Memo Terms Flashcards

(89 cards)

1
Q

How does the direct method allocate costs?

A

Allocates costs of each service department to production

Departments based on relative level of use

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2
Q

When can the direct method result in inaccurate costing?

A

When service departments provide significant amounts of services
To other service departments

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3
Q

Reciprocal method, how do they allocate costs?

A

Simultaneous equations to allocate costs to production departments

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4
Q

Using simultaneous equations to allocate costs to production departments results in a more accurate allocation of costs when…

A

Service departments provide services to other departments

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5
Q

Step method allocates service department costs to…

A

Other service departments and production departments

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6
Q

Performance measurement systems 3

A

1 Compensation

2 resource allocation

3 business unit performance

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7
Q

Performance measurement system that is used for multiple purposes?

A

Balanced score card

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8
Q

It is important that all performance measures reflect…

A

Strategy of the company

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9
Q

Performance measures must represent…

A

Economic reality

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10
Q

A system of performance measures to evaluate and compensate managers should be sensitive to…

2) not sensitive to…

A

Factors in the managers control

Not sensitive to factors beyond the manager’s control

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11
Q

An advantage of issuing preferred stock is that preferred shareholders…

A

Do not generally participate in superior earnings of the firm

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12
Q

Product cost info is very important input into a number of business decisions including those involving…3

A

1 product pricing

2 inventory levels

3 allocation of productive resources

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13
Q

A competent and independent audit committee is critical to an effective system of…

A

Corporate governance and internal control

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14
Q

The audit committee should have the responsibility to appoint and discharge…

A

External auditors

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15
Q

The audit committee, 2 responsibilities with external auditors

A

1 determine their compensation

2 oversee their work

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16
Q

The audit committee should have direct access to both external auditors and internal auditors and should…

A

Approve the scope of their work

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17
Q

The audit committee should oversee the financial reporting and internal control systems of the company, including establishing procedures for receipt and treatment of complaints about…

A

1 internal control

2 accounting or

3 auditing matters

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18
Q

A responsibility accounting system is one that evaluates center managers based on reports that include…

A

Only revenues and costs a particular manager can control

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19
Q

If the manager is responsible for both profits and costs, the center is referred to as…

A

Profit center

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20
Q

Cost center is one where…

A

Manager is only responsible for costs

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21
Q

Primary advantage of responsibility accounting system…

A

Managers rewarded based on factors within their control

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22
Q

Total fixed cost in the flexible budget would be…

A

Constant within the relevant range

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23
Q

If the market value of P at split off increases and all other costs and selling prices remain unchanged, then gross margin of P…

Gross margin of Q…

A

P decreases

Q increases

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24
Q

If the market value at split off (sales value) of joint product increases, than a for product A…

Or product B?

