Cost Accounting Chapter 1-4 Exam Review

8. What are the Key Success Factors?

Cost and efficiency Quality Time Innovation

What are the steps in handling an ethical conflict?

Discuss the issue with your immediate supervisor except when it appears that the supervisor is involved. Clarify relevant ethical issues by initiating a confidential discussion with an Institute of Management Accountants Ethics Counselor or other impartial advisor to obtain a better understanding of possible courses of action. Consult your own attorney as to legal obligations and rights concerning the ethical conflict.

3. Know the steps in the Decision-making process.

Identify the problem and uncertainties - determine your alternatives Obtain information - Gather information before making a decision Make predictions about the future - predictions require judgment Make decisions by choosing among alternatives - strategy is vital Implement the decision, evaluate performance, and learn - Observe the outcome

10. What are direct costs?

A cost that can be easily and conveniently traced to a specified cost object

Indirect costs?

A cost that cannot be easily and conveniently traced to a specified cost object

Fixed cost?

A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range - If a fixed cost is expressed on a per unity basis; it varies inversely with the level of activity.

Period costs

All costs in the income statement other than cost of goods sold. PC, such as marketing, distribution and customer service costs, are treated as expenses of the accounting period in which they are incurred because they are expected to benefit revenues in that period and are not expected to benefit revenues in the future periods.

Prime costs

All direct manufacturing costs

Conversion costs

All manufacturing costs other than direct material costs. Conversion costs represent all manufacturing costs incurred to convert direct materials into finished goods

Mixed costs?

Also called a semi-variable cost-is a cost that has both fixed and variable elements.

13. Know how to compute Costs of Goods Sold

Beginning Inventory of finished goods, Jan. 1, 2011 $22,000 + Cost of goods manufactured in 2011 104,000 -Ending work-in-process inventory, Dec. 31, 2011 18,000 =Cost of goods sold in 2011 $108,000

Costs of Goods Manufactured

Beginning work-in-process inventory, Jan. 1, 2011 $ 6,000 +Total manufacturing costs incurred in 2011 105,000 =Total manufacturing costs to account for 111,000 -Ending work-in-process inventory, Dec. 31, 2011 7,000 =Cost of goods manufactured in 2011 $104,000

. Know how to compute Contribution Margin

Contribution margin = Total revenues-Total variable costs Contribution margin = Contribution margin per unit x Number of units sold*

CM per unit

Contribution margin per unit = Selling price - Variable cost per unit

CM %.

Contribution margin percentage (ratio) = Contribution margin per unit/Selling price

7. Explain the term supply chain.

Describes the flow of goods, services, and info 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

Total Manufacturing Costs Incurred

Direct materials used in 2011 76,000 Direct manufacturing labor in 2011 9,000 Manufacturing overhead costs in 2011 20,000 Total manufacturing costs incurred in 2011 $105,000

Know the journal entries to record each.

Each of the above.

What are the ethical guidelines for cost accountants?

Ethical principles include: Honesty, Fairness, Objectivity and Responsibility

Know about Cost Planning and CVP.

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

11. What is cost assignment?

General term for assigning costs, whether direct or indirect, to a cost object.

14. Distinguish between inventoriable costs, Period costs, Prime costs and Conversion costs

Invent. Costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and that become costs of goods sold only when the product is sold. For manufacturing-sector companies, all manufacturing costs are inventoriabl costs.

What is sensitivity analysis?

Is a "what if" technique that managers use to examine how an outcome will change if the original predicted data are not achieved of if an underlying assumption changes. Answers what if questions.

What is a Variable Cost?

Is a cost that varies, in total, in direct proportion to changes in the level of activity? A variable cost is constant per unit.

Cost allocation?

Is a systematic way to link an indirect cost or group of indirect costs (operating costs of all metal-cutting machines) to cost objects (different products).

What is a cost driver?

Is a variable, such as the level of activity or volume that casually affects costs over a given time span? An activity is an event, task or unit of work with a special purpose-for example, designing products, setting up machines, or testing products.

12. What is 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?

Cost tracing?

Is used to describe the assignment of direct costs to a particular cost object

2. Who are the primary users of financial accounting information?

It focuses on reporting to external parties such as investors, government agencies, banks, and suppliers.

1. What is financial accounting?

It measures and records business transactions and provides financial statements that are based on GAAP.

4. What is the cost-benefit approach?

It's when the expected benefits to the company exceed the expected costs.

Who are the primary users of cost accounting information?

Managers of the organization uses cost accounting to decide how to price products and choose which products to promote.

. Know how to compute Margin of Safety.

Margin of safety = Budgeted (or actual) revenues - Breakeven revenues Margin of safety (in units) = Budgeted (or actual) sales quantity - Breakeven quantity

What is cost accounting?

Measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization. Cost and managerial accounting are interchangeable (cost management), distinction between the two are not so clear cut.

What is managerial accounting?

Measures, analyzes, and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Use to choose, communicate, and implement strategy

9. Define Ethics

Set of moral principles by which people conduct themselves personally, socially, or professionally

5. What is strategy?

Specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. Strategy describes how an organization will compete and the opportunities its managers should seek and pursue.

6. Describe the business functions in the value chain.

The sequence of business functions in which customer usefulness is added to products or services- Six business functions are: R & D, Design of products and processes, Production, Marketing (including sales), Distribution, and Customer service.