Managerial Accounting

Spending variance

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost. A favorable (unfavorable) spending variance occurs because the cost is lower (higher) than expected, given the actual level of activity for the period.

Revenue variance

The difference between how much the revenue should have been, given the actual level of activity, and the actual revenue for the period. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period.

Casual Factors

activities or variables that invoke service costs. Gernerally it is desireable to use casual factores as the basis for allocating service costs

Failure Activities

activities performed by an organization or its customers in response to poor quality

Unit-Level Activities

activities that are performed each time a unit is produced

Environmental External Failure Costs

costs incurrred after contaminants are introduced into the environment

Nonvalue Added Costs

costs that are caused either by nonvalue added activities or by the inefficient performance of value added activities

Environmental Costs

costs that are incurred because poor environmental performance

Return on investment (ROI)

ROI = Net operating income / Average operating assets

Residual Income

Residual Income = Net Operating Income - (Average operating assets x Minimum required rate of return)

Activity variance

The difference between a revenue or cost item in the static planning budget and the same item in the flexible budget. An activity variance is due solely to the difference between the level of activity assumed in the planning budget and the actual level of activity used in the flexible budget.

Common Costs

the costs of resources used in the output of two or mroe services or products

Overhead Variance

the difference between actual overhead and applied overhead

Driver Analysis

the effort expended to identify those factors that are the root causes of activity costs

Cycle Time

the length of time required to produce one unit of a product

Activity Output Measure

the number of times an activity is performed. it is the quantifiable measure of the output

Velocity

the number of units that can be produced in a given period of time

Activity Selection

the process of choosing among sets of activities caused by competing strategies

After job 4260, costing of $200,000 in total and consisting of 1,000 units, was finished, 600 of the units were sold. How much cost should be transferred to Cost of Goods Sold?

$120,000

List the items from the Income statement in the order in which they should appear.

1. Sales 2. Cost of goods sold 3. Gross margin 4. Selling and Administrative Expenses 5. Net operating income

What are the steps from the schedule of cost of goods manufactured in the order in which they appear?

1. Total manufacturing costs 2. Add: Beginning Work in process inventory 3. Deduct: Ending Work in process inventory 4. Cost of goods manufactured

An ideal allocation base should be:

A Cost Driver

Planning budget

A budget created at the beginning of the budgeting period that is valid only for the planned level of activity.

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.

Management by exception

A management system in which standards are set for various activities, with actual results compared to these standards. Significant deviations from standards are flagged as exceptions.

Flexible budget

A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period.

Actual manufacturing overhead is entered on what side of the Manufacturing overhead account?

Always the debit side

Calculate Cost of Direct Materials

Cost of Direct Materials = Beg. Inv. + Purchases - IDM - Ending Inv.

What costs can be directly traced to a particular product?

Direct labor, Direct materials

What is the formula for Predetermined Overhead Rate?

Estimated manufacturing overhead cost divided by estimated allocation base

A journal entry that debits Manufacturing Overhead and credits Prepaid insurance records the:

Expiration of prepaid factory insurance

When a job is completed, its costs are transferred into:

Finished Goods

The document that records materials, labor, and manufacturing overhead costs are charged to a job is the:

Job cost sheet

Labor efficiency variance

Labor efficiency variance = (Actual hours x Standard rate) - (Standard hours allowed for actual output x Standard rate) or Labor efficiency variance = (AH - SH) x SR

Labor rate variance

Labor rate variance = (Actual hours x Actual rate) - (Actual hours x Standard rate) or Labor rate variance = AH ( AR - SR)

Margin

Margin = Net Operating Income / Sales

Materials quantity variance

Materials quantity variance = (Actual quantity used x Standard price) - (Standard quantity allowed for actual output x Standard price) or Materials quantity varicance = (AQ-SQ) x SP

ROI

ROI = Margin x Turnover

A journal entry that debits Manufacturing Overhead and credits Property taxes payable would record the:

Recognition of accrued property taxes

Standard quantity per unit

The amount of an input that should be required to complete a single unit of product, including allowances for normal waste, spoilage, rejects, and other normal inefficiencies.

Standard price per unit

The standard quantity allowed of an input per unit of a specific product, multiplied by the standard price of the input.

Calculate Total Cost of a Job

Total Cost of a job = DM + DL + POR x AMH

Turnover

Turnover = Sales / Average operating assets

Support Departments

Units within an organization that provide essential support services for producing departments

When a job is completed, what account is credited?

Work in Progress

What accounts are debited in the journal entry to record issuing both direct and indirect materials to be used in production?

Work in process and manufacturing overhead

Activity Based Costing

a cost assignment approach that first uses direct and driver tracing to assign costs to activities and then uses drivers to assign cost to cost objects

Job Order Costing System

a costing system in which costs are collected and assigned to units of production for each individual job

Direct Method

a method that allocates service costs directly to producing departments. This method ignores any interactions that may exist amon support departments

Sequential Method

a method that allocates service costs to user departments in a sequential matter. It gives partial consideration to interactions among support departments

Reciprocal Method

a method that simutaneously allocates service costs to all user departments. It gives full consideration to interactions among support departments

Job Order Cost Sheet

a subsidary account to the work-in-progress account on which the total costs of materials, labor, and overhead for a single job are accumulated

Activity Based Management

a systemwide integrated approach that focuses management's attention on activities with the objective of improving customer value and the profit achieved by providing this value. Includes driver analysis, activity analysis, and performance evaluation. Activity bases costing major source

