Midterm Review

Question 1

What is the main characteristic of Just-In-Time approach?

Answer 1

Purchases and products built only to meet the customer demand

Question 2

What are the two characteristics of Total Quality Management (TQM)?

Answer 2

1) Focus on serving customers

2) Systematic problem solving using front-line employees

Question 3

Outline the Plan-Do-Check-Act (PDCA/Deming Wheel) process

Answer 3

1) Study, collect data, plan, plan measures
2) Test the plan on a small scale
3) Evaluate the test and see if it worked
4) Adjust plan and try again, or implement the change (depending on the result from the test)

Question 4

What is process re-engineering?

Answer 4

Analyzing and implementing changes in a process to focus on simplification and elimination of wasted effort

Eliminate non-value adding activities

Question 5

What is the theory of constraints? Three parts of the TOC chain?

Answer 5

That managing constraints is the path to success

1) ID the constraint
2) Limit the strain on the constraint
3) Focus on strengthening the weakest link

Question 6

What was the main purpose of Sarbanes-Oxley Act?

Answer 6

Improve the reliability and accuracy of corporate financial reports and disclosures

Question 7

What is the cost behaviour of variable costs with respect to level of activity?

Answer 7

They are constant per unit but increase as a total with an increase in level of activity

Question 8

What is the cost behaviour of fixed costs with respect to level of activity?

Answer 8

They change per unit but stay constant as a total with an increase in level of activity (within the relevant range)

Question 9

What is the difference between a direct and an indirect cost? An example of each?

Answer 9

Direct cost can be easily and economically traced to a cost object.
Direct: amount of fuel for a plane
Indirect: Salaries of baggage handlers

Question 10

What is a differential (relevant) cost?

Answer 10

A cost that differs between two alternatives and occurs in the future

Question 11

What is manufacturing overhead/factory overhead/factory burden/indirect manufacturing cost?

Answer 11

The costs that go into production that are indirect (indirect materials/labour, factory maintenance, utilities, property taxes, depreciation on factory equipment and factory buildings)

Question 12

What is conversion cost?

Answer 12

Manufacturing overhead and direct labour

Question 13

What is prime cost?

Answer 13

Direct labour and direct materials

Question 14

What is the difference between product/inventoriable costs and period costs?

Answer 14

Product: Costs associated with acquiring or producing a product
Period: All non-manufacturing costs

Question 15

What is the basic inventory flow equation?

Answer 15

Beginning balance + Additions to inventory - Withdrawals from inventory = Ending balance

Question 16

What are the differences between the financial statements of a merchandising firm and a manufacturing firm?

Answer 16

Income statement: Purchases vs. Cost of Goods Manufactured, Merchandise inventory vs. Finished Goods inventory

Balance Sheet: Raw materials/Work in process/finished goods vs. merchandise inventory

Question 17

How is the schedule of cost of goods manufactured assembled?

Answer 17

Direct materials + Direct labour + Manufacturing overhead = COGM (total man + beginning WIP - ending WIP = COGM)

Question 18

What is a step-variable cost? Example?

Answer 18

Changes in response to more than a unit of activity change. Example: Wait staff at a restaurant

Question 19

What is the difference between a committed fixed cost and a discretionary fixed cost?

Answer 19

Committed: Long-term, can’t be eliminated without huge changes in ability to achieve goals
Discretionary: Short-term, can be eliminated without huge changes in ability to achieve goals

Question 20

What is a mixed cost? How does it behave as activity level increases?

Answer 20

Mix of fixed and variable costs (think two-part tariff pricing)

Decreases on a per unit basis as activity increases. Increases in total as activity increases.

Question 21

How are mixed costs analyzed through the high-low method?

Answer 21

Change in cost / Change in activity = Variable Cost
FC = Total Cost - VC

Y = FC + VCx

Question 22

Difference between contribution/variable costing and traditional/gross margin/absorption costing income statements

Answer 22

Contribution used the CM and distinguishes between variable and fixed costs whereas the trad format uses COGS and Gross Margin

Question 23

What is the income statement format for variable costing?

Answer 23

Sales - VC = CM - FC = NI

Question 24

Define break-even point and what will happen when sales increase over the BEP

Answer 24

Where net income = 0

After the BEP NI will increase by the amount of the contribution margin x the # of units

Question 25

What is the CM ratio?

Answer 25

CM / Sales

Question 26

What are the four CVP analysis assumptions?

