Managerial Accounting
"Variable costs and differential costs mean the same thing" Do you agree? Explain (Ch. 13)
"All future costs are relevant in decision making" Do you agree? Why? (Ch. 13)
Prentice Company is considering dropping one of its product lines. What costs of the product line would be relevant to this decision? What costs would be irrelevant? (Ch. 13)
"If a product is generating a loss, then it should be discontinued" Do you agree? Explain (Ch. 13)
Should standards be used to identify who to blame for problems? (Ch. 10)
"Our workers are all under labor contracts; therefore, our labor rate variance is bound to be zero." Discuss. (Ch. 10)
Are variable costs always relevant costs? Explain (Ch. 13)
"Sunk costs are easy to spot- they're the fixed costs associated with a decision." Do you agree? Explain (Ch. 13)
Compute the variable manufacturing overhead rate and efficiency variances and explain their significance. (LO10-3)
(Appendix 10A) Compute and interpret the fixed overhead budget and volume variances. (LO10-4)
Prepare a performance report with more than one cost driver that combines activity variances and revenue and spending variances. (LO9-6)
(Appendix 10B) Prepare an income statement using a standard cost system. (LO10-5)
(Appendix 13A) Analyze pricing decisions using value-based pricing. (LO13-10)
(Appendix 13A) Compute the target cost for a new product or service. (LO13-11)
(Appendix 13A) Compute the selling price of a product using the absorption costing approach to cost-plus pricing. (LO13-8)
(Appendix 13A) Understand how customers' sensitivity to changes in price should influence pricing decisions. (LO13-9)
(Appendix 14A) Understand present value concepts and the use of present value tables. (LO14-7)
(Appendix 14C) include income taxes in a net present value analysis. (LO14-8)
(Appendix 2A) Use activity based absorption costing to compute unit product costs. (LO2-5)
(Appendix 2B) Understand the implications of basing the predetermined overhead rate on activity at capacity rather than an estimated activity for the period. (LO2-6)
Why are multiple overhead rates, rather than a plantwide overhead rate, used in some companies? (Ch. 2)
(Appendix 3A) Use microsoft excel to summarize the flow of costs in a job-order costing system. (LO3-5)
(Appendix 4A) How do you compute the cost per equivalent unit using the FIFO method? (LO4-7)
(Appendix 4A) How do you assign costs to units using the FIFO method? (LO4-8)
How do you prepare a cost reconciliation report using the weighted-average method? (LO4-5)
(Appendix 4A) How do you compute the equivalent units of production using the FIFO method? (LO4-6)
(Appendix 4A) How do you prepare a cost reconciliation report using the FIFO method? (LO4-9)
(Appendix 4B) How do you allocate service department costs to operating departments using the direct method? (LO4-10}
(Appendix 5A) Analyze a mixed cost using a scattergraph plot and the high-low method. (LO5-10)
(Appendix 5A) Analyze a mixed cost using a scattergraph plot and the least-squares regression method. (LO5-11)
Compute companywide and segment break-even points for a company with traceable fixed costs. (LO6-5)
(Appendix 6A) Prepare an income statement using super-variable costing and reconcile this approach with variable costing. (LO6-6)
(Appendix 7A) Use time driven activity-based costing to assign costs to cost objects. (LO7-6)
(Appendix 7A) Use time driven activity-based costing to analyze capacity. (LO7-7)
Activity Cost Pool
A "bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system. (p. 306)
Activity Cost Pool
A "bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system. (p. 89)
Cost-Plus Pricing
A Pricing method in which a predetermined markup is applied to a cost base to determine the target selling price. (p. 71)
Relevant Benefit
A benefit that should be considered when making decisions. (p. 39)
Relevant benefit
A benefit that should be considered when making decisions. (p. 571)
Planning Budget
A budget created at the beginning of the budgeting period that is valid only for the planned level of activity. (p. 407)
Ending Finished Goods Inventory Budget
A budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet. (p. 369)
How do the direct and the indirect methods differ in their approach to computing the net cash provided by operating activities? (Ch. 15)
A business executive once stated, "Depreciation is one of our biggest operating cash inflows." Do you agree? Explain (Ch. 15)
Profit Center
A business segment whose manager has control over cost and revenue but has no control over investments in operating assets. (p. 499)
Cost Center
A business segment whose manager has control over cost but has no control over revenue or investments in operating assets. (p. 499)
Investment Center
A business segment whose manager has control over cost, revenue, and investments in operating assets. (p. 499)
If a stock's market value exceeds its book value, then the stock is overpriced. Do you agree? Explain (Ch. 16)
A company seeking a line of credit at a bank was turned down. Among other things, the bank stated that the company's 2 to 1 current ratio was not adequate. Give reasons why a 2 to 1 ratio might not be adequate. (Ch. 16)
Strategy
A company's "game plan" for attracting customers by distinguishing itself from competitors. (p. 11)
Strategy
A company's "game plan" for attracting customers by distinguishing itself from competitors. (p. 536)
Current Ratio
A company's current assets divided by its current liabilities. (p. 741)
Corporate Social Responsibility
A concept whereby organizations consider the needs of all stakeholders when making decisions. (p. 16)
Corporate Social Responsibility
A concept whereby organizations consider the needs of all stakeholders when making decisions. (p. 550)
Detective Control
A control that detects undesirable events that have already occurred. (p. 14)
Preventive Control
A control that deters undesirable events from occurring. (p. 14)
Direct Cost
A cost that can be easily and conveniently traced to a specified cost object. (p. 24)
Avoidable Cost
A cost that can be eliminated by choosing one alternative over another in a decision. This term is synonymous with differential cost and relevant cost. (p. 571)
Indirect Cost
A cost that cannot be easily and conveniently traced to a specified cost object. (p. 28)
Mixed Cost
A cost that contains both variable and fixed cost elements. (p. 37)
Sunk Cost
A cost that has already been incurred and that cannot be changed by any decision made now or in the future. (p. 40)
Sunk Cost
A cost that has already been incurred and that cannot be changed by any decision made now or in the future. (p. 572)
Common Cost
A cost that is incurred to support a number of cost objects but that cannot be traced to them individually. For example, the wage cost of the pilot of a 747 airliner is a common cost of all of the passengers on the aircraft. Without the pilot, there would be no flight and no passengers. But no part of the pilot's wage is caused by any one passenger taking the flight. (p. 28)
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 unit basis, it varies inversely with the level of activity. (p. 34)
Relevant Cost
A cost that should be considered when making decisions. (p. 39)
Relevant Cost
A cost that should be considered when making decisions. (p. 571)
Variable Cost
A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit. (p. 33)
Activity-Based costing (ABC)
A costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs. (p. 303)
Activity-based Absorption Costing
A costing method that assigns all manufacturing overhead costs to products based on the activities performed to make those products. (p. 89)
Super-Variable Costing
A costing method that classifies all direct labor and manufacturing overhead costs as fixed period costs and only direct materials as a variable product cost. (p. 295)
Absorption Costing
A costing method that includes all manufacturing costs- direct materials, direct labor, and both variable and fixed manufacturing overhead- in unit product costs. (p. 104)
Absorption Costing
A costing method that includes all manufacturing costs- direct materials, direct labor, and both variable and fixed manufacturing overhead- in unit product costs. (p. 250)
Absorption Costing
A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs. (p. 61)
Variable costing
A costing method that includes only variable manufacturing costs- direct materials, direct labor, and variable manufacturing overhead- in unit product costs. (p. 250)
Process Costing
A costing method used when homogeneous products are produced on a continuous basis. (p. 149)
Normal Costing
A costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job. (p. 104)
Normal Cost System
A costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job. (p. 67)
Job-Order Costing
A costing system used in situations where many different products, jobs, or services are produced each period. (p. 104)
Job-Order Costing
A costing system used in situations where many different products, jobs, or services are produced each period. (p. 61)
Multiple Predetermined Overhead Rates
A costing system with multiple overhead cost pools and a different predetermined overhead rate for each cost pool, rather than a single predetermined overhead rate for the entire company. Each production department may be treated as a separate overhead cost pool. (p. 71)
Overapplied Overhead
A credit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost applied to Work in process is greater than the amount of overhead cost actually incurred during a period. (p. 117)
Underapplied Overhead
A debit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost applied to Work in Process is less than the amount of over-head cost actually incurred during a period. (p. 117)