A

Larger portion of total joint costs will be allocated to that product A

Smaller amount of costs allocated to product B

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25
Total production costs to split off point. $110,000 Gasoline sales. 280,000 By product sales. 30,000 Gasoline inventory. 15,000 Additional by product costs: Marketing. 10,000 Production 13,000 Mig accounts for the by product at the time of production. What are Mig's 2013 cost of sales for gasoline and the byproduct? 5 steps
Total production (joint) costs. 110,000 Less: NRV of by-product (30 - (10 +13). 7,000 = Net production cost. 103,000 Less: cost of inventory. 15,000 = cost of sales. 88,000
26
Hedging is a technique used in risk management in which...
The risk of price volatility of material is shared with another party
27
To hedge the cost of raw materials the company can purchase...
Forwards or futures to lock in prices
28
A forward is a...
Negotiated contract to purchase a commodity at a fixed price
29
Future is a...
Standardized contract to take delivery of commodity at future Date at specified price
30
The primary benefit of hedging is that the company can...
Fix the price it will pay for a commodity over an extended period of time
31
Hedging may be used to ensure...
Sufficient availability of raw material
32
A system of corporate governance is designed to help ensure that management of the company...
Acts in the best interest of owners of the company
33
Effective corporate governance involves developing devices to...
Prevent self serving activities on part of managers of the company
34
Corporate governance: | The board of directors should take an active role in...2
Overseeing management and determining management compensation
35
Corporate governance: The audit committee should oversee...
1 financial reporting and 2 responsibility to appoint and determine compensation for External auditor
36
Corporate governance: | The internal audit chief executive should report...
Directly to this committee
37
Traditional costing uses only...
Variable and fixed overhead cost pools
38
Traditional costing uses only variable and fixed or total overhead cost pools and allocates costs based on...
Direct labor hours/or direct machine hours
39
Activity based costing is based on 2 principles
1 activities consume resources 2 resources are consumed by products, services or Other cost objectives
40
Activity based costing allocates overhead costs to products on the basis of resources consumed by each activity involved in...3
1 design 2 production 3 distribution of product
41
In using activity based costing, costs are allocated using...
Cost drivers
42
Cost drivers are those activities that have a...
Direct cause and effect relationship to a particular cost
43
Activity based costing results in a more precise determination of...
Product costs than traditional costing methods
44
Better information about product costs can result in...
Better production and pricing decisions by management
45
Product differentiation strategy involves...
Customization of product to distinguish it to target market
46
Differentiation may be accomplished with respect to...2
Differences between competing products and Level of service
47
Differentiation of product can be done through...2
1 advertising 2 brand loyalty
48
Batch processing system is a very efficient method of processing transactions when...
Timeliness is not a major factor
49
Under the batch processing systems accounting records are only up to date...
Once a week
50
If an online real time processing g system is implemented accounting records would...
Constantly be up to date
51
Online real time system benefits include: Sales reps will...
Have mor timely information of inventory in stock
52
Timely information about inventory systems from real time system will allow for...
Better inventory control
53
Timely information about inventory systems from real time system will allow for better inventory control meaning management may be able to...
Make better revenue and cost saving decisions
54
Publicly traded advantage: | Being on the stock market allows...3
1 business acquisition 2 easier transfer of ownership 3 employee stock based compensation
55
Disadvantages of going public 3
1 Cost (SOX and reporting, SEC laws) 2 maximizing stock price might not be in best long term interest Of company 3 info available to competitors
56
Sale leaseback define2
1 company sells plant to another party and 2 leases it back under a long term agreement
57
Advantages of a sale lease back...2
Financing and tax advantages
58
Which is easier to obtain lease financing or bond financing?
Lease financing
59
Which has more restrictions, bond or lease financing?
Bond financing
60
Bonds typical maturity and interest payments?
20 year maturity with semiannual interest payments
61
Bonds covenants place restrictions on...
Flexibility of the company
62
Interest on bonds is...
Tax deductible
63
ERM is a process designed to identify potential events that...2
1 may affect the corporation 2 manage risk within corporation's risk appetite
64
An enterprise risk management system established under the framework includes processes and controls that help ensure that risks are...4
1 identified 2 assessed 3 prioritized and 4 managed
65
The ERM system benefits the corporation by...4
1 improving risk response decisions 2 reducing operational surprises/losses 3 helping corp seize opportunities 4 improving deployment of capital
66
Budgeting system involves the development of...
Forecasts of revenues and expenses for a future period
67
Budgeting system forecasts are used to plan future activities of...
1 sales 2 purchasing 3 production 4 investing
68
Variance analysis may be used in conjunction with...
An effective budgeting system
69
Variance analysis involves analyzing differences between...
Actual and budgeted amounts
70
Variance analysis provides information on over and under use of...2
Materials And over and under payment of purchase price
71
Variance analysis determines over and under usage of materials and over and underpayment of prices allowing management to...
Improve decisions
72
An effective internal audit department should have a charter that describes, what 3 aspects of internal audit activity?
1 purpose 2 authority 3 responsibility
73
Internal audit organization: Chief audit executive should establish risk based plans to determine...2
1 audit priorities 2 monitor audit results
74
Internal auditors must be...2
1 competent and objective To effectively perform their work
75
Attitude of internal auditor should be...
Unbiased and avoid conflicts of interest
76
Competence is achieved by internal auditor through...3
1 education 2 training 3 supervision
77
If management uses the payback method or accounting rate of return that ignores investments, will lead management to select investments that...
Don't provide the greatest return on investment
78
Better alternatives that consider the time value of money: Net present value evaluates alternative investments by calculating the present value of future cash flows discounted at the company's...
Cost of capital
79
Better alternatives that consider the time value of money: Internal rate of return method determines the rate of discount at which the present value of future cash flows is...
Equal to present value of investment outlays
80
Dividend policy considerations: Dividend policy of a firm relates to management's propensity to...
Distribute earnings to shareholders
81
Dividend policy: Appropriate dividend policy depends on a number of factors including the...4
1 life cycle stage of the company 2 financial position of the company 3 investment options available to the company 4 tax considerations
82
Dividend policy: To be in a position to pay dividends to shareholders, a company must reach a stage in its lifecycle at which it is no longer in need of...
Significant additional financing
83
Dividend policy: What lifecycle stages will a company usually not net significant additional financing?2
1 expansion stage 2 maturity stage of company's life cycle
84
Other considerations in dividend policy...2
1 can a higher return be earned with internal project 2 tax rates on wealthy shareholders
85
Sales price variance
Number of units X change in price
86
Cost price variance
Subtract cost of goods sold
87
Sales volume variance affects...
The number of units sold per year
88
4 conditions, if 1 met then capital lease
1 does ownership of leased equipment transfer after lease 2 bargain purchase option 3 lease term 75% or more of estimated life 4 present value of minimum lease payments equal to 90% or more of fair value of leased equipment
89
Business process re engineering is the search for and implementation of...
Radical change in business processes to achieve breakthrough results