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MGC1 > UFC1 > Flashcards

UFC1 Flashcards

1
Q

7 differences between managerial and financial accounting (1)

A

1 users and decision makers - F) external, M) internal
2 purpose of info - F) external users for decision making, M) managers for decision making
3 flexibility - F) GAAP, M) flexible
4 timeliness of info - F) only after audit is complete, M) quickly, no audit
5 time dimension - F) focus on historical info, M) mostly estimates
6 focus of info - F) whole org, M) org’s projects and parts
7 nature of info - F) monetary, M) monetary and nonmonetary

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2
Q

Institute of Management Accountants/IMA def (1)

A

professional association for management accountants, issued code of ethics to help accountants involved in solving ethical dilemmas
report info accurately and with integrity

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3
Q

5 characteristics used to classify costs (1)

A

1 behavior - fixed or variable, or mixed
2 traceability - direct (traceable to a single cost object) or indirect (not)
3 controllability - controllable or not controllable for employee based on structure of org
4 relevance - sunk cost (already been incurred and cannot be avoided or changed, irrelevant for future decisions), out-of-pocket (requires future cash and must consider opportunity cost)
5 function - cost capitalization as inventory (production costs - direct materials, direct labor, and indirect manufacturing costs called overhead), are assigned to balance sheet; or cost expenses (period costs - selling and general admin expenses), flow directly to the current income sheet as expenses

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4
Q

main diff between income statement of manufacturer and merchandiser (1)

A

items making up cost of goods sold

  • merchandiser: beginning merch inv + cost of goods purchased - ending merch inv = cost of goods sold
  • manufacturer: beginning finished goods inv + cost of goods manufactured - ending finished goods inv = cost of goods sold
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5
Q

3 items accounting for a manufacturer’s cost of goods sold (1)

A

1 direct materials - tangible component of finished product (45% total cost)
2 direct labor - wages of employees traced directly to finished goods (indirect cannot be directly traced)
3 factory overhead/manufacturing overhead - all other costs that cannot be separately traced to finished goods (OT, factory rent, etc)

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6
Q

prime and conversion costs (1)

A
  • prime - direct material + direct labor costs

* conversion - direct labor + overhead

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7
Q

3 activities in manufacturing (1)

A

1 materials - raw materials
2 production - goods in process. Includes beginning goods in process, direct labor, and overhead. Products costs are costs of both finished goods manufactured and goods in process.
3 sales - finished goods. Cost of finished product sold reports on income statement as cost of goods sold; cost of products not sold is reported on balance sheet as ending finished goods inventory.

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8
Q

cost vs general accounting system (1)

A
  • cost - records manufacturing activities using perpetual inventory system which reflects costs of materials, goods in process, and finished goods inventories; and time info about inventories and manufacturing costs per unit of product
  • general - uses periodic inventory system
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9
Q

2 types of cost accounting systems (2)

A

1 job order - custom production; production of custom order. ALLOCATES overhead estimates.
2 process order

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10
Q

target cost for job def (2)

A

expected selling price - desired profit = target cost

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11
Q

purpose of job order cost accounting system (2)

A

determine cost of producing each job or job lot, calculate cost per unit

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12
Q

job cost sheet def (2)

A

record maintained for each job

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13
Q

materials ledger card for job cost accounting (2)

A

record updated each time units are purchased or issued for production use

  • direct cost - to job cost sheet
  • indirect cost - to factory overhead ledger
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14
Q

predetermined overhead rate def (2)

A

uses estimate of total overhead cost and allocates factor such as total direct labor cost BEFORE start of period to estimate overhead cost
*predetermined overhead rate = estimated overhead costs / estimated activity base

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15
Q

process operations def (3)

A

aka process manufacturing/process production

  • mass production of products in continuous flows or steps
  • example: crude oil
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16
Q

focus of job order costing system vs process costing (3)

A
  • job - focus on individual job or batch

* process - process/department itself and cost of standardized units produced per process/department

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17
Q

unit cost of goods for continuous process items (3)

A

total cost assigned to process / total number of units started and finished in the period

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18
Q

equivalent units of production/EUP def (3)

A

refers to number of units that could have been started AND completed given the cost incurred during a period (process cost)

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19
Q

cost of goods manufactured (3)

A

total manufacturing cost (direct materials, direct labor, and factory overhead) for period + beginning goods in process - ending goods in process

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20
Q

managerial activities such as product pricing, product mix decisions, and cost control depend on what (4)

A

accurate product cost info

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21
Q

3 methods of overhead allocation (4)

A

1 single plantwide overhead rate - one rate. Volume-based measures such as direct labor hours or machine hours
2 dept overhead rate - two or more rates. Volume-based measures such as direct labor hours or machine hours
3 activity-based costing method - 2 to many rates. Activities that drive costs, such as number of batches of product produced.