Sell of Process Further Decision
A decision as to whether a joint product should be sold at the split-off point or sold after further processing. (p. 592)
Screening Decision
A decision as to whether a proposed investment project is acceptable. (p. 643)
Make or buy decision
A decision concerning whether an item should be produced internally or purchased from an outside supplier. (p. 582)
Preference Decision
A decision in which the acceptable alternatives must be ranked. (p. 643)
Operating Department
A department in which the central purposes of the organization are carried out. (p. 512)
Service Department
A department that does not directly engage in operating activities; rather, it provides services or assistance to the operating departments. (p. 512)
Engineering Approach
A detailed analysis of cost behavior based on an industrial engineer's evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs. (p. 235)
Standard Cost Card
A detailed listing of the standard amounts of inputs and their costs that are required to produce one unit of a specific product. (p. 443)
Budget
A detailed plan for the future that is usually expressed in formal quantitative terms. (p. 3) (p. 355)
Cash Budget
A detailed plan showing how cash resources will be acquired and used over a specific time period. (p. 357)
Direct Materials Budget
A detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories. (p. 365)
Production Budget
A detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs. (p. 364)
Manufacturing Overhead Budget
A detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period. (p. 368)
Direct Labor Budget
A detailed plan that shows the direct labor-hours required to fulfill the production budget. (p. 367)
Merchandise Purchases Budget
A detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period. (p. 365)
Selling and Administrative Expense Budget
A detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period. (p. 369)
Sales Budget
A detailed schedule showing expected sales expressed in both dollars and units. (p. 356)
Financial Leverage
A difference between the rate of return on assets and the rate paid to creditors. (p. 744)
Time Ticket
A document that is used to record the amount of time an employee spends on various activities. (p. 64)
Bill of Materials
A document that shows the quantity of each type of direct material required to make a product. (p. 63)
Materials Requisition Form
A document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials. (p. 63)
Cost Driver
A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs. (p. 70)
Statement of Cash Flows
A financial statement that highlights the major activities that impact cash flows and, hence, affect the overall cash balance. (p. 695)
Traceable Fixed Cost
A fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated. (p. 260)
Common Fixed Cost
A fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments. (p. 260)
Job Cost Sheet
A form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job. (p. 104)
Job Cost Sheet
A form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job. (p. 63)
Differential Cost
A future cost that differs between any two alternatives. (p. 39)
Differential Cost
A future cost that differs between any two alternatives. (p. 571)
Cost-Volume-Profit (CVP) Graph
A graphical representation of the relationships between an organization's revenues, costs, and profits on the one hand and its sales volume on the other hand. (p. 195)
Operation Costing
A hybrid costing system used when products have some common characteristics and some individual characteristics. (p. 160)
Constraint
A limitation under which a company must operate, such as limited available machine time or raw materials, that restricts the company's ability to satisfy demand. (p. 586)
Bottleneck
A machine or some other part of a process that limits the total output of the entire system. (p. 587)
Activity-Based Management (ABM)
A management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects. (p. 325)
Lean Production
A management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders. (p. 17)
Management By Exception
A management system in which actual results are compared to a budget. Significant deviations from the budget are flagged as exceptions and investigated further. (p. 406)
Allocation Base
A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects. (p. 104)
Allocation Base
A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects. (p. 65)
R^2
A measure of goodness of fit in least-squares regression analysis. It is the percentage of the variation in the dependent variable that is explained by variation in the independent variable. (p. 239)
Operating Leverage
A measure of how sensitive net operating income is to a given percentage change in unit sales. (p. 209)
Duration Driver
A measure of the amount of time required to perform an activity. (p. 306)
Price Elasticity of Demand
A measure of the degree to which a change in price affects the unit sales of a product or service. (p. 623)
Activity Base
A measure of whatever causes the incurrence of a variable cost. For example, the total cost of surgical gloves in a hospital will increase as the number of surgeries increases. Therefore, the number of surgeries is the activity base that explains the total cost of surgical gloves. (p. 33)
Free Cash Flow
A measure that assess a company's ability to fund its capital expenditures and dividends from its net cash provided by operating activities. (p. 711)
Degree of Operating Leverage
A measure, at a given level of sales, of how a percentage change in sales volume will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income. (p. 210)
Account Analysis
A method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves. (p. 234)
Direct Method
A method of computing the net cash provided by operating activities in which the income statement is reconstructed on a cash basis from top to bottom. (p. 696)
Indirect Method
A method of computing the net cash provided by operating activities that starts with net income and adjusts it to a cash basis. (p. 697)
Self-Imposed Budget
A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement. (p. 356) Participative Budget (p. 356)
High-Low Method
A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels. (p. 236)
Least-Squares Regression Method
A method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors. (p. 237)
Acid-Test (Quick) Ratio
A more rigorous test of a company's ability to meet its short-term debts than the current ratio. Inventories and prepaid expenses are excluded from total current assets, leaving only the more liquid (or "quick") assets to be divided by current liabilities. (p. 742)
Master Budget
A number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet. (p. 356)
Special Order
A one-time order that is not considered part of the company's normal ongoing business. (p. 585)
Value-Based Pricing
A pricing method in which a company establishes selling prices based on the economic value of the benefits that their products and services provide to customers. (p. 631)
Cost-Plus Pricing
A pricing method in which a predetermined markup is applied to a cost base to determine the target selling price. (p. 624)
FIFO Method
A process costing method that calculates unit costs based solely on the costs and outputs from the current period. (p. 154)
Weighted-Average Method
A process costing method that calculates unit costs by combining costs and outputs from the current and prior periods. (p. 154)
Enterprise Risk Management
A process used by a company to identify its risks and develop responses to them that enable it to be reasonably assured of meeting its goals. (p. 13)
Predetermined Overhead Rate
A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period. (p. 104)
Predetermined Overhead Rate
A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period. (p. 66)
Contribution Margin Ration (CM Ratio)
A ratio computed by dividing contribution margin by sales. (p. 198)
Variable Expense Ratio
A ratio computed by dividing variable expenses by sales. (p. 198)
Overall Equipment Effectiveness
A ratio that measures the productivity of a piece of equipment. (p. 546)
Flexible Budget
A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period. (p. 407)
Performance Report
A report that compares budgeted data to actual data to highlight instances of excellent and unsatisfactory performance. (p. 4)
Quality Cost Report
A report that details prevention costs, appraisal costs, and the costs of internal and external failures. (p. 542)
Schedule of Cost of Goods Manufactured
A schedule that contains three elements of product costs- direct materials, direct labor, and manufacturing overhead- and that summarizes the portions of those costs that remain in ending Work in Process inventory and that are transferred out of Work in Process into Finished Goods. (p. 114)
Schedule of Cost of Goods Sold
A schedule that contains three elements of product costs- direct materials, direct labor, and manufacturing overhead- and that summarizes the portions of those costs that remain in ending finished Goods inventory and that are transferred out of Finished Goods into Costs of Goods Sold. (p. 114)
Segment Margin
A segment's contribution margin less its traceable fixed costs. It represents the margin available after a segment has covered all of its own traceable costs. (p. 261)
Annuity
A series of identical cash flows. (p. 683)
Business Process
A series of steps that are followed in order to carry out some task in a business. (p. 17)
Business Process
A series of steps that are followed to carry out some task in a business. (p. 538)
Horizontal Analysis
