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BIG IDEAS (EXAM REVIEW) > Managerial Accounting Exam > Flashcards

Managerial Accounting Exam Flashcards

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1
Q

What are the three main categories of activities and responsibilites of managers?

A

Planning, Directing, Controlling.

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2
Q

What does the term line position mean?

A

A job related to the main revenue line (source). Often these would be operations / marketing people.

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3
Q

What is the value chain?

A

All activities related to producing a good or service. Including those outside your company.

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4
Q

What is CIM, JIT, and TQM, (ERP)?

A
  • Computer-integrated Manufacturing - automation in manufacturing.
  • Just-In-Time Inventory - trying to reduce investment by keeping a low inventory.
  • Total Quality Management - Goal is zero flaws in product.
  • Enterprise Resource Planing - Centralized information source for large firms.
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5
Q

Purpose of Reports: financial vs managerial accounting

A

Financial: General purpose, often designed to be comparable to other firms, even from other industries.

Managerial: Special purpose for specific decisions.

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6
Q

Financial versus Managerial accounting: Primary users of Reports?

A

Financial: external users.

Managerial: internal users.

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7
Q

Frequency of reports: Financials versus Managerial Accounting.

A

Financial: often quarterly or annually.

Managerial: as needed.

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8
Q

Content of Reports: Financial versus Managerial Accounting

A

Financial: Condensation of business as whole and uses double entry accounting (DR/CR) follows IFRS or GAAP.

Managerial Accounting: Related to specific issue and can be very detailed as necessary. Standard is set based on decision at hand.

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9
Q

Verification Process: Financial versus Managerial Accounting

A

Financial: CPA auditors

Managerial Accounting: N/A, Other Managers

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10
Q

What is cost?

A

The expenditure of value consumption related to providing a business function.

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11
Q

What is a cost object?

A

A product or service that a manager desires to allocate all review costs to in an attempt to better understand their business.

“What is the appropriate amount of cost to assign to something when making a decision - AJ”

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12
Q

What are costs are involved in manufacturing? Give examples?

A
  • Direct materials (Pen spring, ink, ball)
  • Direct labour (Person making pen)
  • Overhead (Electricity, Building, Training, Insurance, Depreciation, Machinery)
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13
Q

What is a period cost vs product cost?

A

Period cost: anything recurring non-related of product - refine understanding.
(administrative costs, marketing costs)

Product cost: anything related to product must needed - even product.
(supervisors costs, operators wages, materials)

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14
Q

Describe Product versus Period costs?

A
  • Period costs are non-product costs are are costs for the span of time measure related to other activities like sales.
  • Product costs are costs related to making or providing the product.
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15
Q

Explain Cost Behaviour Analysis

A

The process of trying to understand the patterns related to expenditure in hope to predict them.

Ex. When selling a pen, you need a spring tube, ball - you can assume that every time you sell a pen, you will need these materials; therefore, these costs are variable and fluctuate with sales. Things like rent are fixed, and we can assume that these prices will not change with sales (are fixed).

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16
Q

What is variable cost? Fixed Cost?

A
  • Variable costs - these costs are tied to sales, and as sales volumes increase or decrease, so too does the expenditure. These are often forecast as a % of sales. “Does the cost increase with sales”.
  • Fixed costs are expenditures not related directly to sales volume and whose cost is predicted independently of sales, often as a similar $ amount to last year.
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17
Q

What is the high-low method of classifying costs?

A
  • This system compares two mixed behaviour cost amounts and two different volume points. It isolates the level of change to find a per-unit variable rate. Then, a fixed amount can be found using algebra.
  • “Triangulation” (IMPORTANT) if not understood, understand!!!
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18
Q

Ayanda’s Automotive Tool and Die Soloution:

Define Following Product/Period, FOH, DL, RM, Variable/Fixed

a. Commission Fees (iffy)
b. Poly Pellets (good)
c. Machinist Wages (iffy)
d. Mold Depreciation (iffy)
e. Sales team salaries (good)
f. Delivery Fee (good)
g. Supervisor Salaries
h. Freight (Iffy, Check Again - any cost…)
i. administrative salaries
j. phone and internet bill (iffy)
k. insurance expense
l. utilities expense
m. repair expense
n. delivery expense (good)
o. machinist training (good)

A

a. Period (related to sales), N/A, Variable
b. Product, RM, Variable
c. Product, DL, Likely Variable (more likely to work more if selling more)
d. Product, FOH, Likely Fixed
e. Period, N/A, Fixed
f. Period, N/A, Variable
g. Product, Overhead, Likely Fixed
h. Product, Raw Materials, Variable
i. Period, N/A, Fixed
j. both, overhead - when related to production - fixed
k. both, FOH, fixed
l. both, FOH, likely fixed
m both, FOH, fixed
n. period, n/a, variable
o. Product, FOH, fixed

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19
Q

Triangulation Method: Using Bukola’s Big Time Tour Example.