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22
Q

cash flows under plantwide overhead rate method and formula (4)

A

cost object is the unit of product/VOLUME/DIRECT LABOR HOURS
*good for all same or homogenous/continuous production
total budgeted overhead cost pool / chosen allocation base

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23
Q

cost flows under departmental overhead rate method and formula (4)

A

diff overhead rate for each production dept.

  • first stage dept is cost object
  • second stage products are cost objects

departmental overhead rate = total dept overhead cost / total units in dept allocation base

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24
Q

3 key advantages of the plantwide and departmental overhead rate methods 4

A

1 they are based on available info, like direct labor hours
2 they are easy to implement
3 they are consistent with GAAP and can be used for external reporting needs
*disadvantage of both is that overhead is usually too complex to dumb down so easily, and assumes that diff products are similar in volume, complexity, and batch size

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25
Q

4 steps of ABC 4

A

1 identify activities and the costs they cause (combine similar activities for simplicity)
2 trace overhead costs into costs pools
3 determine activity rates - assign overhead costs to final cost objects
*cost pool activity rate = overhead costs assigned to pool / number of activities
4 assign overhead costs to cost objects
*overhead = activities consumed * activity rate

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26
Q

benefit of ABC 4

A

breaks down specific cost for custom orders or low volume items

  • cost based on input rather than output means more accurate overhead cost allocation
  • more effective overhead cost control
  • focus on relevant factors (for marketing or R&D)
  • better management of activities - activities-based management and value-added activities
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27
Q

cost-volume-profit/CVP analysis 5

A

aka break-even analysis

  • computing sales level at which a company earns income or incurs loss (break even point)
  • classify costs as fixed or variable
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28
Q

step-wise cost def 5

A

costs that remain fixed but increase at different volumes in chunks (like adding another employee’s salary)
*graph looks like steps

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29
Q

3 methods used to evaluate past costs and determine if they are fixed or variable 5

A

1 scatter diagrams - draw estimated line of cost behavior (where dots are common), vertical axis is fixed cost. Change in cost/change in units - variable cost per unit
2 high-low method - graphically connecting the highest and lowest unit volumes. Calculate variable rate from these points. then back into fixed cost by subtracting variable.
3 least-squares regression - statistical and most precise method

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30
Q

contribution margin per unit def (5)

A

amount by which a product’s unit selling price exceeds its total unit variable cost

  • contributes to covering fixed costs and generating profits on a per unit basis
  • contribution margin per unit = sales price per unit - total variable cost per unit
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31
Q

contribution margin ratio (5)

A

% of a unit’s selling price that exceeds total unit variable cost
*contribution margin ratio = contribution margin per unit / sales price per unit

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32
Q

formula for break-even point (5)

A

break-even point in units = fixed costs / contribution margin per unit

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33
Q

break-even point in dollars calculation (5)

A

fixed costs / contribution margin ratio

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34
Q

weighted-average contribution margin def (5)

A

for multi-product company - based on each product’s percentage in product mix
* break-even point in units = fixed costs / weighted-average contribution margin

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35
Q

master budget def (7)

A

a formal, comprehensive plan for a company’s future. Contains several individual budgets that are linked with each other to form a coordinated plan
*includes budgets for sales, purchases, production, various expenses, capital expenditures, and cash

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36
Q

3 basic components of a master budget (7)

A

1 operating budget
2 capital expenditures budget
3 financial budget

37
Q

5 steps to creating the master budget (7)

A

1 prepare sales budget (part of op budget)
*includes planned sales units and expected dollars from these sales
2 develop production budget (part of op budget )
3 prepare manufacturing, selling, and general and admin expense budget (part of op budget no included in selling expenses - salaries, depreciation, interest expense and income tax expense)
4 prepare capital expenditures budget
5 consolidate op and capital expenditures budgets into financial budget

38
Q

formula for merchandise purchase budget (7)

A

inventory to be purchased = budgeted ending inventory + budgeted cost of sales for the period - budgeted beginning inventory

39
Q

4 steps in budgetary control process (8)

A

1 develop budget
2 compare actual to budget
3 take action
4 start new plans

40
Q

fixed budget control system def (aka static budget) (8)