A side-by-side comparison of two or more years' financial statements. (p. 736) Trend Analysis (p. 736)
Transaction Driver
A simple count of the number of times an activity occurs. (p. 306)
Plantwide Overhead Rate
A single predetermined overhead rate that is used throughout a plant. (p. 70)
Common-Size Financial Statements
A statement that shows the items appearing on it in percentage form as well as in dollar form. On the income statement, the percentages are based on total sales revenue; on the balance sheet, the percentages are based on total assets. (p. 738)
Benchmarking
A systematic approach to identifying the activities with the greatest potential for improvement. (p. 325)
Negotiated Transfer Price
A transfer price agreed on between buying and selling divisions. (p. 507)
Independent Variable
A variable that acts as a causal factor; activity is the independent variable, as represented by the letter X, in the equation Y = a + bX. (p. 236)
Dependent Variable
A variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y, in the equation Y = a + bX. (p. 236)
Price Variance
A variance that is computed by taking the difference between the actual price and the standard price and multiplying the result by the actual quantity of the input. (p. 445)
Quantity Variance
A variance that is computed by taking the difference between the actual quantity of the input used and the amount of the input that should have been used for the actual level of output and multiplying the result by the standard price of the input. (p. 445)
Organization-Sustaining Activities
Activities that are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. (p. 306)
Customer-Level Activites
Activities that are carried out to support customers, but that are not related to any specific product. (p. 306)
Batch-Level Activites
Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch. (p. 306)
Unit-Level Activites
Activities that are performed each time a unit is produced. (p. 306)
Product-Level Activities
Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run. (p. 306)
Out-of-Pocket Costs
Actual cash outlays for salaries, advertising, repairs, and similar costs. (p. 653)
What guideline should be used in determining whether a joint product should be sold at the split-off point or processed further? (Ch. 13)
Airlines sometimes offer reduced rates during certain times of the week to members of a businessperson's family if they accompany him or her on trips. How does the concept of relevant costs enter into the decision by the airline to offer reduced rates of this type? (Ch. 13)
Selling Costs
All costs that are incurred to secure customer orders and get the finished product or service into the hands of the customer. (p. 30)
Product Costs
All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Also see inventoriable costs (p. 31)
Administrative Costs
All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling. (p. 30)
Manufacturing Overhead
All manufacturing costs except direct materials and direct labor. (p. 29)
Relaxing (Or Elevating) the Constraint
An action that increases the amount of a constrained resource. Equivalently, an action that increases the capacity of the bottleneck. (p. 590)
Batch-Level Activity
An activity that is performed each time a batch is handled or processed, regardless of how many units are in the batch. The amount of resources consumed depends on the number of batches run rather than on the number of units in the batch. (p. 89)
Product-Level Activity
An activity that relates to specific products and typically must be carried out regardless of how many batches are run or units of product are produced and sold. (p. 89)
Activity Measure
An allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool. (p. 306)
Activity Measure
An allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity cost pool. (p. 89)
Incremental Analysis
An analytical approach that focuses only on those costs and revenues that change as a result of a decision. (p. 201)
Activity
An event that causes the consumption of overhead resources in an organization. (p. 306)
Activity
An event that causes the consumption of overhead resources in an organization. (p. 89)
Contribution Approach
An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes. (p. 42)
Incremental Cost
An increase in cost between two alternatives. (p. 39)
Incremental Cost
An increase in cost between two alternatives. (p. 571)
Balanced Scorecard
An integrated set of performance measures that are derived from and support the organization's strategy. (p. 536)
Decentralized Organization
An organization in which decision-making authority is not confined to a few top executives but rather is spread throughout the organization. (p. 498)
Processing Department
An organizational unit where work is performed on a product and where materials, labor, or overhead costs are added to the product. (p. 150)
Suboptimization
An overall level of profits that is less than a segment or a company is capable of earning. (p. 507)
Responsibility Center
Any business segment whose manager has control over costs, revenues, or investments in operating assets. (p. 499)
Raw Materials
Any materials that go into the final product. (p. 104)
Raw Materials
Any materials that go into the final product. (p. 28)
Segment
Any part or activity of an organization about which managers seek cost, revenue, or profit data. (p. 250)
Segment
Any part or activity of an organization about which managers seek cost, revenue, or profit data. (p. 3)
Cost Object
Anything for which cost data are desired. Examples of cost objects are products, customers, geographic regions, and parts of the organization such as departments or divisions. (p. 27)
Compute a predetermined overhead rate. (LO2-1)
Apply overhead cost to jobs using a predetermine overhead rate. (LO2-2)
What is the difference between absorption costing and variable costing? (Ch. 6)
Are selling and administrative expenses treated as product costs or as period costs under variable costing?
How many Work in Process accounts are maintained in a company that uses process costing? (Ch. 4)
Assume that a company has two processing departments- Mixing followed by Firing. Prepare a journal entry to show a transfer of work in process from the Mixing Department to the Firing Department? (Ch. 4)
Why aren't transactions involving accounts payable considered to be financing activities? (Ch. 15)
Assume that a company repays a $300,000 loan from its bank and then later in the same year borrows $500,000. What amount(s) would appear on the statement of cash flows? (Ch. 15)
What is the basic purpose for examining trends in a company's financial ratios and other data? What other kinds of comparisons might an analyst make? (Ch. 16)
Assume that two companies in the same industry have equal earnings. Why might these companies have different price-earnings ratios? If a company has a price-earnings ratio of 20 and reports earnings per share for the current year of $4, at what price would you expect to find the stock selling on the market? (Ch. 16)
Calculate and interpret activity variances. (LO9-2)
Calculate and interpret revenue and spending variances. (LO9-3)
Operating Assets
Cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes. (p. 500)
What is the major criticism of the payback and simple rate of return methods of making capital budgeting decisions? (Ch. 14)
Classify cash inflows and outflows as relating to operating, investing, or financing activities. (LO15-1)
Assign costs to cost pools using a first-stage allocation. (LO7-2)
Compute activity rates for cost pools. (LO7-3)
Compute and interpret financial ratios that managers use to assess liquidity. (LO16-2)
Compute and interpret financial ratios that managers use for asset management purposes. (LO16-3)
Compute and interpret financial ratios that managers use for debt management purposes. (LO16-4)
Compute and interpret financial ratios that managers use to assess profitability. (LO16-5)
Prepare a statement of cash flows using the indirect method to determine the net cash provided by operating activities. (LO15-2)
Compute free cash flow. (LO15-3)
Why can undue emphasis on labor efficiency variances lead to excess work in process inventories? (Ch. 10)
Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. (LO11-1)
Compute the degree of operating leverage at a particular level of sales and explain how it can be used to predict changes in net operating income. (LO5-8)
Compute the break-even point for a multiproduct company and explain the effects of shifts in the sales mix on contribution margin and the break-even point. (LO5-9)
Compute the direct materials price and quantity variances and explain their significance. (LO10-1)
Compute the direct labor rate and efficiency variances and explain their significance. (LO10-2)
Determine the level of sales needed to achieve a desired target profit. (LO5-6)
Compute the margin of safety and explain its significance. (LO5-7)
Rank investment projects in order of preference. (LO14-5)
Compute the simple rate or return for an investment. (LO14-6)
Compute the total cost and the unit product cost of a job using a plantwide predetermined overhead rate. (LO2-3)
Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates. (LO2-4)
Prepare schedules of cost of goods manufactured and cost of goods sold and an income statement. (LO3-3)
Compute underapplied or overapplied overhead cost and prepare the journal entry to close the balance in Manufacturing Overhead to the appropriate accounts. (LO3-4)
Source Hoover's Online, Hoovers, Inc.; website that is continually updated; www.hoovers.com
Content A site that provides capsule profiles for 10,000 U.S. companies with links to company websites, annual reports, stock charts, news articles, and industry information.
