Fast Track: Chapter 9

—The costs that are assigned to a particular product or segment but that are not actually caused by that product or segment. If a product or segment is dropped, the indirect costs assigned to that product or segment will remain.

Indirect

Assume that Lily Company has total fixed costs of $48,000 for the period. Each unit sells for $40. The variable cost per unit is $24. How many units must be sold to break even?

Answer: 3,000 Break even: $40x - $24x - $48,000 = $0 x = 3,000

What is the first step a business professional should take when confronted with a situation that may involve an ethical conflict?

Answer: All of these are correct

Long-run planning involves which one of the following processes?

Answer: Capital budgeting

The top accountant in most large organizations is usually called the:

Answer: Controller

The first step in management planning is:

Answer: Defining the problem

Costs that are specifically traceable to a unit of business are known as which of the following costs to that unit?

Answer: Direct

Which of the following would NOT be included in manufacturing overhead?

Answer: Direct labor

What is the first step a business professional should take when confronted with a situation that may involve an ethical conflict?

Answer: Discuss the problem with the immediate supervisor.

The cost of milk for an ice cream manufacturer would be considered all of the following EXCEPT:

Answer: Indirect cost

Providing information for planning, controlling, and evaluating is a function of:

Answer: Management accounting

Good management accounting is motivated by:

Answer: Management's desire to improve

Utility expense in a merchandising company would be considered a(n):

Answer: Period cost

The process of making decisions about future operations is called:

Answer: Planning

Miscellaneous materials used by sales managers should be accounted for as:

Answer: Selling expense

Production prioritizing is:

Answer: The continual evaluation of the profitability of the various product lines and divisions.

___________ involves a process of tracking actual performance.

Controlling

—A future cost that can be changed by a decision made now. An example is monthly rent for an apartment.

Differential

—The costs that are created by a particular product or segment that is being analyzed. If a product or segment is dropped, the direct costs created by that product or segment will disappear.

Direct

—The cost of the wages of the workers who are assembling the direct materials into the finished product. In producing an automobile, the direct labor cost is the compensation cost of the auto workers on the assembly line.

Direct labor

—The cost of the primary raw materials used in production. In producing french fries, the direct materials cost is the cost of the potatoes.

Direct materials

involves analyzing results, providing feedback to managers and other employees, rewarding performance, and identifying problems.

Evaluating

Exists to serve the need for organizations to periodically report results to outside investors and lenders in a consistent and comparative manner

Financial Accounting

Is legislated and governed by regulatory agencies and professional institutions

Financial Accounting

Results in only financial data that are public and reported in a consistent manner to investors and creditors

Financial Accounting

Uniform across companies (generally accepted accounting principles) Restricted to financial data Data often made public Used primarily by investors and creditors in deciding whether to provide capital to the company

Financial Accounting:

—A cost that doesn't change based on changes in the level of sales or production. Examples are building rent and executive salaries.

Fixed

Strategic planning Capital budgeting

Long-run planning

Evolves from the best practices of companies working to be competitive

Management Accounting

Exists to serve the competitive needs of organizations working to uniquely serve specific customers in specific markets

Management Accounting

Results in both financial and nonfinancial data that are proprietary (ie., guarded from becoming available to competitors and the general public)

Management Accounting

Unique competitive tool Both financial and nonfinancial data Usually kept secret within the company Used for internal planning, control, and evaluation

Management Accounting:

—All factory costs that are not direct materials or direct labor. Examples are factory supervisor salaries, factory building depreciation, and miscellaneous indirect materials such as glue or screws.

Manufacturing overhead

—The benefits not received because of actions NOT taken. For example, the opportunity cost of going to a basketball game is the increased points that you could have received on the next day's accounting exam if you had spent that time studying.

Opportunity

—Costs that involve the outlay of cash or the use of some other asset (like equipment).

Out-of-pocket

—A cost incurred outside the factory or production facility. These costs are reported as an expense in the period in which they are incurred.

Period

—A cost incurred as part of the production process. Operationally, these are the costs incurred in the factory. These costs are first reported as an asset (inventory) and then as an expense (cost of goods sold) when the product is sold.

Product

Production and process prioritizing Operational budgeting (profit planning)

Short-run planning

—A past cost that cannot be changed by any decision made now. An example would be last month's paid rent.

Sunk

_________, on the other hand, are past costs that cannot be changed as the result of a future decision.

Sunk costs

—A cost that changes directly with changes in the level of sales or production. Examples are materials costs and sales commissions.

Variable

Product cost: manufacturing company

cost of manufacturing the product, including direct materials, direct labor and manufacturing overhead.

Good management accounting is a ______ tool.

competitive

The chief accountant in most organizations is the ._________

controller

Product Cost: Merchandising company

cost incurred in purchasing goods from suppliers

Product cost: service company

cost of providing services, including direct labor and service overhead

Those persons involved with _____ management accounting information will occasionally confront ethical issues inside the organization.

creating

__________ of a decision—sometimes called avoidable costs, incremental costs, or relevant costs—are the future costs that change as a result of that decision

differential costs

The Institute of Management Accountants (IMA) provides guidance on_________ professional practice to help professionals involved in management accounting processes.

ethical