BASE Accounting

Question 1

Factors considered when choosing a business formation?

Answer 1

Ease of formation
Liability of owners
Management and control
Transferability
Taxation

Question 2

Flow-through entity

Answer 2

Income is not taxed at the business level. Income of owners is taxed as ordinary income.

Sole proprietorship, general partnership, limited partnership

Question 3

Financial accounting vs. managerial accounting

Answer 3

Managerial is INTERNAL (focus on internal decisions that may cut costs) while financial is EXTERNAL (focus on output)

Question 4

A private firm hoping to IPO must have ____ years of audited financial statements

Answer 4

Three

Question 5

Cost object

Answer 5

Anything we want to know the cost of. Ex. Consulting firm wants to know cost of a client. Or one single cup of coffee is a cost object.

Question 6

Budgeted cost

Answer 6

Expected cost (looking forwards)

Question 7

Actual cost

Answer 7

Historical cost (looking back)

Question 8

Direct vs. indirect costs

Answer 8

1. Direct costs can be traced to a cost object in an economically feasible way. Ex. SBUX 2000 cups = $500, so one cup (the cost object) = $0.25
2. Indirect costs CAN be traced to a cost object, but not in an economically feasible way. Ex. Rent for HQ in Seattle cannot be easily traced to the cost of a cup of coffee.

Costs can be direct with respect to one cost object and indirect with respect to another. Examples?

Question 9

Cost driver

Answer 9

A variable that causally affects a particular cost. Ex. The battery in an iPhone is a cost driver because it affects the total cost of the iPhone.

Question 10

Relevant range

Answer 10

Range of normal activity in which there is a specific relationship between level of activity and cost.
Ex. First 50000 have a cost per unit of $0.42, but increased shipping costs above that price bring CPU up to $0.60. Relevant range is 0-50000

Question 11

Cost strcuture

Answer 11

The degree to which a firm’s costs are variable vs. fixed.