Source AMA Annual Statement Studies, Risk Management Association; published annually
Content A widely used publication that contains common-size statements and financial ratios on individual companies; the companies are arranged by industry
Source EDGAR, Securities and Exchange Commission; website that is continually updated; www.sec.gov
Content An exhaustive Internet database that contains reports filed by companies with the SEC; these reports can be downloaded.
Source Almanac of Business and Industrial Financial Ratios, Aspen Publishers; published annually
Content An exhaustive source that contains common-size income statements and financial ratios by industry and by the size of companies within each industry
Source Mergent Industrial Manual and Mergent Bank and Finance Manual; published annually
Content An exhaustive source that contains financial ratios on all companies listed on the New York Stock Exchange, the American Stock Exchange, and regional American exchanges
Source Industry Norms & Key Business Ratios, Dun & Bradstreet; published annually
Content Fourteen commonly used financial ratios are computed for over 800 major industry groupings
Source Sandard & Poor's Industry Survey, Standard & Poor's; published annually
Content Various statistics, including some financial ratios, are given by industry and for leading companies within each industry grouping.
Linear Cost Behavior
Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity. (p. 236)
Internal Failure Costs
Costs that are incurred as a result of identifying defective products before they are shipped to customers. (p. 541)
Appraisal Costs
Costs that are incurred to identify defective products before the products are shipped to customers. (p. 541)
Prevention Costs
Costs that are incurred to keep defects from occurring. (p. 541)
Joint Costs
Costs that are incurred up to the split-off point in a process that produces joint products. (p. 592)
External Failure Costs
Costs that are incurred when a product or service that is defective is delivered to a customer. (p. 541)
Period Costs
Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued. (p. 31)
Working Capital
Current assets less current liabilities. (p. 643)
Working Capital
Current assets less current liabilities. (p. 741)
Define indirect materials. (Ch. 1)
Define direct labor. (Ch. 1)
What are the three major types of product costs in a manufacturing company? (Ch. 1)
Define direct materials. (Ch. 1)
What is relevant cost? (Ch. 13)
Define incremental cost. (Ch. 13)
Define joint products. (Ch. 13)
Define joint costs. (Ch. 13)
Define indirect labor. (Ch. 1)
Define manufacturing overhead. (Ch. 1)
Define cost behavior. (Ch. 1)
Define relevant range. (Ch. 1)
Define differential cost. (Ch. 1)
Define sunk cost. (Ch. 1)
Define opportunity cost. (Ch. 13)
Define sunk cost. (Ch. 13)
Show the effects on net operating income of changes in variable costs, fixed costs, selling price, and sales volume. (LO5-4)
Determine the break-even point. (LO5-5)
Prepare an analysis showing whether a special order should be accepted. (LO13-4)
Determine the most profitable use of a constrained resource. (LO13-5)
Compute residual income and understand its strengths and weaknesses. (LO11-2)
Determine the range, if any, within which a negotiated transfer price should fall. (LO11-3)
Conversion Cost
Direct labor cost plus manufacturing overhead cost. (p. 154)
Conversion Cost
Direct labor cost plus manufacturing overhead cost. (p. 30)
What benefits result from decentralization? (Ch. 11)
Distinguish between a cost center, a profit center, and an investment center. (Ch. 11)
Compute and interpret financial ratios that managers use to assess market performance. (LO16-6)
Distinguish between horizontal and vertical analysis of financial statement data. (Ch. 16)
What's the difference between discretionary fixed costs and committed fixed costs? (Ch. 1)
Does the concept of the relevant range apply to fixed costs? Explain. (Ch. 1)
Target Profit Analysis
Estimating the level of sales needed to achieve a desired target profit. (p. 205)
Evaluate the acceptability of an investment project using the internal rate of return method. (LO14-3)
Evaluate an investment project that has uncertain cash flows. (LO14-4)
Determine the payback period for an investment. (LO14-1)
Evaluate the acceptability of an investment project using the net present value method. (LO14-2)
What is meant by the term sales mix? What assumption is usually made concerning sales mix in CVP analysis? (Ch. 5)
Explain how a shift in the sales mix could result in both a higher break-even point and a lower net operating income. (Ch. 5)
Watkins Trophies, Inc., produces thousands of medallions made of bronze, silver, and gold. The medallions are identical except for the materials used in their manufacture. What costing system would you advise the company to use? (Ch. 4)
Explain how changes in sales volume affect contribution margin and net operating income. (LO5-1)
Distinguish between a traceable fixed cost and a common fixed cost. Give several examples of each? (Ch. 6)
Explain how the contribution margin differs from the segment margin. (Ch. 6)
What is meant by an investment project's internal rate of return? How is the internal rate of return computed? (Ch. 14)
Explain how the cost of capital serves as a screening tool when using (a) the net present value method and (b) the internal rate of return method. (Ch. 14)
Direct Labor
Factory labor costs that can be easily traced to individual units of product. Also called touch labor. (p. 29)
Ratio Liquidity: Acid-Test Ratio
Formula (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities Significance Test of short-term debt-paying ability without having to rely on inventory
Ratio Asset Management: Average Collection Period
Formula 365 days / Accounts receivable turnover Significance Measures the average number of days taken to collect an account receivable.
Ratio Asset Management: Average Sale Period
Formula 365 days / Inventory turnover Significance Measures the average number of days taken to sell the inventory one time.
Ratio Asset Management: Operating Cycle
Formula Average sale period + Average collection period Significance Measures the elapsed time from when inventory is received from suppliers to when cash is received from customers.
Ratio Debt Management: Equity Multiplier
Formula Average total assets / Average stockholders' equity Significance Measures the portion of a company's assets funded by equity
Ratio Asset Management: Inventory Turnover
Formula Cost of goods sold / Average inventory balance Significance Measures how many times a company's inventory has been sold during the year.
Ratio Liquidity: Working Capital
Formula Current Assets - Current Liabilities Significance Measures the company's ability to repay current liabilities using only current assets.
Ratio Liquidity: Current Ratio
Formula Current Assets / Current Liabilities Significance Test of short-term debt-paying ability
Ratio Debt Management: Times Interest Earned Ratio
Formula Earnings before interest expense and income taxes / interest expense Significance Measures the company's ability to make interest payments
Ratio Profitability: Gross Margin Percentage
Formula Gross margin / Sales Significance Measures profitability before selling and administrative expenses
Ratio Asset Management: Total Asset Turnover
Formula Sales / Average total assets Significance Measures how efficiently assets are being used to generate sales.
Ratio Asset Management: Accounts Receivable Turnover
Formula Sales on Account / Average Accounts Receivable Balance Significance Measures how many times a company's accounts receivable have been turned into cash during the year.
Ratio Debt Management: Debt-to-Equity Ratio
Formula Total Liabilities / Stockholders' equity Significance Measures the amount of assets being provided by creditors for each dollar of assets being provided by the stockholders.
