Exam 1 - Managerial

at break even target profit is

$0

unit sales to attain target profit

(Target Profit + Fixed Expenses) / CM per unit

dollar sales to attain target profit

(target profit + fixed expenses) / CM ratio

skills managers need to succeed

- strategic management - enterprise risk management - process management - measurement skills - leadership skills

why have ethical standards

-essential for a smooth functioning economy -Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer -w/o it would lead to a lower quality of life with less desirable goods and services at higher prices

planning

-establish goals - specify how to achieve gals - develop budgets

regression method rather than high-low

-most accurate to split mixed costs into variable + fixed - b/c it uses all the points

nonvalue-added activities

-moving parts - storing; transportation - assembly down time - rework defective products - inspections

High-Low Method to estimate costs

1. (high - low)cost / (high - low)units = VC per unit 2. VC per unit X high or low unit point = Total VC 3. Total cost of chosen point - total VC

Seven Key Differences between Financial and Managerial Accounting

1. users 2. time focus 3. verifiability versus relevance 4. precision versus timeliness 5. subject 6. rules 7. requirement

underapplied overhead

Added to the cost of the goods sold

Cost of goods manufactured schedule

Beginning WIP - direct materials (transferred out of inventory) + direct labor + MOH (POHR*allocation base) = total in WIP -ending WIP = Total costs manufactured

decision making

Choosing among competing alternatives.

Degree of Operating Leverage

Contribution Margin / Net Operating Income **the lower the better

Contribution Margin Ratio %

Contribution Margin / Sales

quality costs

Costs incurred to prevent defective products from falling into hands of customers or as a result of defective units

Predetermined Overhead Rate (POHR)

Estimated Manufacturing Overhead Costs/ Estimated Allocation Base

Direct costs examples

Monetary cost. Medical treatment, new equipment, job accommodations, drug tests, medical supplies, ambulance.

Manufactoring overhead applied

POHR X actual allocation base

Prime and Conversion Costs

Prime Costs = Direct Materials + Direct Labor Conversion Costs = Direct Labor + Manufacturing Overhead

value-added activities

R&D, product design, manufacturing, marketing, distribution, customer service

Traditional Format Income Statement

Sales (-) Cost of goods Sold = Gross Margin (-) Selling & Admin Expenses = Net Operating Income

Contribution Format Income Statement

Sales (-) Variable expenses = Contribution margin (-) Fixed expenses = Net operating income

_________________ are period costs under generally accepted accounting principles

Selling and administrative expenses

difference between ethical standards and ethical principles

The Standards more precisely specify the boundaries of ethical conduct

Margin of Safety in Dollars

Total Sales - Break Even Sales

____________ format income statements are widely used for preparing external financial statements Traditional or Contribution

Traditional

A cost can be direct or indirect. The classification can change if the cost object changes. True or False

True

as soon as they cut the strap on the tires it becomes what

Work in process (WIP) - as soon as it gets taken out of direct materials inventory

Statistical Process Control

a charting technique used to monitor the quality of work being done in a workstation for the purpose of immediately correcting any problems

sunk cost

a cost that has already been paid and cannot be recovered

differential costs

a difference in cost between two alternatives

Operating Leverage

a measure of how sensitive net operating income is to percentage changes in sales

Enterprise Risk Management

avoid + accept + reduce + share risk

Guidelines for ethical behavior

competence, confidentiality, integrity, credibility

The ___________ format income statement is used as an internal planning and decision-making tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management performance appraisals, and budgeting Traditional or Contribution

contribution

prevention costs

costs associated with preventing defects before they happen

internal failure costs

costs incurred as a result of identifying defective products before shipped

appraisal costs

costs incurred to identify defective products before the products are shipped to customers

external failure costs

costs incurred when a product or service that is defective is already delivered

A ____________ in production will ordinarily result in a decrease in fixed production costs per unit Increase or Decrease

decrease

oversupplied overhead

deduct from cost of goods sold

quality of conformance

degree of which the goods + services meets or exceeds its design specifications and is free of defects

difference between direct and indirect costs

direct costs = variable costs or product indirect = fixed costs or period

Conversion cost is the sum of _____________ and ____________

direct labor cost and manufacturing overhead cost

Manufacturing Costs

direct materials + direct labor + manufacturing overhead

margin of safety in units

expected sales in units - break even sales in units

5. subject

financial: companywide reports managerial: segment reports

1. users

financial: external persons who make financial decisions managerial: managers who plan and control organization; documents stay within organization

2. time focus

financial: historical perspective managerial: future emphasis

7. requirement

financial: mandatory for eternal reports managerial: not mandatory

6. rules

financial: must follow GAAP and prescribed formats managerial: not bound by GAAP or any other prescribed formats

3. verifiability versus relevance

financial: objectivity and verifiability managerial: relevance

4. precision versus timeliness

financial: precision managerial: timelines

quality circles

groups of workers who meet to discuss ways of improving quality

Wages paid to production supervisors would be classified as _____________

manufacturing overhead

Margin of Safety Percentage

margin of safety in dollars / total sales

Committed fixed costs represent organizational investments with a ___________ planning horizon Multi-year or One-year

multi-year

In a traditional format income statement, the gross margin minus selling and administrative expenses equal...

net operating income

if sales increase/decrease by ____% how much does operating profit increase/decrease by

operating leverage X ____%

3 vital activities that managerial accountants perform

planning, controlling, decision making

quality cost report

prevention costs, appraisal costs, external and internal failure costs

Unadjusted cost of goods sold

selling price per unit (total costs manufactured/total units produced) *units sold

does financial use traditional or contribution format

tradition

The concept of the relevant range does apply to _____________

variable costs

opportunity cost

whatever must be given up to obtain some item