Managerial Accounting
3 guidelines that 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
How can a company with multiple products compute its breakeven point?
The breakeven point can be computed by assuming there is a constant sales mix of products at different levels of total revenue
In CVP analysis, gross margin is a less-useful concept than contribution margin
gross margin calculations emphasize the distinction between manufacturing and nonmanufacturing costs. Contribution margin calculations emphasize the distinction between fixed and variable costs. Hence, contribution margin is a more useful concept than gross margin in CVP analysis
5 step decision making process
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.
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.
what are three types of inventory that manufacturing companies hold?
Direct materials, work-in-process, and finished goods
T/F) management accounting has to comply with the generally accepted accounting principles
F
what organization supports the growth and professionalism of management accounting practice?
IMA
does management accounting only deal with costs?
No. It also measures, analyzes, and reports financial and non-financial information that helps managers define the organization's goals, and make decisions to fulfill them
How does an increase in the income tax rate affect the breakeven point?
TRICK QUESTION. An increase in the income tax rate does not affect the breakeven point.
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.
period costs
all costs in the income statement other than cost of goods sold and are treated as expenses of the accounting period in which they are incurred because they are expected to not benefit future periods
inventorial costs
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.
indirect costs
are related to the particular cost object but cannot be traced to that cost object in a cost-effective way
cost driver
a variable, such as the level of activity or volume, which causally affects total costs over a given time span
What four areas of ethical conduct are set forth by the IMA
competence, confidentiality, integrity, credibility
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
determining if a cost is direct or indirect
materiality of the cost, available information-gathering technology, and design of operations
What are three common features of cost accounting and cost management?
obtaining information for planning and control and performance evaluation, calculating the cost of products, services, and other cost objects, and analyzing the relevant information for making decisions
Direct costs
related to the particular cost object and can be traced to that cost object in a cost-effective way
Business functions in the value chain
research and development, design of products, services or processes, production, marketing, distribution, customer service
relevant range
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