Define split-off point. (Ch. 13)
From a decision-making point of view, should joint costs be allocated among joint products? (Ch. 13)
Differential Revenue
Future revenue that differs between any two alternatives. (p. 39)
Differential Revenue
Future revenue that differs between any two alternatives. (p. 571)
What is a self-imposed budget? What are the major advantages of self-imposed budgets? What caution must be exercised in their use? (Ch. 8)
How can budgeting assist a company in planning its workforce staffing levels? (Ch. 8)
How do you compute the unadjusted cost of goods sold? (Ch. 3)
How do direct labor costs flow through a job-order costing system? (Ch. 3)
How do you compute the cost per equivalent unit using the weighted-average method? (LO4-3)
How do you assign costs to units using the weighted-average method? (LO4-4)
How do you compute the total manufacturing costs added to production within a schedule of cost of goods manufactured? (Ch. 3)
How do you compute the cost of goods manufactured? (Ch. 3)
How do you record the flow of materials, labor, and overhead through a process costing system. (LO4-1)
How do you compute the equivalent units of production using the weighted-average method? (LO4-2)
What adjustment is made for overapplied overhead on the schedule of cost of goods sold? (Ch. 3)
How do you compute the raw materials used in production? (Ch. 3)
Under absorption costing, how is it possible to increase net operating income without increasing sales? (Ch. 6)
How does Lean Production reduce or eliminate the difference in reported net operating income between absorption and variable costing? (Ch. 6)
What does a flexible budget performance report do that a simple comparison of budgeted to actual results does not do? (Ch. 9)
How does a flexible budget based on two cost drivers differ from a flexible budget based on one cost driver? (Ch. 9)
What is the danger in allocating common fixed costs among products or other segments of an organization? (Ch. 13)
How does opportunity cost enter into a make or buy decision? (Ch. 13)
Why aren't common fixed costs allocated to segments under the contribution approach? (Ch. 6)
How is it possible for a fixed cost that is traceable to a segment to become a common fixed cost if the segment is divided into further segments? (Ch. 6)
What is the meaning of contribution margin ratio? (Ch. 5)
How is the contribution margin ratio useful in planning business operations? (Ch. 5)
What is normal costing? (Ch. 2)
How is the unit product cost of a job calculated? (Ch. 2)
Give at least four examples of possible constraints. (Ch. 13)
How will relating product contribution margins to the amount of the constrained resource they consume help a company maximize its profits? (Ch. 13)
What are cost classifications used for assigning costs to cost objects: direct costs and indirect costs? (LO1-1)
Identify and give examples of each of the three basic manufacturing cost categories. (LO1-2)
Why is using sales dollars as an allocation base usually a poor choice for allocating fixed costs to operating departments? (Ch. 11)
Identify examples of performance measures that are appropriate for each of the four balanced scorecard categories. (LO12-1)
What is the Global Reporting Initiative? (Ch. 12)
Identify relevant and irrelevant costs and benefits in a decision. (LO13-1)
What factors should be considered in selecting an allocation base to be used in computing a predetermined overhead rate? (Ch. 2)
If a company fully allocates all of its overhead costs to jobs, does this guarantee that a profit will be earned for the period? (Ch. 2)
Identify two simplifying assumptions associated with discounted cash flow methods of making capital budgeting decisions. (Ch. 14)
If a company has to pay interest of 14% on long-term debt, then its cost of capital is 14%. Do you agree? Explain (Ch. 14)
What general guidelines can you provide for interpreting the statement of cash flows? (Ch. 15)
If an asset is sold at a gain, why is the gain subtracted from net income when computing the net cash provided by operating activities under the indirect method? (Ch. 15)
If the units produced exceed the units sold, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why? (Ch. 6)
If fixed manufacturing overhead costs are released from inventory under absorption costing, what does this tell you about the level of production in relation to the level of unit sales? (Ch. 6)
What is an activity variance and what does it mean? (Ch. 9)
If the actual level of activity is greater than the planned level of activity, would you expect the activity variances for variable expenses to be favorable, unfavorable, or a combination of the two? (Ch. 9)
The materials price variance can be computed at what two different points in time? Which point is better? Why? (Ch. 10)
If the materials price variance is favorable but the materials quantity variance is unfavorable, what might this indicate? (Ch. 10)
What are the arguments in favor of treating fixed manufacturing overhead costs as period costs? (Ch. 6)
If the units produced equals the units sold, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why? (Ch. 6)
What effect, if any, would you expect poor-quality materials to have on direct labor variances? (Ch. 10)
If variable manufacturing overhead is applied to production on the basis of direct labor hours and the direct labor efficiency variance is unfavorable, will the variable overhead efficiency variance be favorable or unfavorable, or could it be either? Explain. (Ch. 10)
Why is ethical behavior important to business? (Prologue)
If you are a restaurant owner, what internal controls would you implement to help maintain control of your cash? (Prologue)
Often the most direct route to a business decision is an incremental analysis. What is meant by an incremental analysis? (Ch. 5)
In all respects, Company A and Company B are identical except that Company A's costs are mostly variable, whereas Company B's costs are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain. (Ch. 5)
Net Operating Income
Income before interest and income taxes have been deducted. (p. 500)
Committed Fixed Costs
Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes. (p. 35)
Big Data
Large collections of data that are gathered from inside or outside a company to provide opportunities for ongoing reporting and analysis. (p. 9)
Pick any large company and explain three ways that it could segment its companywide performance. (Prologue)
Locate the website of any company that publishes a corporate social responsibility report (also referred to as a sustainability report). Describe three nonfinancial performance measures included in the report. Why do you think the company publishes this report? (Prologue)
What is meant by an activity base when dealing with variable costs? Give several examples of activity bases. (Ch. 1)
Managers often assume a strictly linear relationship between cost and the level of activity. Under what conditions would this be a valid or invalid assumption? (Ch. 1)
Direct Materials
Materials that become an integral part of a finished product and whose costs can be conveniently traced to it. (p. 28)
Return On Investment (ROI)
Net operating income divided by average operating assets. It also equals margin multiplied by turnover. (p. 500)
Margin
Net operating income divided by sales. (p. 501)
Define opportunity cost. (Ch. 1)
Only variable costs can be differential costs. Do you agree? Explain. (Ch. 1)
How does managerial accounting differ from financial accounting? (Prologue)
Pick any major television network and describe some planning and control activities that its managers would engage in. (Prologue)
Pick any large company and describe three risks that it faces and how it responds to those risks. (Prologue)
Pick three industries and describe how the risks faced by companies within those industries can influence their planning, controlling, and decision-making activities. (Prologue)
Prepare a budgeted income statement. (LO8-9)
Prepare a budgeted balance sheet. (LO8-10)
Prepare a selling and administrative expense budget. (LO8-7)
Prepare a cash budget. (LO8-8)
Prepare a production budget. (LO8-3)
Prepare a direct materials budget, including a schedule of expected cash disbursements for purchases of materials. (LO8-4)
Prepare an analysis showing whether a product line or other business segment should be added or dropped. (LO13-2)
Prepare a make or buy analysis. (LO13-3)
Prepare a direct labor budget. (LO8-5)
Prepare a manufacturing overhead budget. (LO8-6)
Prepare a performance report with one cost driver that combines activity variances and revenue and spending variances. (LO9-4)
Prepare a planning budget and a flexible budget with more than one cost driver. (LO9-5)
"The principal purpose of the cash budget is to see how much cash the company will have in the bank at the end of the year." Do you agree? Explain. (Ch. 8)
Prepare a planning budget and a flexible budget with one cost driver. (LO9-1)
Understand why organizations budget and the processes they use to create budgets. (LO8-1)
Prepare a sales budget, including a schedule of expected cash collections. (LO8-2)
Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ. (LO6-3)
Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions. (LO6-4)
Determine the value of obtaining more of the constrained resource. (LO13-6)
Prepare an analysis showing whether joint products should be sold at the split-off point of processed further. (LO13-7)
What is the difference between net cash provided by operating activities and free cash flow? (Ch. 15)
Prepare and interpret financial statements in comparative and common size form. (LO16-1)
What are the cost classifications used in making decisions: relevant costs and irrelevant costs? (LO1-5)
Prepare income statements for a merchandising company using the traditional and contribution formats. (LO1-6)
Explain how variable costing differs from absorption costing and compute unit product costs under each method. (LO6-1)
Prepare income statements using both variable and absorption costing? (LO6-2)
Manufacturing Cycle Efficiency (MCE)
Process (value-added) time as a percentage of throughput time. (p. 545)
Ratio Market Performance: Dividend Payout Ratio
Ratio Dividends per share / Earnings per share Significance An index showing whether a company pays out most of its earnings in dividends or reinvests the earnings internally.