A

Step 1: Find High and Low

  • Cost High: $7,350
  • Cost Low: $1,725
  • Activity High: 30
  • Activity Low: 5

Step 2: Measure Difference

  • Cost: 5625
  • Activity Level: 25

Step 3: Divide Total Cost by Activity Level to Find Variable Cost Per Unit

  • 5625/25 = 225

Step 4: Multiply Variable Cost Per Unit by Activity Level to Find Variable Cost Portion of Total Cost

  • Low (225*5) = 1125
  • High (225*30) = 6750

Step 5: Subtract Total Variable Cost from Total Cost to find Fixed Cost

  • Low: 1725 -1125 = 600
  • High 7250 - 6750 = 600

Step 6: check answers, fixed cost should be the same :)

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20
Q

What is Cost Accounting?

A

Measuring, Recording, and Reporting of product costs.

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21
Q

What is Job-Order Cost System? What is Process Cost System?

A

Job-Order cost system allocated costs per job or per batch whereas process cost system allocated per process.

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22
Q

Give three examples of when you would use Job-Order Cost Systems and three examples of Process Cost Systems:

A

Job: Mechanic, Plumber, Bicycle tune up, Job-Shop, Batches

Process: line flows, bottling, Coca-Cola, packaging, baked goods on fixed menu.

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23
Q

Draw out the flow of costs from Raw Materials to Finished Goods

A

( Raw Materials - Direct Labour - Overhead (allocation rate) -> WIP -> Finished Goods -> COGS

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24
Q

Give Two Examples of
A) Factory Labour Costs
B) Raw Materials
C) Factory Overhead

A

(a) Factory Labour Costs - Payroll tax, benefits
(b) Raw material - Wood, metal, wool, components
(c) Factory Overhead - Rent, insurance, utilities, supervision, depreciation.

