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CPA BEC > Planning And Measurement > Flashcards

Planning And Measurement Flashcards

1
Q

What types of Costs are not adjusted for inflation?

A

Fixed costs (such as depreciation expense and interest expense)

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2
Q

In Project Management, who uses unique skills cooperatively to achieve a common outcome?

A

Project team member

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3
Q

At the BEP, what is equal to the contribution margin?

A

Fixed costs

BEP=fixed costs (overhead and selling)/contribution margin

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4
Q

How is Profit calculated?

A

Sales-VC-FC=Profit

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5
Q

How is the Average Collection Period for accounts receivables calculated?

A 
Average AR (begin+end/2)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Average daily sales (annual sales/360)

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6
Q

What are the minimum and maximum Transfer Price rules?

A

With idle capacity (min=avoidable outlay cost, max=market price)

Without idle capacity (min and max=market price)

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7
Q

How are Sales determined?

A

Inventory turnover
*
Average investment
_____________________

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8
Q

How does the Weighted Average Process System work?

A

(Unitsmaterialpercent complete)
+
(Unitsmaterialpercent complete)
____________________________

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9
Q

What is a Back Flush costing System?

A

Simplify product costing by costing production at the completion of an order
(The alternative to the typical product costing system which is normally used in a high-speed automated environment)
(Inspection costs decrease because zero defects is the goal so production halts until errors are fixed)

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10
Q

What type of risk is addressed in Insurance?

A

Peril or hazard (insurance is designed to reduce or eliminate risk of loss)

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11
Q

How is Gross Margin calculated?

A

Gross profits (net sales-COGS)
______________
Net sales

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12
Q

Does the Cash Receipts Budget include loan proceeds?

A

Yes (loan proceeds increase cash)

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13
Q

How is Factory Overhead applied recorded in a process cost system?

A

Increases WIP inventory control (manufacturing cost journal entries are similar for job-order and process costing. WIP is debited and factory overhead applied is credited)

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14
Q

In the Direct (variable) Costing method, how are fixed selling and administrative expenses reported?

A

Operating Income but not contribution margin

Sales
-Variable Manufacturing
-Variable Selling and Administrative
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Contribution Margin
-Fixed Manufacturing
-Fixed Selling and Administrative
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Operating Income
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15
Q

What causes a Production Volume Variance?

A

The difference between the planned level of production activity and the actual level achieved

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16
Q

What type of Cost is never relevant to a sell or process further decision?

A

Joint costs

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17
Q

What classifies the product of a Joint Process as a By-Product instead of a main product?

A

Low sales volume compared to the main product

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18
Q

How is Asset Turnover calculated?

A

Average invested capital

_______________________ Sales

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19
Q

What strategy would likely reduce the BEP?

A

Decreasing fixed costs and increasing the contribution margin (increasing the contribution margin allows for each unit to cover more fixed costs, which would require the sale of fewer units to break even)

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20
Q

How is Inventory Percentage calculated?

A

Ending inventory balance
_____________
Total assets

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21
Q

In a Standard Cost System, who causes material Price Variances

A

Purchasing manager

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22
Q

How are Indirect Materials reflected in the General Ledger for Job Order Costing?

A

Increases factory overhead control?

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23
Q

What are some limitations of ROI?

A

It could be arbitrarily affected by the allocation of indirect costs
It could cause managers to postpone critical expenditures
It could cause management to not accept advantageous projects

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24
Q

What are some facts of comparing Absorption Costing to Variable Costing?

A

Absorption costing increases operating profits in the short run by increasing inventories
When sales volume is more than production volume, variable costing will result in higher operating profit
Operating profit is a function of both sales volume and production volume in absorption costing

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25
Q

What is the focus of Managerial Accounting?

A

The needs of the organization’s internal parties

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26
Q

What effect does production level increases/decrease have on Fixed and Variable Cost per unit in a Flexible Budget?

A

Production increase=fixed cost decrease, variable cost no change

Production decrease=fixed cost increase, variable cost no change

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27
Q

Are Sunk Costs or Opportunity Costs relevant to making financial decisions?

A

Sunk costs=No

Opportunity costs=Yes

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28
Q

What types of costs are Prime Costs?

A

Materials and Labor

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29
Q

What is a Strategy Map in a Balanced Scorecard framework?

A

Diagrams of the cause-and-effect relationships between strategic objectives

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30
Q

How is Contribution Margin per unit calculated?

