Final

Question 1

Manufacturing Costs

Answer 1

All costs associated with the manufacturing process, including:
Raw materials
Wages
Utilities
Maintenance
Property Tax

Question 2

Work In Progress Account

Answer 2

Accumulates manufacturing costs for partially completed goods. Includes direct materials, direct labor, and manufacturing overhead. Production has started, but not complete.

Question 3

Finished Goods

Answer 3

Completed goods costs transferred from WIP. Any other cost is a selling expense. Unsold finished products, includes direct materials, direct labor, and manufacturing overhead

Question 4

Cost of Goods sold

Answer 4

When items are sold, the cost of the items are transferred to this account (Credit FG and Debit COGS).

Question 5

Contribution Margin

Answer 5

Amount by which revenue exceeds variable costs.
In Total: Sales Revenue - Total Variable Costs
Per Unit: Unit Sales Price - Variable Costs per Unit
Ratio: (Unit Sales Price - Variable Cost per Unit)/Unit Sales Price
or
(Sales - Total Variable Costs)/Sales

Question 6

Margin of Safety

Answer 6

Actual Sales Volume - Break Even Sales Volume

Question 7

Variable Costs

Answer 7

Change based on activity volume. Examples include fuel expense, etc.

Question 8

Fixed Costs

Answer 8

Don’t Change based on activity volume. Examples include Depreciation expense, Admin Salary, etc.

Question 9

Required Sales Volume

Answer 9

Number of sales needed to reach target income.
In Units: (Fixed Costs + Target Income)/Unit Contribution Margin
In Dollars: (Foxed Costs + Target Income)/Contribution Margin per unit

Question 10

Operating Income

Answer 10

Margin of Safety * Contribution Margin Ratio

Question 11

Break Even Point

Answer 11

Point where operating income = 0. Revenue - VC - FC = 0. Prior to the BE point, each dollar of revenue covers some fixed cost. After breakeven, each dollar increases operating income

Question 12

Incremental Costs

Answer 12

The costs associated with making different decisions. We do not include irrelevant costs such as sunk costs or normal fixed costs when determining which path is the best path for the future

Question 13

Out of Pocket Costs

Answer 13

Costs that have not yet been incurred and may vary among possible courses of action

Question 14

Sunk Costs

Answer 14

Costs that already have been incurred prior to the new decision. Cannot affect the future decision, so therefor it is irrelevant

Question 15

Opportunity Costs

Answer 15

The cost for choosing to do one option over another. benefit that could have been obtained by pursuing an alternative course of action

Question 16

Budgeting

Answer 16

Comprehensive financial plan setting forth the expected route for achieving the financial goals of the business

Question 17

Elements of the Master Budget

Answer 17

1. Prepare a sales forecast
2. Prepare budgets for production, manufacturing costs, and operating expenses
3. Prepare a budgeted income statement
4. Prepare a budgeted Cash Flows
   5.Prepare a budgeted balance sheet

Question 18

Budget Output when production levels differ

Answer 18

Need to use a flexible budget, which allows us to examine per unit costs as oppossed to a total amount of money spent

Question 19

Capital Budget

Answer 19

Budgeting for capital investment decisions
Purchasing plant assets
Develop new product line
Buy a subsidiary

Question 20

Project Selection

Answer 20

Things to examine: Payback period, Average Rate of Return, Average Investment, Future Cash Flows, Discount Rate.

Question 21

Average Return on Investment

Answer 21

(Initial Investment + Salvage Value)/2

Question 22

Net Present Value

Answer 22

The value of investment modified by discount rate and the future cash flows as the power of the dollar changes

Question 23

Discount Rate

Answer 23

The value of the dollar will drop in the future. We need to “discount” the value of cash in the future by using some amortization calculator values.

Question 24

Principles of Managerial Accounting

Answer 24

Assigns Decision Making Authority
Info to Make and Support Decisions
Provides a Mechanism to Reward Performance

Question 25

Financial vs Managerial Accounting

Answer 25

Provides internal info non-standard reports No standards Reporting done of just one segment of company any time period Managers are primary users

Question 26

Prime Costs

Answer 26

Costs associated with stuff consumed in production, like direct materials and direct labor

Question 27

Conversion Costs

Answer 27

Cost of Converting raw materials, like labor and overhead

Question 28

Direct Labor

Answer 28

Labor that directly corresponds to manufacturing

Question 29

Manufacturing Overhead

Answer 29

Catchall for all non direct labor

Question 30

Product Costs

Answer 30

Resources consumed to create inventory (Becomes cost of goods sold at the end)

Question 31

Period Costs

Answer 31

Costs associated with a certain time period (Charged Directly to an expense account)

Question 32

Materials cost includes

Answer 32

Purchase price of materials, materials on hand, and unprocessed materials

Question 33

Flow of Production Costs

Answer 33

1. Direct Materials are purchased (Debit Materials Inv) 2. Direct Materials are used (Debit WIP Inv) 3. Direct Labor is used (Debit direct labor, and eventually credit DL and debit WIP inv) 4. Manufacturing Overhead is used (debit Man OVH and WIP) 5. Goods are finished (Credit WIP Debit Finished Goods INV) 6. Product is sold (Credit FG and Debit COGS)

Question 34

COGS Calculation

Answer 34

Beginning finished goods + Cost of finished goods - Ending finished inventory = COGS.

Question 35

Gross Profit on Sales

Answer 35

Sales - COGS

Question 36

What report is COGS shown on?

Answer 36

Income statement

Question 37

What report are Inventories shown on?

Answer 37

Balance Sheet

Question 38

Volume and Cost Relationship

Answer 38

Fixed costs do not change total cost as volume changes, but the per unit cost will change inversely with volume. Variable costs do not change on a per unit basis, but will change total price proportionally with volume.

Question 39

CVP Problem Analysis (Usually manager wants to spend more money to increase sales in some way)

Answer 39

1. Calculate income based on current sales (Sales - Fixed Costs - (VC*Q)) 2. See what new income would be based on promised result and included new expense

Question 40

Projected Operating income

Answer 40

(Projected Sales * Contr Margin) - Fixed Costs

Question 41

Cost of Finished Goods Manufactured Equation

Answer 41

WIP Beginning Inventory + Total manufacturing costs - ending WIP inventory

Question 42

What is not a part of manufacturing overhead?

Answer 42

Any cost that can be associated with direct involvement in the manufacturing process, like direct materials or direct labor

Question 43

What information is not relevant when doing incremental analysis on examples like special orders

Answer 43

the firms fixed production costs for its normal manufacturing quantities

Question 44

Elements in a Financial Budget

Answer 44

Capital Expenditures Debt Service Prepayments

Question 45

Elements in an Operating Budget

Answer 45

Customer Service Sales Production Cost of goods manufactured and COGS Selling and admin expense budget Cash Budget

Question 46

How to get net cash flow from NPV

Answer 46

If you add NPV to Initial Investment, you can get the total cash inflow.