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Cost accounting Flashcards

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1
Q

How retailers measure COGS

A

That’s the amount paid for the goods and delivery to warehouse

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2
Q

Does positive income guarantee positive cash flow?

A

Having positive income does not guarantee positive cash flow

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3
Q

What does efficiency measure?

A

Efficiency measures how little waste is created when pro ducting and selling a product

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4
Q

What does productivity measure?

A

Productivity considers how to maximize sales and profits while using as few assets as possible

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5
Q

What is the difference between efficiency and productivity?

A

Efficiency tries to reduce waste while productivity tries to use assets to generate more revenue and net income

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6
Q

What is the minimum amount a new investment must generate?

A

All new investments should earn at least enough money to cover their cost of capital

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7
Q

What is the relation between asset turnover and productivity?

A

The higher is the asset turnover, the mrs productive the company

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8
Q

What is a direct cost?

A

It is a cost that can be easily traced to individual product that you make (flower for cookies)

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9
Q

What is an indirect cost?

A

It is a cost that cannot be easily traced to individual product that you make (pan coating for cookies)

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10
Q

What is direct material?

A

Direct materials are raw materials that you can directly trace to the manufactured product

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11
Q

How to compute cost of direct materials for a product?

A

To compute the cost of direct materials for any product just add up the cost of all the individual components needed to make the product

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12
Q

What is direct labor?

A

Direct labor is the cost of paying employee to make your products

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13
Q

How to find total direct labor cost?

A

First estimate how long each kind of worker takes to do the job, then multiply this time period by the hourly cost of paying each worker

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14
Q

What is indirect material?

A

Raw material needed to make products that cannot be easily traced to finished product

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15
Q

What i indirect labor?

A

The cost of labor that is needed to make products but that cannot be easily traced to the finished product

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16
Q

What are product costs?

A

The costs of making products usually inside the factory. These costs include raw materials, labor and overhead. After the product is made the costs becomes an asset: inventory

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17
Q

What are period costs?

A

The costs of running your business, usually outside the factory, that is, all the business’s costs except its product costs (office rent, income taxes, advertising)

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18
Q

How to estimate assets turnover?

A

Asset turnover=(Revenue/Average Assets)

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19
Q

How to improve turnover?

A

Use all assets continuously. Don’t let them sit around doing nothing. e.g. if you run a factory, make sure your machines manufacture product continuously.
Don’t by inventory until you need it. Keep just enough stock to keep customers happy
Increase sales without increasing assets. Expand working hours etc
Reduce your assets

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20
Q

How to estimate return on assets?

A

Return on assets= (Net Income/Average assets)

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21
Q

How to compute variable cost per unit?

A

To compute variable cost per unit divide total variable cost by the number of units produced.
Variable cost per unit= (total variable cost/Number of units produced)

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22
Q

What happens if a company has high fixed costs?

A

Such company would have to have significant activity to produce sales to offset those costs.
Fixed costs in aggregate remain the same regardless of changes in activity.Fixed costs per unit decrease with volume.

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23
Q

How to calculate total costs?

A

Total costs=(variable cost per unit*units products)+total fixed costs

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24
Q

How to allocate overhead costs per unit?