A 
Sales price per unit
-
Variable material, labor, overhead, selling and administrative costs per unit (variable costs/units)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Contribution margin per unit

(Contribution margin is based on units sold not produced)

(Although variable selling and admin costs are used to arrive at the contribution margin the costs are actually expensed as period cost)

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31
Q

How is BEP in units calculated?

A

Total fixed costs
__________________
Contribution margin per unit

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32
Q

What Hedging strategy is good for a short-term loan and volatile interest rates?

A

Enter into a forward contract to purchase Treasury bills in the future (it allows the firm to trade the variable rate for a fixed rate)

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33
Q

How is a Pareto chart used?

A

It ranks the causes of process variations by the degree of impact on quality

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34
Q

How is Operating Profit calculated?

A 
Sales
-
COGS (fixed and variable manufacturing costs)
-
General and Admin Expenses
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
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35
Q

How is the Operating Profit Margin calculated?

A

Operating profit
_________________
Sales

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36
Q

How are Joint Costs assigned using Net Realizable Value?

A 
Sales value
-
Sales value equivalent percentage of joint cost
-
Separable costs
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
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37
Q

What are the Joint Costing methods?

A

Net realizable value
Sales value at split-off
Physical quantity (product’s percentage of total quantity * joint costs)

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38
Q

How is Book Value per share calculated?

A

Common stockholder’s equity (common stock * retained earnings)
____________________
outstanding shares

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39
Q

What tools does Six Sigma commonly use to achieve quality control?

A

Tools common to TQM-total quality management such as control charts, run charts, Pareto histograms, and Isikawa (fish bone) diagrams

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40
Q

What Budget provides information for the Owner’s Equity section of the budgeted balance sheet?

A

Budgeted income statement

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41
Q

How is Profit Margin calculated?

A

Net income
____________
Net sales

(The ratio is a measure of profitability)

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42
Q

What is the difference between Absorption and Direct Costing?

A

Absorption capitalizes both variable and fixed manufacturing costs as indirect product costs
Direct costing capitalizes only variable manufacturing costs as product cost and expenses fixed manufacturing costs as a period expense
(Selling and admin are not production expenses)

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43
Q

What are the four Balanced Scorecard perspectives and some types of performance measures?

A

Customer satisfaction
Financial performance
Internal operations (cycle time, defective units)
Learning and growth (employees, infrastructure, teaming, and capabilities such as training hours, employee satisfaction, and retention)

(The primary purpose is performance measurement)
(Developed by Kaplan and Norton)

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44
Q

What are Committed Costs?

A

The preset level of operating capacity from an investment that can not be altered in the short run

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45
Q

How is EVA-economic value added calculated?

A

Cost of Capital
________________

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46
Q

What effect does Absorption Costing have on income?

A

It increases income because fixed overhead costs are added to inventory

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47
Q

How are equivalent units for FIFO calculated?

A 
Remaining WIP percentage
\+
(Completed units-begin WIP total)
\+
Spoilage
\+
Completed end WIP
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
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48
Q

What are the characteristics of Lean and Mass Production?

A 
Lean:
Flexible equipment
Lower set-up times
Highly-skilled workers
Small batches of unique products
Mass:
Dedicated equipment
Higher set-up times
Low-skilled workers
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49
Q

How is a Direct Variable Costing Income Statement prepared?

A 
Sales
-
Variable manufacturing
-
Variable selling and admin
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Contribution Margin
-
Fixed manufacturing
-
Fixed selling and admin
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Operating Income
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50
Q

What factors could effect a labor Efficiency Variance?

A

machine maintenance

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51
Q

Does the cost of units produced include Scrap, Normal Spoilage, and/or Abnormal Spoilage?

A

Yes, scrap and normal spoilage

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52
Q

What are some Profitability Ratios?

A

Gross margin
Operating profit margin
Return on assets

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53
Q

What is Budgetary Control?

A

The process of budgeting and using the budgets to control operations

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54
Q

How is Free Cash Flow calculated?

A 
NOPAT-net operating income after taxes
\+
Depreciation
-
Change in working capital
-
Capital expenditures
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
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55
Q

What type of Project Risk is related to managing people, time, cost, and activities?

A

Implementing risk

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56
Q

How is an Absorption Costing Income Statement prepared?

