Lecture 08 - Part II – Managerial Accounting Flashcards
Are managerial accounting or financial accounting reports standardized? (2)
● Financial accounting reports are standardized
● Managerial accounting reports are as needed
What costs can you differentiate? (4)
- Variable
- fixed
- mixed
- step costs
Step costs are expenses that remain constant within a certain range of activity or production, but then increase or decrease once a certain threshold is reached. This creates “steps” in the cost structure, where costs remain unchanged until a specific level of activity is surpassed, at which point they increase to a new higher level.
In the following costs are presented. Classify them in …
- variable (bold),
- mixed (black),
- fixed costs (Underline)!
- Cost of food sold
- Wages and salaries
- Rent on Building
- Depreciation on equipment
- Utilities
- Supplies
- Miscellaneous
Solution:
- Cost of food sold
- Wages and salaries
- Rent on Building
- Depreciation on equipment
- Utilities
- Supplies
- Miscellaneous
Define the total cost equation (roughly)!
Total cost
=
Total fixed costs
+
(variable costs per unit x number of units sold)
Name three methods of estimating fixed and variable cost components!
- High-low method
- Scatter diagrams
- Least-squares regression analysis
Why is least-squares regression analysis the best method? (2)
- Uses all data points
- Does not rely on subjective judgment
Name three cautions regarding cost estimation!
- Not all data based on normal operating conditions
- Nonlinear relationships may exist
- Results should make sense
What is the manufacturing cost hierarchy? (4)
- Also name an example for each hierarchy!
- Unit level activities | → |Cost of raw materials
- Batch level activities | → |Cost of processing sales orders
- Product level activities | → |Cost of product development
- Facility level activities | → |Cost of factory supervisor
How do you do a high-low cost estimation and what is it? (3)
How do scatter diagrams contribute to data analysis? (3)
Scatter diagrams visually represent the relationship between two variables (cost, unit), aiding in identifying correlations (profit, ..) and trends in data by plotting points (break even) on a graph.
What does least-squares regression analysis aim to achieve in cost accounting? (2)
Statistical method that helps to estimate the relationship between costs and activity levels
- Determines the best-fitting line through data points.
- More accurate compared to simpler methods like the high-low technique.
What is the purpose of the high-low method in cost accounting? (2)
- The high-low method is used to estimate fixed and variable costs
- by analyzing the highest and lowest activity levels and their corresponding costs.
