Accounting Managerial 1 - Tapis

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What is a cost​ driver? Give one example

A cost driver is a​ variable, such as the level of activity or​ volume, which causally affects total costs over a given time span. A change in the cost driver results in a change in the level of total costs. For​ example, the number of vehicles assembled is a driver of the costs of steering wheels on a​ motor-vehicle assembly line.

Choose the correct definition of a cost object

A cost object is anything for which a separate measurement of costs is desired. Examples include a​ product, a​ service, and a customer.

Choose the correct description of variable and fixed costs.

A variable cost changes in total in proportion to changes in the related level of total activity or​ volume, such as a sales commission that is a percentage of each sales revenue dollar. A fixed cost remains unchanged in total for a given time​ period, despite wide changes in the related level of total activity or​ volume, such as a fixed annual leasing cost of a machine.

​"Knowledge of technical issues such as computer technology is a necessary but not sufficient condition to becoming a successful management​ accountant." Do you​ agree? Why?

Agree. A successful management accountant requires general business skills and people skills as well as technical skills.

How does an increase in the income tax rate affect the breakeven​ point?

An increase in the income tax rate does not affect the breakeven point.

​"CVP analysis is both simple and simplistic. If you want realistic analysis to underpin your​ decisions, look beyond CVP​ analysis." Do you​ agree? Explain.

CVP analysis is​ simple, with its assumption of output as the only revenue and cost​ driver, and linear revenue and cost relationships. It is not necessarily​ simplistic, though, since the basic ideas can be expanded upon to provide useful insights in more complex​ decision-making cases.

Choose an example of how a manager can decrease variable costs while increasing fixed costs.

Changing a sales force compensation plan from a percent of sales dollars to a fixed salary.

Why do managers consider direct costs to be more accurate than indirect​ costs?

Cost​ tracing, which is used when assigning direct costs to a particular cost​ object, is more accurate than cost​ allocation, which is used to assign indirect costs to the same cost object. Allocating indirect costs is more subjective and generally more difficult to assign to a cost object than are direct costs.​ Therefore, direct costs are deemed by managers to be more accurate costs than indirect costs. When costs are​ allocated, managers are less certain whether the cost allocation base accurately measures the resources demanded by a cost​ object, and​ therefore, direct costs are considered to be more accurate.

As a new​ controller, reply to this comment by a plant​ manager: "As I see​ it, our accountants may be needed to keep records for shareholders and Uncle​ Sam, but I​ don't want them sticking their noses in my​ day-to-day operations. I do the best I know how. No bean counter knows enough about my responsibilities to be of any use to​ me."

Demonstrate to the plant manager a good knowledge of the technical aspects of the plant and spend some time on the plant floor speaking to plant personnel to get a better understanding of the facility.

Distinguish direct costs from indirect costs.

Direct costs are related to the particular cost object and can be traced to that cost object in a​ cost-effective way while indirect costs are related to the particular cost object but cannot be traced to that cost object in a​ cost-effective way.

What are three different types of inventory that manufacturing companies​ hold?

Direct​ materials, work-in-process, and finished goods

Distinguish between inventoriable costs and period costs.

Inventoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold when the product is sold. Period costs are all costs in the income statement other than cost of goods sold. Period costs are treated as expenses of the accounting period in which they are incurred because they are expected to not benefit future periods.

What is operating​ leverage? How is knowing the degree of operating leverage helpful to​ managers?

It describes the effects that fixed costs have on changes in operating income as changes occur in units sold and contribution margin. Knowing the degree of operating leverage at a given level of sales helps managers calculate the effect of fluctuations in sales on operating income.

How can management accountants help improve quality and achieve timely product​ deliveries?

Management accountants analyze and evaluate the costs and benefits of both financial and​ non-financial information, to suggest new quality initiatives such as TQM or providing faster customer service.

​"Management accounting should not fit the straitjacket of financial​ accounting." Explain and give an example.

Management accounting does not have to comply with the same standards of financial accounting such as generally accepted accounting principles.

How does management accounting differ from financial​ accounting?

Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles​ (GAAP).

Identify how​ manufacturing-, merchandising-, and​ service-sector companies differ from each other.

Manufacturing-sector companies purchase materials and components and convert them into various finished​ goods, for example automotive companies and textile companies. ​Merchandising-sector companies purchase and then sell tangible products without changing their basic​ form, for example retail stores and distribution companies. S​ervice-sector companies provide services or intangible products to their​ customers, for example legal advice or audits.

