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Intermediate Managerial Accounting 1 > Exam 2: Chapters 1, 2, 3 > Flashcards

Exam 2: Chapters 1, 2, 3 Flashcards

1
Q

Cost

A

Any expenditure or resource that we use in order to achieve an objective

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2
Q

Actual cost

A

Historical cost, objective, verifiable, not a projection and can prove that it happened because we have evidence of cost through an invoice or receipt

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3
Q

Cost object

A

Anything for which we desire a measure of cost

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4
Q

Two costing system stages

A

Accumulation and assignment

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5
Q

Two parts of assignment

A

Tracing and allocation

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6
Q

Accumulation

A

Collect costs into natural categories

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7
Q

Tracing

A

Tracing the cost directly to the cost object

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8
Q

Allocation

A

Figure out a reasonable method to split a cost among the cost objects that use that resource

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9
Q

Trace or allocate: direct cost

A

Trace

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10
Q

Direct costs

A

Trace, more exact but might be more expensive

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11
Q

Trace or allocate: indirect costs

A

Allocate

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12
Q

Indirect costs

A

Allocate, less exact but may be cheaper and easier

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13
Q

Three factors affecting cost classification

A

More technology (trace), materiality or expensiveness (trace), fewer products or cost objects (trace)

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14
Q

Variable costs

A

Stay at a constant dollar amount per unit produced within the relevant range of output, changes total dollars paid out based on number of units produced

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15
Q

Fixed costs

A

Total dollars paid out stay constant within the relevant range, dollar amount per unit produced changes based on number of units produced

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16
Q

Relevant range

A

Range of output in which the variable cost and fixed cost assumptions remain true

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17
Q

Service companies

A

Revenue - operating expenses = net income

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18
Q

Merchandising companies

A

Revenue - COGS = gross profit - operating expenses = net income

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19
Q

Manufacturing companies

A

Revenue - COGS = gross profit - operating expenses = net income

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20
Q

3 different types of inventory

A

Direct materials, work-in-process, finished goods

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21
Q

Direct materials

A

“Ingredient” that becomes part of a product and leaves with the product when the product is sold

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22
Q

Work-in-process

A

Unfinished product

23
Q

Finished goods

A

Product ready to ship to customer

24
Q

Three manufacturing cost classifications

A

Direct materials costs, direct manufacturing labor, indirect manufacturing costs (manufacturing overhead)

25
Q

Direct materials costs

A

Become part of the finished product that is sold to customers, “dm”

26
Q

Direct manufacturing labor

A

Converts direct materials into finished goods, “dl”

27
Q

Indirect manufacturing costs (manufacturing overhead)

A

All other costs in the factory that are not dm or do, “moh”

28
Q

Inventoriable costs

A

Factory costs, dm + dl + moh

29
Q

Period costs

A

“Operating expenses:” selling expenses and general & administrative expenses: accounting, R&D, HR

30
Q

Prime costs

A

Direct manufacturing costs - dm + dl

31
Q

Conversion costs

A

Dl + moh, all costs necessary to “convert” dm into finished goods (fg)

32
Q

Product costs

A

Factory costs, dm + dl + moh

33
Q

Contribution margin income statement

A

Groups costs by behavior

34
Q

Financial reporting income statement

A

Groups costs by function/location

35
Q

How does contribution margin differ from gross profit?

A

GP- profit from selling products, CM- profit available to cover fixed costs

36
Q

Six foundational assumptions in CVP

A

-changes in production/sales volume are the sole cause for cost and revenue changes
-total costs consist of fixed costs and variable costs
-revenue and costs behave and can be graphed as a linear function (a straight line)
-selling price, variable costs per unit, and fixed costs are all known and constant
-in many cases only a single product will be analyzed. If multiple products are studied, their relative sales proportions are known and constant
-the time value of money (interest) is ignored

37
Q

Basic CVP formula

A

Revenue - variable costs - fixed costs = operating income

38
Q

Two supporting CVP formulas

A

Revenue = selling price x quantity sold
Variable costs = variable cost per unit x quantity sold

39
Q

Contribution margin

A

Revenue - VC

40
Q

Contribution margin per unit

A

USP - UVC

41
Q

Contribution margin percentage (ratio)

A

CM/sales or UCM/USP

42
Q

Broken down cost-volume-profit equation

A

(Selling price x sales quantity) - (unit variable costs x sales quantity) - fixed costs = operating income

43
Q

Break even point definition

A

No profit or loss at the given sales level

44
Q

Break even point

A

Sales - variable costs - fixed costs = 0

45
Q

Break even number of units

A

Fixed costs / contribution margin per unit, round up

46
Q

Break even revenue

A

Fixed costs / contribution margin percentage

47
Q

Quantity of units required to be sold

A

(Fixed costs + operating income) / contribution margin per unit

48
Q

After-tax profit

A

Net income = operating income x (1-tax rate)

49
Q

Operating income

A

Net income / (1-tax rate)

50
Q

Margin of safety definition

A

Indicator of risk, measures the distance between budgeted sales and break even sales

51
Q

MOS

A

Budgeted sales - BE sales

52
Q

MOS ratio

A

MOS / budgeted sales

53
Q

Operating leverage definition

A

The effect that fixed costs have on changes in operating income as changes occur in units sold, expressed as changes in contribution margin

54
Q

Operating leverage

A

Contribution margin/operating income

(Sales-VC)/(sales-VC-FC)

Intermediate Managerial Accounting 1 (4 decks)

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