Activity

action taken or work perfomed by equipment or people for other people

Control Activities

activities performed by an organization to prevent or detect poor quality

Value Added Activities

activities that are necessary for a business to achieve corporate objectives and remain in business

Nonvalue Added Activities

all activities other than those that are absolutely essential to remain in business

Actual Cost System

an approach that assigns actual costs of direct materials, direct labor and overhead to products

Normal Cost System

an approach that assigns the actual costs of direct materials and direct labore to products but uses a predetermined rate to assign overhead costs

Process Value Analysis

an approach that focuses on processes and activities and emphhasizes systemwide performance instead of individual performance

Predetermined Overhead Rate

an overhead rate computed using estimated data

Raw materials inventory is a(n)_____ account reported on the _______ _____.

asset; balance sheet

Appraisal Costs

cost incurred to determine whether products and services are conforming to requirements

Value Added Costs

costs caused by value added activities

Environmental Internal Failure Costs

costs incurred after contaminants are produced but before they are introduced to the environment

Costs of Quality

costs incurred because poor quality may exist or because poor quality does exist

Internal Failure Costs

costs incurred because products and services fail to conform to requirements where lack of conformity is discovered prior to external scale

External Failure Costs

costs incurred because products fail to conform to requirements after being sold to outside parties

Control Costs

costs incurred from performing control activities

Environmental Detection Costs

costs incurred to detect poor environmental performance

Environmental Prevention Costs

costs incurred to prevent damage to the environment

Prevention Costs

costs incurred to prevent defects in products or services being produced

Labor costs that are easily traced to a job are called _____ labor costs

direct

Unrealized External Failure Costs

environmental costs caused by an organization but paid for by society

Societal Costs

environmental costs caused by an organization byt paid for by society

Realized External Failure Costs

environmental costs caused by environmental degradation and paid for by the responsible organziation

Derpartmental Overhead Rate

estimated overhead for a single department divided by the estimated activity level for that same department

Activity Drivers

factors that measure the consumption of activities by products and other cost objectives

Nonunit Level Activity Drivers

factors that measure the consumption of nonunit level activities by products and other cost objectives

Resource Drivers

factors that measure the consumption of resources by activities

Unit-Level Activity Drivers

factors that measure the consumption of unit-level activities by products of unit-level by products and other cost objects

Activity Sharing

increasing the effiency of necessary activities by using economies of scale

Work Distribution Matrix

indentifies the amount of labor consumed by each activity and is derived from the interview process

What categories of costs contain labor charges that cannot be easily traced to a job?

indirect labor, manufacturing overhead; Only manufacturing costs go into manufacturing overhead

Typical cost drivers include:

machine-hours, flight-hours, computer time

The schedule of costs of goods ________ summarizes costs that remain in Work in process inventory and that have been transferred from Work in process to Finished goods inventory.

manufactured

Manufacturing overhead consists of all:

manufacturing costs other than direct labor and direct materials; The cost of goods sold summarizes costs that remain in Finished goods Inventory and that have been transferred to Costs of goods Sold

Job

one distinct unit or set of units

Applied Overhead

overhead assigned to production using predertimed rates

What is the debited journal entry to record the purchase of materials?

raw materials

Underapplied Overhead

the amount by which actual overhead exceeds applied overhead

Overapplied Overhead

the amount by which applied overhead exceeds actual overhead

Adjusted Cost of Goods Sold

the cost of goods sold after all adjustments for overhead variances are made

Normal Cost of Goods Sold

the cost of goods sold before adjustment for any overhead variance

Failure Costs

the costs incurred by an organization because failure activities are performed

Activity Elimination

the process of elimination nonvalue-added activities

Activity Analysis

the process of identifying, describing, and evaluating the activities an organization performs

Consumption Ratio

the proportion of an overhead activity consumed by a product

Activity Inputs

the resources consumed by an activity in producing its outputs

Activity Output

the result or product of an activity

Product Diversity

the situation present products consume overhead in different proportions

Producing Departments

units within an organization responsible for producing the products or services that are sold to a customer

Into what three categories do companies generally classify manufacturing costs?

Manufacturing overhead, Direct materials, Direct labor

A job cost sheet contains:

Materials costs charged to the job, manufacturing overhead costs charged to the job, and labor costs charged to the job.

Materials price variance

Materials price variance = (AQ x AP) - (AQ x SP) or Materials price variance = AQ x (AP - SP)

The Predetermined Overhead Rate is multiplied by the actual allocation base incurred by a job to find:

Overhead applied to the job

Variable overhead efficiency

Variable overhead efficiency = (Actual hours x Standard rate) - (Standard hours allowed for actual output x Standard rate) or Variable overhead efficiency = (AH - SH) SR

Variable overhead rate variance

Variable overhead rate variance = (Actual hours x Actual rate) - (Actual hours x Standard rate) or Variable overhead rate variance = AH (AR-SR)

Process Costing System

a costing system that accumulates production by department for a given period of time

A cost driver is:

a factor that causes overhead costs to occur

Activity Dictionary

a list of activities described by specific attributes such as name, definition, classification as primary or secondary and activity driver

Plantwide Overhead Rate

a single overhead rate calculated using all estimated overhead for a factory divided by estimated activity level across the entire factory

Time Ticket

a source document by which direct lavor costs are assigned to individual jobs

Materials requisition Form

a source document that records the type, quantity, and unit price of the direct materials issued to each job

When overhead is overapplied, manufacturing overhead must be _____ to close out the account

debited

Activity Reduction

decreasing the time and resource required by an acivity