​"There is no such thing as a fixed cost. All costs can be​ 'unfixed' given sufficient​ time." Do you​ agree? What is the implication of your answer for CVP​ analysis?

Many items classified as a fixed in the short run may become variable costs with a longer time horizon​ (period of time for a​ decision). CVP is not made any less relevant when the time horizon lengthens.

Distinguish between operating income and net income.

Net income takes into account income​ taxes, whereas, operating income does not take income taxes into account.

​"Management accounting deals only with​ costs." Do you​ agree? Explain.

No. Management accounting​ measures, analyzes, and reports financial and​ non-financial information that helps managers define the​ organization's goals, and make decisions to fulfill them.

Distinguish planning decisions from control decisions.

Planning decisions focus on selecting organization​ goals, predicting results under various alternative ways of achieving those​ goals, deciding how to attain the desired​ goals, and communicating the goals and how to attain them to the entire organization.Control decisions focus on taking actions that implement the planning​ decisions, deciding how to evaluate​ performance, and what related feedback to provide that will help future decision making.

The business functions in the value chain​ include:

Research and​ development, Design of​ products, services or​ processes, Production,​ Marketing, Distribution, and Customer service.

Select the description of sensitivity analysis and how the advent of electronic spreadsheets has affected its use.

Sensitivity analysis is the​ "what-if" technique that managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes. The advent of the electronic spreadsheet has greatly increased the ability to explore the effect of alternative assumptions at minimal cost.

Choose an example of how a manager can increase variable costs while decreasing fixed costs.

Subcontracting a component to a supplier on a​ per-unit basis to avoid purchasing a machine with a high fixed depreciation cost.

Explain the term​ "supply chain" and its importance to cost management.

Supply chain describes the flow of​ goods, services, and information from the initial sources of materials and services to the delivery of products to​ consumers, regardless of whether those activities occur in the same organization or in other organizations. Cost management is most effective when it integrates and coordinates activities across all companies in the supply chain as well as across each business function in an individual​ company's value chain.

Why is it more accurate to describe the subject matter of this chapter as CVP analysis rather than as breakeven​ analysis?

The breakeven analysis only denotes the study of the breakeven point. ​Cost-volume-profit is a more comprehensive term than breakeven analysis. The breakeven point is an incidental part of the relationship between​ cost, volume, and profit.

Where does the management accounting function fit into an​ organization's structure?

The controller is the chief management accounting executive. The corporate controller reports to the chief financial​ officer, a staff function. Companies also have business unit controllers who support business unit managers or regional controllers who support regional managers in major geographic regions.

What is the relevant​ range? What role does the​ relevant-range concept play in explaining how costs​ behave?

The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question. Costs are described as variable or fixed with respect to a particular relevant range.

Why must unit costs often be interpreted with​ caution?

Unit costs are computed by dividing some amount of total costs by the related number of units. In many​ cases, the total costs include a fixed cost that will not change despite changes in the number of units.​ Therefore, it can be misleading to multiply the unit cost by activity or volume change to predict changes in total costs at different activity or volume levels.

Factors affecting the classification of a cost as direct or indirect include

materiality of the​ cost, available​ information-gathering technology, and design of operations.

A management accountant can help formulate a strategy by

providing information about the sources of competitive​ advantage, such as the​ cost, productivity, or efficiency advantage of their company relative to competitors.

​Cost-volume-profit analysis examines

the behavior of total​ revenues, total​ costs, and operating income as changes occur in the output​ level, selling​ price, variable cost per​ unit, or fixed costs of a product.

Name the four areas in which standards of ethical conduct exist for management accountants in the United States. What organization sets forth these​ standards?

​(1) Competence,​ (2) Confidentiality,​ (3) Integrity, and​ (4) Credibility. These standards are set by the Institute of Management Accountants​ (IMA).

What three guidelines help management accountants provide the most value to​ managers?

​(1) Employ a​ cost-benefit approach,​ (2) Recognize behavioral and technical​ considerations, and​ (3) Apply the​ "different costs for different​ purposes" notion

The​ five-step decision-making process​ includes:

​(1) Identifying the problem and​ uncertainties, (2) Obtaining​ information, (3) Making predictions about the​ future, (4) Making decisions by choosing among​ alternatives, and​ (5) Implementing the​ decision, evaluating performance and learning.

Describe three methods that managers can use to express CVP relationships.

​Equation, contribution​ margin, and graph method


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