A
  1. Add up total overhead (indirect materials, indirect labor, , rent etc
  2. Compute the overhead allocation rate=(total overhead|/total direct labor hours)
  3. Multiply the overhead allocation rate by the number of labor hours needed to make each product.
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25
What is activity-based costing
It's when you divide production process into cost pools and cost pools into different activities. Each activity then becomes a cost driver. Drives drive costs of activity in each cost pool.
26
What is contribution margin?
It is a measure that helps you to compute how much you need in sales to break eve or achieve a target level of profit
27
How is contribution margin calculated?
Contribution margin=sales-variable costs
28
How to determine overall profitability?
To determine overall profitability, compare total contribution margin to fixed costs. Net income equals the excess of contribution margin over fixed costs
29
What does contribution margin per unit measure?
Contribution margin per unit measures how sales affect profitability
30
How to calculate contribution margin per unit?
Contribution margin per unit=Sales per unit-Variable costs per unit
31
What is contribution margin ratio?
Contribution margin ratio is a measure of percentage of sales that would increase net income.
32
How to calculate contribution margin ratio?
Contribution margin ratio=total contribution margin/total sales or contribution margin per unit/sales price per unit Ex[ample: if contribution margin - 540 and sales =900, contribution margin ratio =540/900=60%. This means that 60 cents of every sales dollar directly increases net income.
33
How to calculate net income using total contribution margin?
Net income=Total contribution margin-Fixed costs
34
What is break-even point?
The break-even point is the amount of sales needed to earn zero profit-enough sales so that you don't earn a loss but insufficient sales to earn a profit.
35
What is margin of safety?
Margin of safety is the difference between your actual or expected profitability and the break-even point. It measures how much breathing room you have- how much you can afford to lose in sales before your net income drops to zero.
36
What is operating leverage?
Operating leverage is a measure of how changes in sales can affect net income. For a company with high operating leverage a relatively small increase in sales can have a fairly significant impact on net income
37
How to calculate operating leverage?
Operating leverage=Total contribution margin/Net income
38
What is cash payback method?
It is estimation how long a project will take to cover its original investment
39
How to calculate cash payback?
Cash payback period-Cost of investement/annual net cash flow
40
How to use cash payback method for investing decisions?
For investing decisions compare cash payback period of one project with that of another
41
What is sales mix?
Sales mix is the relative percentage of sales of each product
42
How to figure out sales mix?
To figure out the sales mix divide the sales of each type of product by total sales
43
What is WACMR?
Wachk'em'er is an average of all products' contribution margin ratios weighted by sales
44
How to compute WACMR?
Multiply each product's sales mix percentage by its contribution margin ratio
45
What is a loss leader?
A loss leader is a product which a company sales at a lost to attract customers to buy more profitable products
46
How to define which product squeezes the most profitability out of a constraint resource? (May be needed to decide which of the product to produce /purchase more)
Divide Contribution margin by a measure of the constraint resource
47
How to figure out a markup for cost plus pricing?
Markup = desired profit/units produced
48
What are the problems with cost plus pricing?
Cost-plus pricing ignores market factors. Your customers are not necessarily ready to pay your markup
49
What is target costing?
It's when you design the price before you design the product. It is especially good for low-differentiated producers
50
How to negotiate a transfer price?
Lock managers of the selling and purchasing divisions into a room and don't let them out until they agree on a number of discover that no beneficial agreement is possible
51
How to prepare a direct labor budget?
Multiply the number of units to be produced (from production budget) by the direct labor time needed to make each unit. Then multiply that result by the average direct labor cost per hour
52
What is selling and administrative expense budget?
It is the budget that predicts the amount of selling and administrative expenses needed to generate the sales forecasted in the sales budget
53
What is a cash budget?
It is a budget that summarizes all your cash inflows and outflows for the period, adding cash receipts and subtracting cash payments
54
What are the possible sources for budget variance?
1. Changes in conditions 2. The quality of management 3. Lousy budgeting
55
What measures are included in balanced scorecard?
Financial (net income, revenues) Customer (satisfaction) Internal business (how well a company performs internally) Learning and growth
56
What are the general financial KPIs?
``` ROI Return on sales Return on assets Net income Credit rating Subscription income Share price Profit per employee Same-store sales ```
57
What are the general customer-related KPIs?
``` Results of customer surveys Number of new customers Response time to customer inquiry Market surveys of brand recognition Tracking customer complaints Market share Product returns as a percentage of sales Percentage of repeat customers ```
58
What are the general internal business KPIs?
Raw materials inventory as a percentage of sales Worki in progress inventory as a percentage of sales Inventory turnover Cost of quality control Amount of inventory spoilage Setup time Number or percentage of product defects Variance analysis Development time needed for a new product Time to settle customer claim
59
How to calculate gross profit margin?
Gross profit margin=(net sales-cost of goods sold)/net sales
60
What are the steps to solve problem of constraints?
Identify system constraint (find the bottleneck) Exploit the constraints (make sure you get the most out of constrained resource) Subordinate everything to the constraints Break the constraints (find the ways to increase their capacity) Go to step one