A 
Net Sales
-
COGS (fixed and variable manufacturing costs)
\_\_\_\_\_\_\_\_\_\_\_\_\_
Gross Profit
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57
Q

What is a main characteristic of a flexible budget and what types of budgets can be Flexible Budgets?

A

Provides budgeted numbers for various activity levels and be used for Marketing and/or
Material Budgets

(Flexible budgets also have fixed components)

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58
Q

How are Variances calculated?

A

Price/Spending/Budget=
(Actual Qactual P)-(Actual Qstandard Cost)
Efficiency/Usage=
(Actual Qstandard P)-(standard Q standard P)

(U=AQ/P=SC)

(Selling price variances have the opposite effect of cost variances because higher actual figures are favorable)

59
Q

What is Slack Time?

A

The maximum amount of time an activity can be delayed without affecting the entire project

60
Q

What are some cost drivers that could be used for an ABC-activity based cost System?

A

Behavioral effects
Cost of measurement
Degree of correlation

61
Q

What effect does ABC systems have on cost pools and allocation bases over traditional cost systems?

A

Cost pools=Increase
Allocation bases=Increase

(ABC seeks to eliminate non-value added activities)

62
Q

What is another term for Overhead?

A

Indirect costs

63
Q

How does Multiple Regression differ from Simple Regression?

A

Multiple regression has more independent variables

64
Q

How is WIP inventory calculated?

A

Equivalent units material (unitspricecompletion)
Equivalent units conversion (unitspricecompletion)
_________________

65
Q

Why does Cost Avoidance increase profits faster than increases in revenue?

A

Increasing revenue often results in at least some proportional cost increases

66
Q

What happens when production exceeds sales and when sales exceed production in Absorption and in Variable cost systems?

A

Production exceeds sales=absorption income is higher than variable

Sales exceeds production=variable income is higher than absorption

67
Q

What are some relevant factors to Price Setting?

A

Product life
Quality
Customer preference of quality vs price

68
Q

How does PERT work?

A

Project completion times are measured by a pessimist, an optimist, and most probable estimate and assigning 1 for the pessimist and optimist estimates and and a weight of 4 to the most probable estimate and dividing by 6

69
Q

How is Asset/Investment Turnover calculated?

A

Net sales
________________
Invested assets

70
Q

What are the min/max Transfer Price rules?

A

Min (floor)=avoidable outlay costs

Max (ceiling)=market price

71
Q

In a Job Order Cost System, what does indirect material increase?

A

Factory overhead control (indirect material is debited to factory overhead control and accumulates actual overhead incurrence)

(Actual overhead is not debited to WIP, rather WIP is debited to factory overhead applied)

72
Q

In FIFO process costing, how are equivalent units calculated?

A 
(BWIP*percent to complete)
\+
Started units
-
(EWIP*percent completed)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
73
Q

What is the Margin of Safety and how is it calculated?

A

The difference between current sales and break-even sales

Sales-Margin of Safety
__________________________
Contribution margin percentage

74
Q

What is the first step of Budget development?

A

Forecasting sales volume is the first step because budgeting begins with the sales budget

75
Q

How is Inventory Cost determined?

A 
Begin Inventory
\+
Production costs
-
COGS
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Ending inventory
76
Q

How is the Variable Approach Contribution Margin calculated?

A

Variable material, labor, overhead, and selling and admin
_________________________
Contribution margin per unit (*sold units)

77
Q

How is Weighted Average Equivalent Units calculated?

A

Completed units
+
Percentage of complete EWIP
__________________

78
Q

What is the High-Low method of cost estimation and how is it used?

A

The change in costs for two points

High range costs-low range costs
_______________________
(High range units-low range units)

79
Q

What is Six Sigma?

A

A well recognized quality program used to minimize defects while reducing costs. It is a statistical measure that is 99.999997 percent perfect with 3.4 defects per million parts

80
Q

What is the general form of the Linear Regression Equation?

A

y=a+bx

y=a (the intercept)
(When x=0, y=a [the intercept])

X=independent variable 
Y=dependent variable
A=total fixed costs
SB=standard error
R2=coefficient of determination (measures goodness of fit or explain how much the independent variable affects the dependent variable)
81
Q

What is the objective of DFT-demand flow technology approach?

A

Link process flows and manage them based on customer demand

82
Q

What’s the difference between COGM and COGS?

A

?Selling and Administrative costs are included in COGS but not COGM?