Ratio Market Performance: Dividend Yield Ratio
Ratio Dividends per share / Market price per share Significance Shows the return in terms of cash dividends being provided by a stock
Ratio Market Performance: Price-Earnings Ratio
Ratio Market price per share / Earnings per share Significance An index of whether a stock is relatively cheap or relatively expensive in relation to current earnings.
Ratio Market Performance: Earnings per Share
Ratio Net income / Average number of common shares outstanding Significance Affects the market price per share, as reflected in the price-earnings ratio
Ratio Profitability: Return on Equity
Ratio Net income / Average stockholders' equity Significance When compared to the return on total assets, measures the extent to which financial leverage is working for or against common stockholders
Ratio Profitability: Net Profit Margin Percentage
Ratio Net income / Sales Significance A broad measure of profitability
Ratio Market Performance: Book Value per Share
Ratio Total stockholders' equity / number of common shares outstanding Significance Measures the amount that would be distributed to common stockholders if all assets were sold at their balance sheet carrying amounts and if all creditors were paid off.
Ratio Profitability: Return On Total Assets
Ratio {Net income + [interest expense x (1- tax rate)]} / Average total assets Significance Measures how well assets have been employed by management
As the discount rate increases, the present value of a given future cash flow also increases. Do you agree? Explain (Ch. 14)
Refer to Exhibit 14-8. Is the return on this investment proposal exactly 14%, more than 14%, or less than 14%? Explain (Ch. 14)
Liquidity
Refers to how quickly an asset can be converted to cash. Liquid assets can be converted to cash quickly, whereas ill-liquid assets cannot. (p. 740)
Turnover
Sales divided by average operating assets. (p. 501)
Decision Making
Selecting a course of action from competing alternatives. (p. 3)
Trend Percentages
Several years of financial data expressed as a percentage of performance in a base year. (p. 737)
Cash Equivalents
Short-term, highly liquid investments such as Treasury bills, commercial paper, and money market funds, that are made solely for the purpose of generating a return on temporarily idle funds. (p. 696)
Indirect Materials
Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it. (p. 29)
Inventoriable Costs
Synonym for product costs. (p. 31)
Split- Off Point
That point in the manufacturing process where some or all of the joint products can be recognized as individual products. (p. 592)
Standard Hours Per Unit
The amount of direct labor time that should be required to complete a single unit of product, including allowances for breaks, machine downtime, cleanup, rejects, and other normal inefficiencies. (p. 442)
Standard Quantity Per Unit
The amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies, such as scrap and spoilage. (p. 442)
Standard Quantity Allowed
The amount of direct materials that should have been used to complete the period's actual output. It is computed by multiplying the actual number of units produced by the standard quantity per unit. (p. 446)
Contribution Margin
The amount remaining from sales revenues after all variable expenses have been deducted. (p. 42)
Cost of Capital
The average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds. (p. 651)
Time Value of Money
The concept that a dollar today is worth more than a dollar a year from now. (p. 644)
Quality of Conformance
The degree to which a product or service meets or exceeds its design specifications and is free of defects or other problems that mar its appearance or degrade its performance. (p. 541)
Materials Price Variance
The difference between a direct material's actual price per unit and its standard price per unit, multiplied by the quantity purchased. (p. 448)
Activity Variance
The difference between a revenue or cost item in the flexible budget and the same item in the static planning budget. An activity variance is due solely to the difference between the actual level of activity used in the flexible budget and the level of activity assumed in the planning budget. (p. 412)
Spending Variance
The difference between the actual amount of the cost and how much the cost should have been, given the actual level of activity. A favorable (unfavorable) spending variance occurs because the cost is lower (higher) than expected, given the actual level of activity for the period. (p. 414)
Budget Variance
The difference between the actual fixed overhead costs and the budgeted fixed overhead costs for the period. (p. 474)
Labor Rate Variance
The difference between the actual hourly labor rate and the standard rate, multiplied by the number of hours worked during the period. (p. 450)
Labor Efficiency Variance
The difference between the actual labor-hours taken to complete a task and the standard hours allowed for the actual output, multiplied by the standard hourly labor rate. (p. 451)
Variable Overhead Efficiency Variance
The difference between the actual level of activity (direct labor-hours, machine-hours, or some other base) and the standard activity allowed, multiplied by the variable part of the predetermined overhead rate. (p. 453)
Materials Quantity Variance
The difference between the actual quantity of materials used in production and the standard quantity allowed for the actual output, multiplied by the standard price per unit of materials. (p. 449)
Revenue Variance
The difference between the actual revenue for the period and how much the revenue should have been, given the actual level of activity. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period. (p. 413)
Variable Overhead Rate Variance
The difference between the actual variable overhead cost incurred during a period and the standard cost that should have been incurred based on the actual activity of the period. (p. 453)
Net Present Value
The difference between the present value of an investment project's cash inflows and the present value of its cash outflows. (p. 648)
Markup
The difference between the selling price of a product or service and its cost. The markup is usually expressed as a percentage of cost. (p. 624)
Internal Rate of Return
The discount rate at which the net present value of an investment project is zero; the rate of return of a project over its useful life. (p. 654)
Delivery Cycle Time
The elapsed time from when a customer order is received until the finished goods are shipped. (p. 544)
Throughput Time
The elapsed time from when production is started until finished goods are shipped. (p. 543)
Margin of Safety
The excess of budgeted or actual dollar sales over the break-even dollar sales. (p. 207)
Postaudit
The follow-up after a project has been approved and implemented to determine whether expected results were actually realized. (p. 663)
Vertical Integration
The involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service. (p. 582)
Indirect Labor
The labor costs of janitors, supervisors, material handlers, and other factory workers that cannot be conveniently traced to particular products. (p. 29)
Standard Rate Per Hour
The labor rate that should be incurred per hour of labor time, including employment taxes and fringe benefits. (p. 443)
Payback Period
The length of time that it takes for a project to fully recover its initial cost out of the net cash inflows that it generates. (p. 645)
Denominator Activity
The level of activity used to compute the predetermined overhead rate. (p. 473)
Break-Even Point
The level of sales at which profit is zero. (p. 193)
Value Chain
The major business functions that add value to a company's products and services, such as research and development, product design, manufacturing, marketing, distribution, and customer service. (p. 17)
Cost of Goods Manufactured
The manufacturing costs associated with units of product that were finished during the period. (p. 105)
Residual Income
The net operating income that an investment center earns above the minimum required return on its operating assets. (p. 504)
Net Cash Provided by Operating Activities
The net result of the cash inflows and outflows arising from day-to-day operations. (p. 696)
Managerial Accounting
The phase of accounting that is concerned with providing information to managers for use within the organization. (p. 2)
Managerial Accounting
The phase of accounting that is concerned with providing information to managers for use within the organization. (p. 27)
Financial Accounting
The phase of accounting that is concerned with reporting historical financial information to external parties, such as stockholders, creditors, and regulators. (p. 2)
Financial Accounting
The phase of accounting that is concerned with reporting historical financial information to external parties, such as stockholders, creditors, and regulators. (p. 27)
Opportunity Cost
The potential benefit that is given up when one alternative is selected over another. (p. 40)
Opportunity Cost
The potential benefit that is given up when one alternative is selected over another. (p. 572)
Profitability Index
The present value of a project's cash inflows divided by the investment required. (p. 660)
Vertical Analysis
The presentation of a company's financial statements in common-size form. (p. 738)