61
What is the accounting equation?
Assets=liabilities+owners equity. It must always balance
62
How to calculate net income?
Subtract expenses from revenues | Net income=(sales price*volume)-total costs
63
What are revenues
Revenues are sales
64
What are expenses?
Expenses are costs associated with making sales
65
How to calculate break-even volume?
Break-even volume=fixed costs/(sales price-variable cost per unit)
66
How to calculate present value of money?
Present value=Future value/(1+interest rate) в степени равной количеству лет
67
Why do we use customer metrics?
1. Not all customers are equally profitable for our business | 2. Customer cost analysis helps to identify costs related to a particular customer not including product costs
68
What are customer unit-level cost?
Costs that occur with every unit sold to a customer. e.g. sales commission, shippiing costs, restocking
69
What are customer batch-level costs?
Costs that occur with every new transaction: order processing, invoicing, recording of sales returns
70
What are customer-sustaining costs?
Costs that occur regardless of the number of units sold, e.g. salesperson's travel costs, monthly statement-processing costs etc
71
What are distribution-channel costs?
Resourses consumed by each distribution channel a firm uses to serve its customers, e.g. operating costs of regional warehouses
72
What are sales-sustainiing costs?
Resources that cannot be tracked to individual unit, batch or channel, such as bonuses of general sales-manager
73
What is liquidity ratio?
Ratio that measures a firm's ability to meet its short-term obligations These include current ratio,quick ratio also called "acid test ratio"
74
How to calculate current ratio?
Currrent ratio=current assets/current liabilities
75
How to caclculate quick ratio?
Quick ratio=(current assets-inventories)/current liabilities
76
What are asset management ratios?
Inventory turnover Days sales outstanding (average collection period) Fixed asset turnover Total asset turnover
77
How to calculate Inventory turnover?
Inventory turnover=COGS/Inventory. Shows speed at which inventory is produced and sold
78
How to calculate average collection period?
Average collection period=accounts receivable/average sales per day
79
How to calculate fixed asset turnover?
Fixed asset turnover=sales/net fixed assets. Shows how effectively the firm uses its plant and equipment to generate revenue
80
How to calculate total asset turnover?
Total asset turnover=sales/total assets. Indicates efficiency with which firm uses its assets to generate sales
81
How to calculate debt ratio?
Debt ratio=total debt/total assets Shows the percentage of fundsprovided by creditors
82
How to calculate net profit margin on sales?
Net profit margin on sales=earnings avaliable to common stockholders/net sales. Measures % of each sales dollar remained after all costs and expenses have been deducted
83
What is profit margin?
Percent of sales left after all expenses have been paid
84
How to calculate static budget variance?
Static budget variance=actual result-static budget amoount
85
What are the benefits of flexible budgeting?
Measure performance easily | Manage by exclusions
86
What is a flexible budget?
Flexible budget is a type of budget that alters those expenses that vary directly with revenues. You input the actual revenues or other activity measures into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs.
87
How to build a flexible budget?
1. Identify all fixed costs and segregate them in the budget model. 2. Determine the extent to which all variable costs change as activity measures change. 3. Create the budget model, where fixed costs are “hard coded” into the model, and variable costs are stated as a percentage of the relevant activity measures or as a cost per unit of activity measure. 4. Enter actual activity measures into the model after an accounting period has been completed. This updates the variable costs in the flexible budget. 5. Enter the resulting flexible budget for the completed period into the accounting system for comparison to actual expenses.
88
Why do strategies fail?
1. Vision barrier (no one understands strategy) 2. People barrier (most people have objectives that are not linked to the strategy of an organization) 3. Resourse barrier (time, energy and money are not allocated to those things that are crytical to the organization) 4. Management barrier (management spends too little time on strategy and too much time on short-term decision making)
89
How to start a balance scorecard system?
1. Establish mission, goals, initiatives 2. Develop strategy and structure 3. Create strategic control 4. Measure performance
90
What are the elements of the banalced scorecard?
Financial Customer Internal Learning and growth
91
What is a book value? Where can we find it?
It is the value of an entity reflected in its financial statements. It can be found in Balance Sheet under PP&E and under shareholders' equity
92
How can we calculate market value of a firm?
Its number of shares outstanding multiplied by price per share
93
What is the equity value of a business?
It's the value of a business attributable just to equity holders that is value of the business minus debt lenders and other obligations
94
What is a shareholders' value of a business?
Its value of the company's assets minus liabilities
95
What are multiples?
Multiples are metrics that compare net income to market capitalization. They are used for investement evaluation.
96
What are the three core methods of valuation?
1. Comparable company analysis 2. Presedent transaction analysis 3. Discounted cash flow analysis
97
What is comparible company analysis?
Its an analysis that compares our company with companies that are similar in size product and geography
98
How does value evaporate?
Decision-maker does not know strategy Decision-maker is in bad management system Decision-maker does not have tools to manage Decision-maker does not feel like an owner
99
What is discounted cash flow enterprise value?
PV of UFCF year 1+PV of UFCF of year n+ PV of terminal value
100
What is UFCF?
Unlevered cash flow is a measure of cash flow before equity holders and lenders have been paid. It is cash made or lost based on core operations of the business

Cost Accounting (1 decks)

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