83
Q

What are the characteristics of a Cost Leadership?

A

Low cost inputs
Low cost capital
Proprietary production technology

84
Q

What is a disadvantage of Participative Budgeting?

A

Time-consuming

85
Q

What are manufacturing Period Cost instead of product cost?

A

Costs that are not associated with the production process therefore expenses in the period incurred such as wages of salespeople

86
Q

How is Receivables Turnover Ratio calculated?

A

Net Sales
___________
Average Receivables

87
Q

What type of risk is best addressed with Hedging?

A

Foreign Currency Exchange Risk

88
Q

Does Price Variances calculate with material used or material purchased?

A

Material Purchased

89
Q

In Regression Analysis, what indicates the extent that a change in the independent variable explains a change in the dependent variable?

A

R-squared

P-value=the significance of the statistical relationship

90
Q

What is a Strategy Map?

A

Diagrams of cause-and-effect relationships between strategic objectives

91
Q

What are some Internal Failure Costs

A

Rework
Spoilage
Scrap
Breakdown maintenance

(Spoilage is substandard product discovered prior to shipment)
(Scrap has minimal value and can be sold, disposed, or reused without any rework)

92
Q

What are Conversion Costs?

A

Labor and overhead

Which are incurred continuously and captured by equivalent units [material is not captured by equivalent units]

93
Q

How does ABC assign costs compared to full Absorption?

A

ABC assigns costs to individual products based on activities involved

94
Q

What is the process of adding Resources to shorten selected activity times on the critical path?

A

Crashing

95
Q

What Costing Variance is least controlling by a production supervisor?

A

Overhead volume

96
Q

What is a basic assumption of ABC?

A

Products or services require the performance of activities, and activities consume resources

97
Q

In Portfolio Analysis, what is a measure that is used to express the extent of the relationship among a set of investments?

A

Coefficient of correlation

(An effective portfolio has investments that are negatively correlated which means when some are performing poorly others are doing well)

98
Q

How is Contribution Margin Ratio calculated?

A

Variable Cost
___________ = CMR Percent
Total Sales

(This percentage is subtracted from sales, then fixed cost are subtracted from the remaining percentage, and what’s left is the profit)

99
Q

Planning begins with the development of what Budget?

A

Sales

After the company goals have been established and communicated

100
Q

What’s the difference between Contribution Margin and Gross Margin?

A

Contribution Margin=
Sales-variable cost

Gross Margin= Sales-COGS

101
Q

Are Joint Costs of production used for By-products?

A

No

Joint Costing is used for major products/joint products

102
Q

What is a By-product valuation method and how is it calculated?

A

Valuation at production

Reduce the major product cost/Joint cost by the net realizable value of the by-product. There is no profit for the by-product when sold under this approach.

103
Q

What strategy other than discounts could increase the ART-accounts receivable turnover?

A

Factoring

104
Q

What is a type of cross-sectional analysis?

A

Company data compared to industry averages

105
Q

What is a type of vertical financial statement analysis?

A

? Interest expense as a percentage of net sales

106
Q

What is a Strategy Initiative in a Balanced Scorecard framework?

A

A key action program required to achieve strategic objectives

107
Q

What does an Average Collection Period analysis determine?

A

Liquidity

108
Q

Are Joint Cost relevant to sell or process further decisions?

A

No

109
Q

What is a type of significant non-value adding WIP inventory cost?

A

The cost of moving, handling, and storing any individual product

110
Q

What are some acceptable Joint Cost allocation methods?

A

Sales value at split off
Physical Measures
Net Realizable Value/Constant Gross Margin Percent

111
Q

What are some measures to evaluate the performance of a Manufacturing System?

A 
Throughput Time (time required for an item to go through the manufacturing system)
Setup Time to Production Time Ratio (measures the adaptability of the system to production changes)
Rework to Total Units Ratio (measures quality)
112
Q

What Costing Method has external usefulness?

A

Absorption

It’s used in GAAP and financial reporting purposes and considers all manufacturing related costs to be product costs

113
Q

How is Free Cash Flow calculated?

A 
Net Operating Income
\+
Depreciation Expense
-
Capital Expenditures
\+/-
Change in a Working Capital
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
114
Q

In a standard cost system, what department is responsible for material Efficiency Variances?

A

Production and Industrial Engineering

115
Q

What is a meaningful short-term Liquidity Ratio?