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25
What is Predetermined Overhead Rate?
POR is an allocation rate set based on a cost driver to properly estimated OH per job.
26
What is the Actual Costing System? Contrast to the Predetermined Overhead Rate.
Actual costing systems wait until costs are incurred and then allocate. For example: If you ran a 3D printing business and estimate next year you will run the machine for 4000 hours, you can price out OH for jobs based total OH estimate / Total machine hours = price per machine hour for OH.
27
What is the Actual Costing System? Contrast to Predetermined Overhead Rate.
So in the actual costing system, you wait until all product costs are incurred, even overhead. You do not do this in the normal costing system. Predetermined Overhead Rate: use normal costing to estimate.
28
What is a cost driver?
This is a measurable item whose behaviour reflects the consumption of costs appropriately as an approximation for the consumption of OH costs.
29
What are Prime Costs?
Direct Labour and Raw Materials together are called prime costs, as they are directly traceable and obvious when job costing.
30
What information would you find on a Job Cost Sheet?
Customer name, contract, date, etc…. labour estimate, materials estimate, and OH estimate.
31
What additional information might exist to support a job cost sheet?
- Materials Requistion Form - Overhead Allocation Estimate
32
Define an appropriate Cost Driver for each scenario: (a) Limousine Service, (b) A Fry Truck, (c) a Tent and Rental Business, (d) The University, (e) Auto Part Manufacturer
a) Hours drive, Rides booked, KMs driven b) Potatoes used, Customer Served, Dollars Sold c) Events booked, Hourly expected bookings. d) Students, Classes, Departments e) Labour Hours, Run Time of Machines, Units Produced
33
Car Repair Plus: Claudia’s Mechanic business was losing money even though she always charged above parts and labour as she never managed to cover her operating expenses by year end which amounted $450,000. She wanted to find the PORs if she used: A. anticipated number of jobs is 450 B. Her anticipated number of billable hours is 1800 C. The cost of all parts used in car repairs is $900,000 D. How would the various techniques charge the business / consumer behaviour?
A. $100 per job. B. $450,000/18 =$25,000 per hour C. $450,000/900,000 =$0.50 per part D. Looking for most even way of costing per overhead. What best reflects the way overhead expenses are consumed.
34
Formula for Predetermined Overhead Rate (POR)
(OH + Target Profit) / Cost Driver
35
Use following information, create a job cost sheet to price out cleaning and fluoride treatment. A cleaning treatment was a necessary visit for preventative oral hygiene, a hygienist performed the service and was paid $48 per hour to do so. Typical cleaning took 10 minutes of setup and included setting up equipment and briefing the patient. Many of the cleaning tools were one time use and cost $7 per client. Their service took 30 minutes followed by a 5 minutes application of the fluoride treatment - which cost $40 per litre bottle, 0.02 litres were used per client. Total estimated overhead is $600,000. The dental office employed three hygienist who serviced 1500 clients a year.
DM = $7.80 ($7 tool + 80 cents toothpaste (0.4*2) DL = $36 (48 an hour * 0.75) FO = $400 (600,000/4500) = 133.33 Total Cost = 133.33 + 7.80 + 36 = 170.13 Total Product Costs (Estimate) 4500 = - 170.13*4500 = 765,585 - Unit Cost Stays the Same: 170.13.
36
What is Process Cost Accounting? When are they Used?
A system that allocates costs based on steps in a production process rather than per job.
37
What are similarities difference with Job-Order Cost Method?
Similarities - They are both used for manufacturing costs. - They both accumulate: Direct Materials, Direct Labour, and Overhead. - The flow of costs (DR/CR) Differences: - Number of WIP accounts, process has several documents, job cost (cost of each job/units product for job) vs process (sum of costs/units produced ) - When costs are calculated: Job end or period end. - Unit cost allocation, Job cost (cost of each job / units produced for job) vs process (sum of all costs / units produced)
38
If they had produced 30,000 finished units with 12,000 units ending in Work-In-Process (WIP) that are 25% complete, what are the Equivalent-Units of Production?
So 30,000 + 12,000 (25%) = 33,000
39
Formula for Equivalent Units of Production:
(WIP Units * % Complete) + Completed
40
What is a WIP Account? How can a company have multiple of these?
Work-in-Process, in a process accounting system, each process would get its own accounting centre.
41
What is Converission Cost, in the context of Process Cost Accounting?
- Conversion costs are the sum of direct labour and overhead related to turning (or converting) raw materials into finished goods. - Or by extension, turning the previous step in the processes output into completed things for this step.
42
What change in the world is driving the needs for Activity-Based Costing over traditional methods?
Complexity due to technology and a change in the nature of production.
43
What is ABC? Define and explain what acronym stands for.
- Activity-Based Costing - A system of cost allocation based on activity centers.
44
What is an Activity, Activity Cost Pool, and a Cost Driver?
Activity: an activity is a sort of action taken in the process of manufacturing or offering a service. Activity Cost Pool: are buckets used to sort costs by attaching them to related activity. Activity Cost Driver: Cost driver is a measure that would be properly divided up the consumption of value related to an activity.
45
Describe the 4-Step Process of ABC
1. Identify and classify major activities 2. Identify cost drivers 3. Calculate Overhead Rate Per Activity 4. Assign per product
46
What are the advantages and disadvantages of ABC?
Benefits - (Robust) More accuracy, better management and more over costs. Drawbacks - More complex, time-consuming, expensive.
47
What are the four levels of activities that can be sorted into?
Unit, batch, product, or facility.
48
What would be the likely cost driver of the following? a. Out-Bound Shipping Fees b. Supervisor Salary (iffy) c. Machine Depreciation (iffy) d. Raw Material Storage e. Natural Gas Expense at a Restaurant (iffy) f. Rent of Shared Seating in a Food Court (Number of Patrons) g. Repairs to the grill at McDonald's h. Employee Health Insurance (iffy) i. Machine Cleaning (Machine Hours)
a. Shipments made (number of trips, weight) b. People responsible for (shifts worked) c. Machine hours d. Square feet (amount of materials) e. Meals Cooked, Heat Level, Cook Time f. Number of Patrons g. Cook Time h. Labour Hours (Number of Employees) i. Machine Hours
49
How does a CVP income statement classify costs?
By variable and fixed costs.
50
What assumption underline CVP?
All costs are variable or fixed and change is linear.
51
What is Contribution Margin? How can it be stated?
- This is the amount you have towards fixed costs and profit after variable costs = (SP-VC) = Margin - Can be a % of $
52
Contribution Margin Formula
(SP-VC) = Contribution Margin
53
What is the contribution margin rate?
This ratio is another way of saying margin as a % of sales.
54
Breakeven Formula: How to add a target to breakeven shown below
- The amount of sales in units or dollars needed to cover a fixed cost. - Add it into FC, (FC + Goal / Contribution)
55
What is a Margin of Safety?
The needed breakeven volume is compared to the predicted volume to describe how close or safe it will be that the idea breaks even. (Prediction - BE)/Prediction.
56
When do you use Incremental Analysis?
When you are making any decision comparing the status quo to the original situation and where sales, costs, or investments would change.
57
What is included in an Incremental Analysis?
Anything different between the scenarios being compared. Art is being able to predict all the changes that would come about when making a change.
58
What is a Relevant Cost? Opportunity Cost? Sunk Cost?
A) Relevant costs - cost changes that are a direct result of the decision you are considering. - Ex. Aj has to teach new class Thursday, relevant cost would be transportation and gas to huron as he now needs to drive to huron. - not relevant ('sunk') gas cost if aj had another class Wednesday since he already has a class and no more incremental gas would be expended. B) Opportunity Cost - Costs that are incurred because of a trade off due to the decision you are considering. - Summer class versus summer job. - for instance you go to school instead of working for three weeks if you could of made 500 dollars a week, opportunity cost is $1500. - must be considered when things are limited. C) Sunk Cost - Are not included in incremental, these are moneys already spent that cannot be recovered. - e.g. costs happening regardless of incremental change.
59
Total Net Benefit:
Represents the amount saved in a typical year, does not include any of the fixed (1) time investments.
60
Return on Investment Formula:
Net Benefit/Investments
61
Payback Period (opposite of ROI)
Investment/Net Benefit

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