A

master budget is based on a single prediction for sales volume or other activity level

  • report - F/favorable and U/unfavorable
  • primary use is for management to monitor and control ops
41
Q

flexible budget purpose (aka variable budget) (8)

A

uses actual volume and predicted amounts of revenues and expenses corresponding to it

  • designed to reveal effects of volume of activity on revenues and costs
  • relies on distinctions between fixed and variable costs
42
Q

price variance def (flexible budgets ch8)

A

diff between actual and budgeted revenue due to diff between actual quantity of input used and budgeted quantity of input (quantity variance)

43
Q

standard costs def (8)

A

preset costs for delivering a product or service under normal conditions

  • managerial accountants, engineers, personnel administrators, and other managers set standard costs
  • when variances occur, management will manage by exception and address largest discrepancies first
44
Q

ideal vs practical standards (standard costs) (8)

A
  • ideal - what is present in finished product (no waste)

* practical - what is actually required to end result with ideal amount

45
Q

cost variance formula (8)

A

cost variance/CV = actual cost/AC - standard cost/SC

46
Q

price variance formula (8)

A

(AQAP)-(AQSP)

47
Q

quantity variance (8)

A

(AQSP)-(SQSP)

48
Q

formula for overhead cost variance (8)

A

overhead cost variance/OCV = actual overhead incurred/AOI - standard overhead applied/SOA

49
Q

2 types of overhead cost variances (8)

A

1 controllable - diff between actual overhead costs incurred and budgeted overhead costs based on a flexible budget. Refers to activities under management’s control
2 volume variance - diff between actual volume of production and standard volume of production. Based on FIXED overhead.

50
Q

5 steps to managerial decision making (10)

A 
1 define the decision task
2 identify alternative courses of action
3 collect relevant info and evaluate each 
alternative 
4 select the preferred course of action
5 analyze and assess decisions made
51
Q

reason to use incremental costs vs historical data (10)

A

incremental is a more specific way to find out if additional volume will truly be cost effective or create additional revenue

52
Q

scrap or rework analysis (10)

A

analysis to decide if it is more cost effective to scrap or rework a line or process (like a make-or-buy analysis, or sell or process analysis, or decision to keep or replace equipment)

53
Q

considerations when dedicating time to producing different lines in the product mix (10)

A

1 machine hours required (must factor that into cost per product to make valid comparison)
2 demand limits - never produce more of a product than demand will justify

54
Q

Segment elimination: avoidable and unavoidable expenses (10)

A
  • avoidable - (aka escapable) are amounts company would not incur if it eliminated the segment
  • unavoidable (inescapable) - amounts that would continue even if it was eliminated

*eliminate if revenues are less than avoidable expenses (will operate at a loss)

55
Q

capital budgeting def (11)

A

process of analyzing alternative long-term investments and deciding which assets to acquire or sell
*objective is satisfactory ROI

56
Q

4 reasons why capital budgeting is risky (11)

A

1 the outcome is uncertain
2 large amounts of money are involved
3 investment involves a long-term commitment
4 the decision could be difficult or impossible to reverse, no matter how poor it turns out to be

57
Q

investment analysis not using time values of money (11)

A

1 payback period
*payback period = cost of investment / annual net cash flow
*short period is preferred
2 accounting rate of return
*ARR = annual after-tax net income / annual average investment

58
Q

2 investment analysis that do use time value of money (11)

A

1 net present value
*discounted future net cash flows - investment
*if >= 0, accept project
2 internal rate of return
*rate that yields an NPV of 0 for investment
*if >=0, accept project

59
Q

hurdle rate def (11)

A

minimum acceptable rate of return on an investment, as set by management

60
Q

3 types of “centers” that determine what financial info is used to evaluate that dept (9)

A

1 profit center - incurs costs and generates revenues (selling departments)
2 cost center - incurs costs only (manufacturing, accounting, advertising, purchasing)
3 investment center - incurs costs and generates revenues and is responsible for effectively using center assets

61
Q

different indirect expenses and ways to allocate them (9)

A

1 wages - based on time spent in each team
2 rent - floorspace
3 advertisements - % total sales
4 machinery depreciation - # hours using machine
5 utilities - floorspace or horsepower or equipment

62
Q

departmental contribution to overhead def (9)

A

report of the amount of sales less DIRECT expenses

*better to evaluate a profit center than estimating cost when many expenses are indirect

63
Q

2 ways to evaluate performance of investment center (9)