A

Acid Test Ratio

116
Q

How does the typical Product Costing system function?

A

Synchronize the recording of accounting system entries with the physical sequence of purchases and production

(The alternative is the backflush costing system)

117
Q

How is EVA-economic value added calculated?

A

Cost of Invested Capital (required return)
__________________

118
Q

What are Product Costs for external purposes?

A

Direct materials and labor
Other variable manufacturing costs
Fixed manufacturing overhead
Depreciation of building and equipment

119
Q

When is ABC costing beneficial compared to traditional costing?

A

When indirect costs are a high percentage of total cost

120
Q

How is the overhead application Rate determined for a process costing system?

A

Estimated overhead costs
_____________________
Estimated DL hours

121
Q

What are the fixed and variable costs used in determining the BEP?

A

Variable:
Direct materials and labor
Variable overhead costs
Variable selling and Admin costs

Fixed:
Fixed overhead costs
Fixed selling and admin costs

122
Q

Can a Standard Cost system be used for job order costing and/or process costing?

A

Both

123
Q

How is Gross Profit and Gross Margin calculated?

A 
Sales
-
COGS
\_\_\_\_\_\_\_\_\_\_\_\_
Gross Profit

Gross Profit
____________ = Gross Margin
Sales

124
Q

Does accounting for factory Overhead costs involve averaging in job-order costing and/or process costing?

A

Both

125
Q

In the Cost of Quality, what are costs incurred in detecting individual units of product that do not conform to specs?

A

Appraisal Costs

126
Q

What is the main purpose of a Capital Budget?

A

A plan that assesses the long-term needs of the company for plant and equipment purposes

127
Q

In computing the current period’s Manufacturing Cost per equivalent unit, how does the FIFO method of process costing consider current period costs?

A

It only considers current period costs and nothing else

128
Q

In a standard cost system, how are normal and abnormal Spoilage costs accounted for?

A

Normal spoilage=an inventoriable cost

Abnormal spoilage=a period cost

129
Q

How is Net Income calculated?

A 
Net sales
_
  COGS
-
  Selling/Admin
-
  Interest Expense
-
  Depreciation Expense
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
130
Q

How is Profit Margin calculated (which is different from gross profit and gross margin) ?

A

Net Income
____________
Net Sales

131
Q

In a job-order cost system, how are Indirect Materials reflected in the general ledger?

A

Credit stores control

Debit manufacturing overhead control (increases)

132
Q

How is Times Interest Earned calculated?

A

EBIT (sales-COGS-admin and depreciation expense)
_________________
Interest expense

133
Q

Is FIFO and Weighted Average calculation different when determining conversion costs instead of material?

A

Yes, conversion costs are calculated using percentages while material costs aren’t weighted (exact beg and end materials are used but begin materials are still subtracted from completed units)

134
Q

Are Selling and Admin cost Period or Product costs?

A

Selling and Admin costs are Period costs under absorption and variable costing methods (but variable selling and Admin are used to determine the contribution margin in variable costing)

135
Q

What cost category distinguishes Absorption from Variable Costing?

A

Fixed manufacturing costs
(They are expensed in direct variable costing instead of capitalized as product cost in finished inventory like absorption costing)

136
Q

What Ratios use Average numerators?

A

Return-on and Turnovers

137
Q

What is a Capital Budget?

A

A budget for future expenditures of buildings and equipment

138
Q

How is Overhead Efficiency calculated?

A

Actual labor hours compared to standard labor hours multiplied by the standard overhead rate

139
Q

How are Weighted Average process costing systems used?

A 
Units*Percent Materials
\+
Units*Percent Conversion
\_\_\_\_
WIP
140
Q

In determining manufacturing costs per equivalent units, does FIFO and the Weighted Average method use current costs and/or current plus beginning WIP inventory?

A

FIFO=current cost

Weighted Average=current plus beginning WIP inventory costs

141
Q

How is Operating Profit and Operating Profit Margin calculated?

A 
Sales
-
  COGS
_
  Selling and Admin
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Operating Profit

Operating Profit
______=Operating Profit Margin
Sales

142
Q

Are Opportunity costs and/or Sunk costs relevant to making financial decisions?

A

Opportunity costs are relevant

143
Q

Is ROI related to shareholder value?

A

Yes

It is highly related to stock price

CPA BEC (5 decks)

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