Unit 6

Question 1

Source, Purpose, Outcome of Managerial accounting

Answer 1

Source - internal best practices to be competitive, no legislation
Purpose - serve competitive needs to serve customer requirements
Outcome - proprietary data, confidential

Question 2

Types of managerial accounting statements

Answer 2

Revenues by Product Line
Product Line Income statements
Product line profitability
Cost Center report

Question 3

Title of person who usually prepares Managerial accounting information.

Answer 3

Cost Accountant/Cost Accounting Manager

Question 4

3 functions of managerial accounting

Answer 4

Planning
Controlling
Evaluating

Question 5

2 types of planning for managerial accounting info

Answer 5

Long run - strategic planning, capital budget

Short run - production/process prioritizing, operational budgeting (profit planning)

Question 6

capital budgeting

Answer 6

planning for long term assets

Question 7

production prioritizing

Answer 7

analyzing product lines and division profitability to find profit improvement opportunities

Question 8

Operational budgeting, alternate names

Answer 8

managerial planning decisions for short term (< 1y) operations, characterized by regularity and frequency
aka profit plans
communicate daily, weekly, monthly goals (standards)

Question 9

Describe Controlling function in mgr accting

Answer 9

tracking actual performance
measure deviation from standards (variances)
manage day to day business processes

Question 10

Describe Evaluating function in mgr accting

Answer 10

analyze results, provide feedback, reward performance, identify problems

Question 11

three types of businesses

Answer 11

Manufacturing - product and period costs
Service - mostly only period costs
Merchandise - product and period costs

Question 12

product vs period costs

Answer 12

product - associated with a product, usually all costs associated with production facility
period - not directly related to a product, service, asset, charged as expense to income statement in period where it occurs.

Question 13

3 different types of manufacturing costs

Answer 13

Direct materials - raw materials
Direct Labor - wages of employees who work directly on products
Manufacturing overhead - all other costs, ie factory supervisor, utilities

Question 14

inventories in manufacturing process

Answer 14

raw materials
work in process
finished goods

Question 15

cost of goods manufactured statement

Answer 15

summary of total costs of goods manufactured and transferred out of the work in process inventory
includes direct materials, direct labor, overhead
supports income statement by providing input to COGS

Question 16

Cost of goods sold statement

Answer 16

Cost of goods manufactured, plus beginning inventory and minus ending inventory of finished goods
internal, confidential

Question 17

indirect labor and materials

Answer 17

labor and materials not directly associated with creating the product, but are still included in GOGM
included Manufacturing Overhead

Question 18

one important difference between manufacturers and service providers

Answer 18

service providers don’t have significant raw material costs

Question 19

direct labor costs in service business

Answer 19

creative efforts by employees

Question 20

overhead costs in service business

Answer 20

support infrastructure, management costs

Question 21

work in process services

Answer 21

resources invested into a creating a service that customer has not yet received
includes materials, labor and overhead

Question 22

How are inventory costs related to merchandise inventory expensed?

Answer 22

as a period cost

under selling and general admin expense on income statement

Question 23

formula for income statement for mfgr

Answer 23

Net Income = Revenue - COGS - Operating expenses

Question 24

formula for income statement for merchandiser

Answer 24

Net Income = Revenue - COGS - Operating expenses

Question 25

diff between income statements for merch and mfgr

Answer 25

Net Purchases instead of COGM | merchandise vs goods inventories

Question 26

income statement for service business

Answer 26

Net Income = Revenue - Operating expenses | no COGS

Question 27

CVP analysis

Answer 27

Cost Volume Profit seeing how changes in revenue, cost, activity level impact profits determine what activity level is needed to make reasonable profit classify all costs as either fixed or variable

Question 28

variable costs

Answer 28

costs that change in direct proportion to activity level

Question 29

basic concept of CVP

Answer 29

margin between revenue and variable costs must first be used to cover fixed costs

Question 30

stepped costs

Answer 30

costs that change in stair step fashion in proportion to activity changes

Question 31

mixed costs

Answer 31

costs that have both variable and fixed components

Question 32

2 most important concepts of CVP

Answer 32

1. important for planning operations and profitability | 2. must identify appropriate key activity to measure and know how costs react to changes in that activity

Question 33

examples of variable costs

Answer 33

sales commissions materials hourly labor

Question 34

relevant range

Answer 34

range of operating level where changes in variable costs are proportional to activity changes per unit variable costs are fixed within relevant range

Question 35

economy of scale

Answer 35

decreasing costs per unit as activity increases for fixed costs per unit fixed costs vary within relevant range

Question 36

example of mixed cost

Answer 36

sales employee who gets salary plus commission

Question 37

indirect costs are usually variable for fixed?

Answer 37

fixed

Question 38

steps in Accounting for mfging overhead

Answer 38

1. estimate mfg overhead at start of year 2. as costs are incurred, record actual mfg overhead as debits (additions) to mfg overhead 3. as activity occurs, record applied mfg overhead as credits to (subtractions) to mfg overhead 4. compare actual and applied overhead balances, close out difference

Question 39

Estimated mfg overhead

Answer 39

budgeted overhead costs for upcoming year used to calculate overhead rate applied to production in upcoming period unit overhead rate determined by estimated overhead cost divided by total activity (ie total labor hours)

Question 40

Actual mfg overhead

Answer 40

mfg costs outside direct material and labor | recorded as mfg costs

Question 41

Applied mfg overhead

Answer 41

amount of overhead applied to goods produced during upcoming period uses predetermined rate to apply mfg overhead used because actual overhead costs are too sporadic to be used throughout the year

Question 42

underapplied vs overapplied mfg overhead

Answer 42

underapplied - actual > applied, leads to under charging for products, losing money overapplied - actual < applied, leads to over charging for products, losing customers

Question 43

contribution margin

Answer 43

difference between total sales and variable costs used to pay fixed costs and provide profit calculated as total and per unit - costs separated by behavior

Question 44

contribution margin in relation to fixed cost with regard to breaking even

Answer 44

must be equal to break even

Question 45

benefit of using contribution margin

Answer 45

arranges income statement by behavior, easier to see affect of changes in activity volume on profit

Question 46

What key values can CVP be used to determine?

Answer 46

Net Income Break even number of units number of units required to reach a given profit target

Question 47

Limitation of CVP

Answer 47

not all costs can be neatly broken into fixed or variable

Question 48

Which two costs are equal at the break even point?

Answer 48

Total Revenue and Total Costs

Question 49

differential costs definition, alternate names

Answer 49

future costs that change as a result of a decision aka incremental, relevant identical to direct cost

Question 50

sunk costs

Answer 50

past costs that can't be changed as a result of a future decision not dependent on any decision

Question 51

out of pocket costs vs opportunity costs

Answer 51

out of pocket - costs that require an outlay of cash or other resources opportunity - lost benefits by choosing one decision over another

Question 52

contribution margin equation

Answer 52

Sales Revenue - Variable Costs

Question 53

Break Even Point formula

Answer 53

Sales Revenue - Variable Costs - Fixed Costs = $0

Question 54

CVP equation

Answer 54

Sales Revenue - Variable Costs - Fixed Costs = profit

Question 55

return on sales ratio

Answer 55

pct net income of sales | way of setting goal in CVP as % return instead of $ amount

Question 56

variable cost ratio

Answer 56

ratio of variable cost to sales | expresses activity in term of sales $

Question 57

contribution margin ratio

Answer 57

ratio of contribution margin to total sales useful for comparing profitability of various products % sales left after variable costs are deducted