A

1 method of estimating investment center return on total assets: ROI
= investment center net income / investment center ave invested assets
2 investment center residual income = investment center net income - target investment center net income
*even if something reduces ROI, if it increases residual income it should be considered

64
Q

cash equivalent def (12)

A

time deposit and other highly liquid investment with original maturities of 90 days or less
*cash and cash equivalents are combined for cash flow statement

65
Q

3 categories of cash receipts and cash payments (besides cash and cash equivalents) reported on the cash flow statement (12)

A

1 operating - in: customer sales, dividends, interest from borrowers; out: salaries, interest to lenders, suppliers. Collection of interest on loans is reported under ops per FASB.
2 investing - purchase and sale of short-term investments in securities of other entities, other than cash equivalents, and lending and collecting money for notes receivable
3 financing - trans and events that affect long-term liabilities and equity. Obtaining cash and repaying amounts borrowed, and receiving cash from or distributing cash to owners. GAAP requires payments of interest expense be classified here.

66
Q

source vs use in cash flow statement (12)

A
  • source - net inflow

* use - net outflow

67
Q

full-disclosure principle (12)

A

requires statement or footnote detailing non-financial investment on cash flow statement

68
Q

layout of cash flow statement (12)

A

3 sections of cash flows: Ops, investment, and financing, net increase/decrease in cash, prior period-end balance, and current period-end balance

69
Q

5 steps in preparing a cash flow statement (12)

A

1 compute net increase/decrease in cash
2 compute net cash for ops
3 compute net cash for investment activities
4 compute net cash for financing activities
5 compute net cash flow by summing 2-4

70
Q

purpose of financial statement analysis (13)

A

applies analytic tools to general-purpose financial statements and related data for making business decisions

71
Q

4 building blocks of financial statement analysis (13)

A

1 liquidity and efficiency - ability to meet short-term obligations and generate revenues
2 solvency - ability to generate future revenues and meet long-term obligations
3 profitability
4 market prospect

72
Q

5 items commonly used to analyze financial info (13)

A 
1 income statement
2 balance sheet
3 statement of stockholders' equity (retained earnings)
4 statement of cash flows
5 notes to these statements
73
Q

3 most common tools for financial statement analysis (13)

A

1 horizontal - comparison of firm’s financial condition and performance across time
*comparative sheets used to view dollar change, percent change, trend percent (line graphs are helpful)
2 vertical - comparison of firm’s financial condition and performance to base amount. Use common-size statement to track %
3 ratio - measurement of key relations between financial statement items; provide symptoms of underlying conditions. Current ratio = current assets/current liabilities

74
Q

comparative financial statement (13)

A

statement of 2 or 3 consecutive periods with side by side data for comparison

75
Q

common-size income statement (13)

A

expresses each amount as % of base amount (which is revenue)

76
Q

working capital and current ratio (financial statement analysis) and 3 additional considerations (13)

A

*working capital: current assets - current liabilities
*current ratio: current assets / current liabilities
**2:1 thought to be good credit risk in short run
1 type of business - few inventories can operate on ratio of less than 1:1
2 composition of current assets - excessive amount of receivables and inventory weakens ability to pay current liabilities. Use acid-test ratio to determine liquidity.
3 turnover rate of assets - revenues / assets

77
Q

acid-test ratio def (13) financial statement analysis

A

*reflects company’s short term liquidity

(cash + short-term investments + current receivables) / current liabilities

78
Q

debt and equity ratios (13)

A
  • gauge solvency
  • debt - % total liabilities of total assets
  • debit to equity ratio: total liabilities / total equity
79
Q

return on total assets (13)

A

net income / ave total assets

80
Q

common-size balance sheet (13)

A

uses total assets as base to calculate % of assets, liability, and equity

81
Q

AR turnover formula (13)

A

net sales / average AR, net

82
Q

inventory turnover formula (13)

A

cost of goods sold / average inventory

83
Q

day’s sales uncollected formula and purpose (13)

A

(AR, net / net sales) * 365

*shows how long it takes to collect on AR

84
Q

day’s sales inventory formula and purpose (13)

A

(ending inventory / cost of goods sold) * 365

*shows inventory liquidity

85
Q

total asset turnover formula and purpose (13)

A

net sales / ave total assets

*shows firm;s ability to use assets efficiently

86
Q

profit margin formula (13)

A

net income / net sales

87
Q

price-earnings ratio (13)

A

market price per common share / earnings per share

88
Q

dividend yield formula (13)

A

annual cash dividend per share / market price per share

MGC1 (6 decks)

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