Answer 26

1) Selling price constant 2) Costs are linear and can be separated into VC and FC 3) Sales mix is constant 4) Inventory doesn't change

Question 27

Define the two methods of BE analysis

Answer 27

1) Equation method Profits = Sales - (VC + FC) 2) CM Method FC / Unit CM or FC / CM Ratio

Question 28

How does the target profit equation relate to the BE analysis equations?

Answer 28

Add profits to fixed expenses in the same equations

Question 29

What is the margin of safety?

Answer 29

Margin of safety dollars / Total (budgeted) sales

Question 30

What is operating leverage?

Answer 30

CM / NI

Question 31

What are the 4 steps in CVP analysis?

Answer 31

1) Determine how the behaviour of the costs being changed (fixed, variable, mixed) 2) Determine change in sales that will occur 3) Determine change in VC and include on new fin statements 4) Determine NI

Question 32

What is the difference between a forecast, projection, and budget?

Answer 32

Forecast: Assumptions based on facts Projection: Different scenarios, what is hoped to happen Budget: What is required, not expected

Question 33

Incremental vs zero-based budgeting

Answer 33

Incremental: Based on the previous period Zero: Everything needs to be justified again

Question 34

Periodic vs continuous budgeting

Answer 34

Periodic: usually once a year Continuous: Rebudgeting for 12 months out every month

Question 35

Participative (self-imposed) budgeting

Answer 35

Managers prepare their own budgets rather than being dictated from above

Question 36

Responsibility accounting

Answer 36

Managers held responsible for only the items that they can control

Question 37

Master budget layout

Answer 37

``` Sales -> S&A, Production, Cash Production -> DM Budget, DL budget, MOH budget S&A -> Cash DM Budget -> Cash DL -> Cash MOH -> Cash Ending FG inventory Budget -> Production ```

Question 38

Production budget format

Answer 38

``` Budgeted sales Add: Desired ending Total needs Deduct: Desired beginning Required production ```

Question 39

DM Budget format

Answer 39

``` Raw materials needed Add: Desired ending Total needs Deduct: desired beginning Total purchases needed ```

Question 40

DL Budget format

Answer 40

``` Required production Hours per case Hours needed Cost per hour Total direct labour cost ```

Question 41

MOH Budget format

Answer 41

``` Budgeted hours Variable overhead rate Variable MOH Fixed MOH Total MOH Less: Depreciation Cash disburse for MOH ``` Total MOH Budgeted DL hours Overhead rate for the year

Question 42

FG budget format

Answer 42

Unit product cost (DL, DM, MOH) Ending inventory in units Unit product cost (from above) Ending FG in dollars

Question 43

S&A Budget format

Answer 43

``` Budgeted sales Variable S&A per unit Total Variable S&A Budgeted fixed S&A Total S&A Less: Depreciation Cash for S&A ```

Question 44

Cash budget format

Answer 44

``` Cash balance beginning Add: receipts Cash available before financing Deduct: Disbursements Excess of cash over disbursements ``` Financing (borrowing, repayments, interest) Total financing Cash balance, ending

Question 45

Budgeted Income format

Answer 45

``` Sales Less: COGS Gross Margin Less: S&A NOI Less: interest NI ```

Question 46

Budgeted balance format

Answer 46

Current assets PPE Total Assets Liabilities SH Equity Total Liab & Equity

Question 47

What is the target costing formula?

Answer 47

Estimated price - Target profit margin = Target cost

Question 48

What's the difference between COGM and COGS

Answer 48

COGM: Relates to units PRODUCED COGS: Relates to units SOLD Rarely the same

Question 49

What are the 4 steps to profitably using a constrained resource?

Answer 49

1) Calc CM per unit 2) Calc how much of each constrained resource in each unit 3) CM / Unit of constrained resource 4) Rank the alternatives

Question 50

What are the 3 steps for sell-or-process decision?

Answer 50

1) Calc sales value if processed further - sales value at split-off point 2) Cost of processing further 3) Step 1 - Step 2 = positive then process further; if negative don't process further

Question 51

What are the 6 benefits of budgeting

Answer 51

1) Systematic thinking 2) Potential impediment uncovering 3) Communicate plans 4) Coordinate plans 5) Resources used effectively 6) Create benchmarks for future performance

Question 52

What are the two axes on the CVP graph?

Answer 52

X - Unit volume | Y - $

Question 53

Sales Budget Format

Answer 53

Budgeted sales in units Selling price per unit Total Sales Schedule of cash collections