What is meant by the term financial leverage? (Ch. 16)
The president of a plastics company was quoted in a business journal as stating, "We haven't had a dollar of interest-paying debt in over 10 years. Not many companies can say that." As a stockholder in this company, how would you feel about its policy of not taking on debt? (Ch. 16)
Market Price
The price charged for an item on the open market. (p. 512)
Transfer Price
The price charged when one responsibility center within a company provides goods or services to another responsibility center in the same company. (p. 507)
Economic Value to the Customer (EVC)
The price of a customer's best alternative (called the reference value) plus the value of what differentiates a product from that alternative (called the differentiation value). (p. 631)
Standard Price Per Unit
The price that should be paid for each unit of direct materials. It should reflect the final, delivered cost of those materials. (p. 442)
Second-Stage Allocation
The process by which activity rates are used to apply costs to products and customers in activity-based costing. (p. 315)
First-Stage Allocation
The process by which overhead costs are assigned to activity cost pools in an activity-based costing system. (p. 312)
Data Analytics
The process of analyzing data with the aid of specialized systems and software to draw conclusions about the information they contain. (p. 10)
Overhead Application
The process of assigning overhead cost to specific jobs. (p. 104)
Overhead Application
The process of assigning overhead cost to specific jobs. (p. 66)
Target Costing
The process of determining the maximum allowable cost for a new product and then developing a prototype that can be profitably made for that maximum target cost figure. (p. 633)
Planning
The process of establishing goals and specifying how to achieve them. (p. 3)
Planning
The process of establishing goals and specifying how to achieve them. (p. 355)
Discounting
The process of finding the present value of a future cash flow. (p. 683)
Controlling
The process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change. (p. 3)
Control
The process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change. (p. 355)
Compound Interest
The process of paying interest on interest in an investment. (p. 682)
Capital Budgeting
The process of planning significant investments in projects that have long-term implications such as the purchase of new equipment or the introduction of a new product. (p. 643)
Equivalent Units
The product of the number of partially completed units and their percentage of completion with respect to a particular cost. Equivalent units are the number of complete whole units that could be obtained from the materials and effort contained in partially completed units. (p. 154)
Relevant Range
The range of activity within which assumptions about variable and fixed cost behavior are valid. (p. 35)
Range of Acceptable Transfer Prices
The range of transfer prices within which the profits of both the selling division and the buying division would increase as a result of a transfer. (p. 508)
Simple Rate of Return
The rate of return computed by dividing a project's annual incremental accounting net operating income by the initial investment required. (p. 661)
Discount Rate
The rate of return that is used to find the present value of a future cash flow. (p. 683)
Cost Structure
The relative proportion of fixed, variable, and mixed costs in an organization. (p. 33)
Sales Mix
The relative proportions in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales. (p. 212)
Standard Cost Per Unit
The standard quantity allowed of an input per unit of a specific product, multiplied by the standard price of the input. (p. 443)
Cost of Quality
The sum of prevention costs, appraisal costs, internal failure costs, and external failure costs. (p. 541)
Standard Hours Allowed
The time that should have been taken to complete the period's output. It is computed by multiplying the actual number of units produced by the standard hours per unit. (p. 446)
Equivalent Units of Production (Weighted-Average Method)
The units transferred to the next department (or to finished goods) during the period plus the equivalent units in the department's ending work in process inventory. (p. 156)
Present Value
The value now of an amount that will be received in some future period. (p. 681)
Volume Variance
The variance that arises whenever the standard hours allowed for the actual output of a period are different from the denominator activity level that was used to compute the predetermined overhead rate. It is computed by multiplying the fixed component of the predetermined overhead rate by the difference between the denominator hours and the standard hours allowed for the actual output. (p. 475)
Cost Behavior
The way in which a cost reacts to changes in the level of activity. (p.32)
Investing Activities
These activities generate cash inflows and outflows related to acquiring or disposing of noncurrent assets such as property, plant, and equipment, long-term investments, and loans to another entity. (p. 696)
Financing Activities
These activities generate cash inflows and outflows related to borrowing from and repaying principal to creditors and completing transactions with the company's owners, such as selling or repurchasing shares of common stock and paying dividends. (p. 696)
Operating Activities
These activities generate cash inflows and outflows related to revenue and expense transactions that affect net income. (p. 696)
Discretionary Fixed Costs
Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research. (p. 35)
Joint Products
Two or more products that are produced from a common input. (p. 591)
(Appendix 4B) How do you allocate service department costs to operating departments using the step-down method? (LO4-11)
Under what conditions would it be appropriate to use a process costing system? (Ch. 4)
Should a company allocate its common fixed costs to business segments when computing the break-even point for those segments? Why? (Ch. 6)
Understand activity-based costing and how it differs from a traditional costing system. (LO7-1)
Identify the four types of quality costs and use them to create a quality cost report. (LO12-2)
Understand how to calculate throughput (manufacturing cycle) time, delivery cycle time, manufacturing cycle efficiency (MCE), and overall equipment effectiveness (OEE). (LO12-3)
Work in Process
Units of product that are only partially complete and will require further work before they are ready for sale to the customer. (p. 104)
Work In Process
Units of product that are only partially complete and will require further work before they are ready for sale to the customer. (p. 31)
Finished Goods
Units of product that have been completed but not yet sold to customers. (p. 105)
Finished Goods
Units of product that have been completed but not yet sold to customers. (p. 31)
What is the flow of costs in an job-order costing system and prepare appropriate journal entries to record costs. (LO3-1)
Use T-accounts to show the flow of costs in a job-order costing system. (LO3-2)
Assign costs to a cost object using a second-stage allocation. (LO7-4)
Use activity-based costing to compute product and customer margins. (LO7-5)
Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph. (LO5-2)
Use the contribution margin ratio (CM ratio) to compute changes in contribution margin and net operating income resulting from changes in sales volume. (LO5-3)
What is the link that connects the schedule of cost of goods manufactured to the schedule of cost of goods sold? (Ch. 3)
What account is credited when overhead cost is applied to Work in Process? (Ch. 3)
Provide two reasons why overhead might be underapplied in a given year? (Ch. 3)
What adjustment is made for underapplied overhead on the schedule of cost of goods sold? (Ch. 3)
Explain how fixed manufacturing overhead costs are shifted from one period to another under absorption costing. (Ch. 6)
What are the arguments in favor of treating fixed manufacturing overhead costs as product costs? (Ch. 6)
What are the cost classifications used to prepare financial statements: products costs and period costs? (LO1-3)
What are the cost classifications used to predict cost behavior: variable costs, fixed costs, and mixed costs. (LO1-4)
Understand how to construct and use a balanced scorecard. (LO12-4)
What are the four categories of measures in a balanced scorecard? (Ch. 12)
What are cash equivalents, and why are they included with cash on a statement of cash flows? (Ch. 15)
What are the three major sections on a statement of cash flows, and what type of cash inflows and outflows should be included in each section? (Ch. 15)
What types of costs should not be assigned to products in an activity-based costing system? (Ch. 7)
What are the two stages of allocation in activity-based costing? (Ch. 7)
Why are top management support and cross-functional involvement crucial when attempting to implement an activity-based costing system? (Ch. 7)
What are unit-level, batch-level, product-level, customer-level, and organization-sustaining activities? (Ch. 7)
What is a segment of an organization? Give several examples of segments. (Ch. 6)
What costs are assigned to a segment under the contribution approach? (Ch. 6)
What is overapplied overhead? (Ch. 3)
