Midterm 1 Review

Question 1

on what type of user does managerial accounting focus on?

Answer 1

internal users to support planning, controlling, and decision-making

Question 2

what type of data does managerial accounting emphasize?

Answer 2

future-oriented data

Question 3

what are the key functions of managerial accounting?

Answer 3

1. planning
2. controlling
3. decision-making

Question 4

what is the planning function on managerial accounting?

Answer 4

establishing goals and determining strategies

Question 5

what is the controlling function of managerial accounting?

Answer 5

monitoring performance, comparing actual results with budgets

Question 6

what is the decision-making function of managerial accounting?

Answer 6

choosing between alternatives based on relevant costs

Question 7

what are the the ethical considerations of managerial accounting?

Answer 7

• competence
• confidentiality
• integrity
• credibility

Question 8

what does the competence consideration of managerial accounting refer to?

Answer 8

maintaining professional knowledge

Question 9

what does the confidentiality consideration of managerial accounting refer to?

Answer 9

keeping information secure

Question 10

what does the integrity consideration of managerial accounting refer to?

Answer 10

avoiding conflicts of interest

Question 11

what does the credibility consideration of managerial accounting refer to?

Answer 11

providing accurate, fair, and timely reports

Question 12

what are the types of costs?

Answer 12

• indirect
• direct

Question 13

what are direct costs?

Answer 13

costs that can be directly traced to a product (eg. direct materials, direct labor)

Question 14

what are indirect costs?

Answer 14

costs that cannot be easily traced (eg. factory rent, supervisor salaries)

Question 15

what are the types of manufacturing costs?

Answer 15

• direct materials (DM)
• direct labor (DL)
• manufacturing overhead (MOH)

Question 16

what are direct materials?

Answer 16

raw materials used in production

Question 17

what is direct labor?

Answer 17

labor costs of workers who directly manufacture the product

Question 18

what is manufacturing overhead?

Answer 18

indirect costs such as factory utilities, depreciation

Question 19

what are the types of non-manufacturing costs?

Answer 19

• selling costs
• administrative costs

Question 20

what are selling costs?

Answer 20

costs to market, distribute, and service products

Question 21

what are administrative costs?

Answer 21

costs related to general business operations

Question 22

what are product (inventoriable) costs?

Answer 22

costs reported as inventory until sold (eg. direct materials, direct labor, manufacturing overhead)

Question 23

what are period costs?

Answer 23

costs expensed immediately in the period incurred (eg. office rent)

Question 24

what are variable costs?

Answer 24

costs that change in total activity (eg. sales commissions, raw materials)

Question 25

what are fixed costs?

Answer 25

remain constant in total (eg. rent, salaries)

Question 26

what are the types of fixed costs?

Answer 26

- committed fixed costs - discretionary fixed costs

Question 27

what are committed fixed costs?

Answer 27

cannot be changed short-term (lease payments)

Question 28

what are discretionary costs?

Answer 28

can be adjusted (eg. advertising expenses)

Question 29

what are mixed costs?

Answer 29

costs that contain both variable and fixed components

Question 30

what is the formula to solve for mixed cost?

Answer 30

Y = a + bX Where: - y = total mixed cost - a = total fixed cost - b = variable cost per unit - X = level of activity

Question 31

what are the types of cost behavior analysis?

Answer 31

- high-low method - scattergraph plot - regression analysis

Question 32

how does the high-low method work?

Answer 32

estimates variable and fixed components using the highest and lowest activity levels

Question 33

what are cost drivers?

Answer 33

activity base that causes variable costs to change (eg. units produced, machine hours)

Question 34

what are step-variable costs?

Answer 34

costs that remain fixed over a range of activity but jump to a higher level when a threshold is reached (eg. maintenance staff salaries)

Question 35

what is the formula to solve for variable cost per unit using the high-low method?

Answer 35

variable cost per unit = change in total cost / change in activity

Question 36

what is the contribution format income statement?

Answer 36

separates costs into variable and fixed instead of functions

Question 37

what is the formula to solve for net operating income using the contribution margin?

Answer 37

net operating income = contribution margin - fixed expenses

Question 38

what are the key elements of cost-volume-profit?

Answer 38

- selling price - volume/activity level - variable costs per unit - total fixed costs - sales mix (for multiple products)

Question 39

what is the formula to solve for the contribution margin?

Answer 39

CM = sales revenue - variable costs

Question 40

what is the formula to solve for the contribution margin ratio?

Answer 40

CM = total CM / total sales revenue

Question 41

what is the formula to solve for break-even in units?

Answer 41

break-even sales (units) = total fixed costs / unit CM

Question 42

what is the formula to solve for break-even in dollars?

Answer 42

break-even sales ($) = total fixed costs / CM ratio

Question 43

what is the formula to solve for target profit required sales in units?

Answer 43

required sales (units) = (total fixed costs + target profit) / unit CM

Question 44

what is the formula to solve for target profit required sales in dollars?

Answer 44

required sales ($) = (total fixed costs + target profit) / CM ratio

Question 45

what is the margin of safety?

Answer 45

the excess of actual or budgeted sales over break-even sales

Question 46

what is the formula to solve for the margin of safety in dollars?

Answer 46

margin of safety ($) = total sales - breakeven sales

Question 47

what is the formula to solve for the margin of safety percent?

Answer 47

margin of safety (%) = margin of safety ($) / total sales

Question 48

what is operating leverage?

Answer 48

measures the sensitivity of net income to sales changes

Question 49

what is the formula to solve for operating leverage?

Answer 49

degree of operating leverage = contribution margin / net operating income

Question 50

what costs are considered product costs under absorption costing?

Answer 50

- direct materials - direct labor - variable manufacturing overhead - fixed manufacturing overhead

Question 51

what costs are considered period costs under absorption costing?

Answer 51

- selling expenses - administrative expenses

Question 52

what costs are considered product costs under variable costing?

Answer 52

- direct materials - direct labor - variable manufacturing overhead

Question 53

what costs are considered period costs under absorption costing?

Answer 53

- fixed manufacturing overhead - selling expenses - administrative expenses

Question 54

what is the function of absorption costing?

Answer 54

required for external financial reporting

Question 55

what is the function of variable costing?

Answer 55

preferred for internal decision-making

Question 56

if production > sales...

Answer 56

absorption net income is higher (fixed MOH is deferred in inventory)

Question 57

if production < sales...

Answer 57

variable net income is higher (fixed MOH is expensed immediately)

Question 58

what is the impact of absorption costing on decision making?

Answer 58

absorption costing can distort pricing and profitability decisions by spreading fixed costs across units

Question 59

what are the advantages of variable costing?

Answer 59

- more accurate profit measurement - easier to perform CVP analysis - consistent with cash flow