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Flashcards in Exam 1 Ch1-3 Deck (47):
1

Financial Accounting Key Uses

Reports to those outside the organization(owners, creditors, tax authorities, regulators). EMPHASIS historical perspective, on objectivity and verifiability, precision. Primary focus on company-wide reports. Must follow GAAP/IFRS. And mandatory for external reports.

2

Managerial Accounting Key Uses

Managers who plan and control organization. EMPHASIS on future, relevance, timeliness. Focus on segment reports. Not bound by GAAP/IFRS or any prescribed format. And Not Mandatory.

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Segment

Is a part or activity of an organization about which managers would like cost, revenue, or profit data.

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What are the three main functions of management?

Planning, Controlling, and Decision Making.

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Planning

Involves establish goals and specifying how to achieve them.

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Controlling

Involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.

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Decision Making

Involves selecting a course of action from competing alternatives.

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Budget

A detailed plan for the future that is usually expressed in formal quantitative terms.

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Performance Report

Compares budgeted data to actual data in an effort to identify and learn from excellent performance.

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Importance of Ethics in Accounting

W/O Ethical Standards in business, the economy and all of us who depend on it for jobs, goods and services would suffer.
Abandoning ethical standards would lead to lower quality of life with less desirable goods and higher prices.

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Strategy

Is a "game plan" that enables a company to attract customers by distinguishing itself from competitors.

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Corporate Social Responsibility (CSR)

Is a concept whereby organizations consider the needs of all stakeholders when making decisions. --extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.

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Business Process

Is a series of steps that are followed in order to carry out some task in a business.

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Value Chain

Consists of the major business functions that add value to a company's products and services. ---Every step in the process that adds value.

15

Lean Production or Just in Time (JIT)

Is a management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders.

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Cost Object

Is anything for which cost data are desired- including products, customers, jobs, and organizations subunits. Any part of the business for which cost can be accumulated and reported.

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Direct Cost

Costs that can be easily and conveniently traced to a unit of product or other cost object. Ex. Direct Materials and direct labor.

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Indirect Cost

Costs that cannot be easily and conveniently traces to a unit of product or other cost object. Ex. Manufacturing overhead.

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Common Costs

Indirect costs incurred to support a number of cost objects. These cannot be traced to any individual cost object. Ex. CEO salary.

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Raw Materials

The materials that go into the final product.

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Direct Materials (DM)

Are those materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. Ex. Radio or windshield installed directly in an automobile.

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Indirect Materials (IM)

Not worth the effort to trace the costs of relatively insignificant materials. Ex. Solder, glue, nails. Part of manufacturing overhead.

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Direct Labor (DL)

Labor costs that can be easily traced to individual units of product. Also called touch labor.

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Indirect Labor (IL)

Labor costs that cannot be physically traced to particular products. Part of manufacturing overhead. Ex. Janitors, Supervisors, security guards.

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Manufacturing Overhead (MOH)

Manufacturing costs that cannot be easily traced directly to specific units produced. Ex. Indirect Materials used to support the production process and Indirect Labor like wages paid to employees whoa re not directly involved in production work.

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Non-manufacturing Costs

Selling Costs and Administrative Costs

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Selling Costs

Costs necessary to secure the order and deliver the product. Selling costs can be either direct or indirect costs.

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Administrative Costs

All executive, organizational, and clerical costs. Can be either direct or indirect.

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Product Costs

Include all costs involved in acquiring or making a product. include Direct materials, direct labor, and manufacturing overhead.

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Period Costs

Are all the costs that are not product costs. All selling and administrative costs.

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Prime Cost

Is the sum of direct materials cost and direct labor cost.
Prime Cost=DM+DL

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Conversion Cost

Is the sum of direct labor cost and manufacturing overhead cost.
Conversion Cost=DL+MOH

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Cost Behavior

Refers to how cost reacts to changes in the level of activity. Common classifications are: Variable costs, Fixed costs, and mixed costs.

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Variable Costs

Varies, in total, in direct proportion to changes in the level of activity.

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Cost Driver (or activity base)

A measure of whatever causes the incurrence of a variable costs. Common activity bases are Direct Labor Hours (dLH), Machine Hours (dMH), units produced, and units sold.

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Fixed Costs

Is a cost that remains constant, in total, regardless of change in the level of activity. Ex. Include straight line depreciation, insurance, property taxes, rent supervisory salaries, admin salaries, and advertising.

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Committed Fixed Costs

Represent organizational investments with a multi year planing horizon.

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Discretionary Fixed Costs

Usually arise from annual decisions by management to spend on certain fixed cost items.

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Relevant Range

The range of activity within which a company is willing and able to operate.

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Mixed Costs

Contain both variable and fixed cost elements.
High-Low Method of Estimating total mixed costs:
Formula: Y=a+bX

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Contribution Margin

The amount remaining from sales revenues after variable expenses have be deducted. This amount contributes toward covering fixed expenses and then toward profits for the period.

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Differential Cost

A difference in costs between any to alternatives.

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Differential Revenue

A difference in revenues between any two alternatives.

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Opportunity Cost

The potential benefit that is given up when on e alternative is selected of another.

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Sunk Cost

A cost that has already been incurred and that cannot be changed by any decision made now or in the future.

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Job Order Costing

Used in situations where many different products, each with individual and unique features, are produced each period.

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Allocation Base

Is a measure such as direct labor-hours (DLH), Direct labor Cost (DLC), or Machine Hours (MH) that is used to assign overhead costs to products and services.