What disposition is made of the underapplied overhead and overapplied overhead amounts at the end of the period? (Ch. 3)
What effect does an increase in the activity level have on total fixed costs? (Ch. 1)
What effect does an increase in the activity level have on total variable costs? (Ch. 1)
What effect does an increase in the activity level have on average fixed costs per unit? (Ch. 1)
What effect does an increase in the activity level have on variable costs per unit? (Ch. 1)
What four elements make up throughput time? (Ch. 12)
What elements of throughput time are value-added and what elements are non-value-added? (Ch. 12)
As a form of internal control, what documents would you review prior to paying an invoice received from a supplier? (Prologue)
What internal controls would you implement to help maintain control of your credit sales and accounts receivable? (Prologue)
What is the static planning budget? (Ch. 9)
What is a flexible budget and how does it differ from a static planning budget? (Ch. 9)
Discuss some of the major reasons why companies prepare budgets. (Ch. 8)
What is a perpetual budget? (Ch. 8)
What is overapplied overhead? (Ch. 2)
What is a plantwide overhead rate? (Ch. 2)
What is a quantity standard? (Ch. 10)
What is a price standard? (Ch. 10)
What is a revenue variance and what does it mean? (Ch. 9)
What is a spending variance and what does it mean? (Ch. 9)
In what way can the use of ROI as a performance measure for investment centers lead to bad decisions? How does the residual income approach overcome this problem? (Ch. 11)
What is a transfer price? (Ch. 11)
What is job-order costing? (Ch. 2)
What is absorption costing? (Ch. 2)
What is a budget? (Ch. 8)
What is budgetary control? (Ch. 8)
What is meant by the terms margin and turnover in ROI calculations? (Ch. 11)
What is meant by residual income? (Ch. 11)
Would you expect a company in a rapidly growing technological industry to have a high or low dividend payout ratio? (Ch. 16)
What is meant by the dividend yield on a common stock investment? (Ch. 16)
Charge operating departments for services provided by service departments. (LO11-4)
What is meant by the term decentralization? (Ch. 11)
Assume that a company has two processing departments- Mixing followed by Firing. Explain what costs might be added to the Firing Department's Work in Process account during a period. (Ch. 4)
What is meant by the term equivalent units of production when the weighted-average method is used? (Ch. 4)
How is the profitability index computed, and what does it measure? (Ch. 14)
What is meant by the term payback period? How is the payback period determined? How can the payback method be useful? (Ch. 14)
What is the difference between capital budgeting screening decisions and capital budgeting preference decisions? (Ch. 14)
What is meant by the term time value of money? (Ch. 14)
Why are discounted cash flow methods of making capital budgeting decisions superior to other methods? (Ch. 14)
What is net present value? Can it be negative? Explain (Ch. 14)
What is the difference between a traditional format income statement and a contribution format income statement? (Ch. 1)
What is the contribution margin? (Ch. 1)
What are the four types of costs summarized in a quality cost report? How do companies generally seek to lower their cost of quality? (Ch. 12)
What is the difference between delivery cycle time and throughout time? (Ch. 12)
What is the meaning of operating leverage? (Ch. 5)
What is the meaning of break-even point? (Ch. 5)
In response to a request from your immediate supervisor, you have prepared a CVP graph portraying the cost and revenue characteristics of your company's product and operations. Explain how the lines on the graph and the break-even point would change it (a) the selling price per unit decreased, (b) fixed cost increased throughout the entire range of activity portrayed on the graph, and (c) variable cost per unit increased. (Ch. 5)
What is the meaning of margin of safety? (Ch. 5)
(Appendix 15A) Use the direct method to determine the net cash provided by operating activities. (LO15-4)
What is the purpose of a statement of cash flows? (Ch. 15)
Explain the four-step process used to compute a predetermined overhead rate. (Ch. 2)
What is the purpose of the job cost sheet in a job-order costing system? (Ch. 2)
Would you expect the amount of applied overhead for a period to equal the actual overhead costs of the period? Why or why not? (Ch. 2)
What is underapplied overhead? (Ch. 2)
Would you expect the amount of overhead applied for a period to equal the actual overhead costs of the period? Why or why not? (Ch. 3)
What is underapplied overhead? (Ch. 3)
What is the difference between a product cost and a period cost? (Ch. 1)
What's the difference between variable cost, fixed cost, and a mixed cost? (Ch. 1)
Why is the first stage of the allocation process in activity-based costing often based on interviews? (Ch. 7)
When activity-based costing is used, why do manufacturing overhead costs often shift from high-volume products to low-volume products? (Ch. 7)
Who is generally responsible for the materials quantity variance? (Ch. 10)
Who is generally responsible for the labor efficiency variance? (Ch. 10)
Why are separate price and quantity variances computed? (Ch. 10)
Who is generally responsible for the materials price variance? (Ch. 10)
Why do companies that implement Lean Production tend to have minimal inventories? (Prologue)
Why are leadership skills important to managers? (Prologue)
Why should companies link their balanced scorecard measures to their employee reward systems? (Ch. 12)
Why do companies measure their corporate social responsibility performance? (Ch. 12)
If you had to decide whether to continue making a component part or to begin buying the part from an overseas supplier, what quantitative and qualitative factors would influence your decision? (Prologue)
Why do companies prepare budgets? (Prologue)
Explain why some production costs must be assigned to products through an allocation process. (Ch. 2)
Why do companies use predetermined overhead rates rather than actual manufacturing overhead costs to apply overhead to jobs? (Ch. 2)
Why do companies take a physical count of their inventory on hand at least once per year? (Prologue)
Why do companies use sequential prenumbering for documents such as checks, sales invoices, and purchase orders? (Prologue)
Pick any large company and describe its strategy using one of the three customer value propositions defined in the prologue. (Prologue)
Why do management accountants need to understand their company's strategy? (Prologue)
What does a manufacturing cycle efficiency (MCE) of less than 1 mean? How would you interpret an MCE of 0.40? (Ch. 12)
Why do the measures used in a balanced scorecard differ from company to company? (Ch. 12)
Why should the measures included in a balanced scorecard be linked together in the form of if-then hypothesis statements? (Ch. 12)
Why does the balanced scorecard include financial performance measures as well as measures of how well internal business processes are doing? (Ch. 12)
In what ways are job-order and process costing similar? (Ch. 4)
Why is cost accumulation simpler in a process costing system than it is in a job-order costing system? (Ch. 4)
In what fundamental ways does activity-based costing differ from traditional costing methods such as job-order costing as described in chapters 2 and 3? (Ch. 7)
Why is direct labor a poor base for allocating overhead in many companies? (Ch. 7)
"As a practical matter, planning and control mean exactly the same thing." Do you agree? Explain. (Ch. 8)
Why is it a good idea to create a "Budgeting Assumptions" tab when creating a master budget in microsoft excel? (Ch. 8)
What are some of the possible reasons that actual results may differ from what had been budgeted at the beginning of a period? (Ch. 9)
Why is it difficult to interpret a difference between how much expense was budgeted and how much was actually spent? (Ch. 9)
Why is managerial accounting relevant to business majors and their future careers? (Prologue)
Why is managerial accounting relevant to accounting majors and their future careers? (Prologue)
How can the activity rates (i.e., cost per activity) for the various activities be used to target process improvements? (Ch. 7)
Why is the form of activity-based costing described in this chapter unacceptable for external financial reports? (Ch. 7)
What is a master budget? Briefly describe its contents. (Ch. 8)
Why is the sales forecast the starting point in budgeting? (Ch. 8)
What is meant by the term discounting? (Ch. 14)
Why isn't accounting net income used in the net present value and internal rate of return methods of making capital budgeting decisions? (Ch. 14)
What does suboptimization mean? (Ch. 11)
Why should a service department's budgeted costs, rather than its actual costs, be charged to operating departments? (Ch. 11)
If the Accounts Receivable balance increases during a period, how will this increase be recognized using the indirect method of computing the net cash provided by operating activities? (Ch. 15)
Would a sale of equipment for cash be considered a financial activity or an investing activity? Why? (Ch. 15)
Prime Cost
direct materials cost plus direct labor cost. (p. 29)
