variation in the dependent variable that is explained by variation in the independent variable.
Traditional Format Income Statement
prepared primarily for external reporting purposes. Organizes costs into two categories: cost of goods sold which includes the product costs and selling and administrative expenses, which includes all period costs.
Sales-cost of goods sold= gross margin-selling and administrative expenses=net operating income
Cost of Goods Sold=Beg. Merchandise Inv + Purchases - Ending Merchandise Inventory
provides managers with an income statement that clearly distinguishes between fixed and variable costs and therefore aids planning, controlling, and decision making. Separates costs into fixed and variable categories, first deducting variable expenses from sales to obtain the contribution margin.
Sales- Variable Expenses (cost of goods sold, variable selling and administrative)**contribution margin-Fixed Expenses (Fixed Selling and administrative)=Net Operating Income
amount remaining from sales revenues after variable expenses have been deducted. in the contribution approach format income statement.
Differential Cost/Incremental Cost
difference in costs between any two alternatives. Technically an incremental cost should refer only to an increase in cost from one alternative to another; decreases in cost should be referred to as Decremental Costs.
difference in revenues (usually just sales) between any two alternatives.
the cost that has already been incurred and that cannot be changed by any decision made now or in the future.
Job Order Costing
used in situations where many different products, each with individual and unique features, are produced each period. Costs are traced and allocated to jobs and then the costs of the job are divided by the number of units in the job to arrive at an average cost per unit. Include diverse outputs. Always used in service industries.
**Manufacturing costs= direct costs, direct labor and manufacturing overhead
Bill of Materials
- a document that lists the type and quantity of each type of direct material needed to complete a unit of product.
Materials Requisition Form
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 materials.
Job Cost Sheet
records the materials, labor, and manufacturing overhead costs charged to that job.
determine product costs. All manufacturing costs, both fixed and variable, are assigned to units of product-units are said to fully absorb manufacturing costs.
an hour-by-hour summary of the employee's activities throughout the day.
measure such as direct labor-hours or machine-hours that is used to assign manufacturing overhead costs to individual jobs.
-difficult to trace overhead costs to particular jobs
Manufacturing overhead consists of many different items ranging from grease used in machines to production manager's salary
-many types of Man OH costs are fixed even though output fluctuates during the period
Work in Process
Direct Materials+Direct Labor
Pre Determined Over head Rate
computed before the period begins, by dividing the total estimated manufacturing overhead cost for the period by the estimated total amount of the allocation base.
=(Est. total man. Overhead cost/ Est. total amount of the allocation base)
If dividing $ by $ than the rate is a percent
process of assigning overhead cost to jobs.
=Predetermined overhead rate x amount of the allocation base incurred
Work in Process
factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.
Schedule of Cost of Goods Manufactured
contains three elements of product costs-direct materials, direct labor, and manufacturing overhead- and it summarizes the portions of those costs that remain in ending Work in Process into Finished Goods.
Direct materials+Beg. raw materials inv+purchased raw materials=Total raw materials available
Schedule of Cost of Goods Sold
also contains three elements of product costs-direct materials, direct labor, and manufacturing overhead- and it summarizes the portions of those costs that remain in ending Finished Goods inventory and that are transferred out of Finished Goods into Cost of Goods Sold.
Under Applied Over Head
difference between the overhead cost applied to Work in Process and the actual overhead costs of a period, Ex) overhead is underapplied by $5,000 when the applied cost ($90,000) was $5,000 less than the actual cost ($95,000).
Over applied Overhead
difference between the overhead cost applied to Work in Process and the actual overhead costs of a period. Ex) overhead is overapplied when the company had applied $95,000 in overhead cost to Work in Process while incurring actual overhead costs of only $90,000.
THIS SET IS OFTEN IN FOLDERS WITH...
Chapter 1 Managerial Accounting
Chapter 2 Managerial Accounting
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