Module 1-Cost Accounting

Cost accounting info is commonly used in developing ___ ____ info

Financial accounting

Financial accounting is used primarily for preparing the ___ ___

Financial statement

Remain unchanged as the volume of activity changes

Fixed Costs

Cost accounting focuses on ____, uses ___ time

Future Present

Financial accounting is governed by ____

GAAP

In financial accounting need to use ____ to that everyone understands, controlled by ____

GAAP FASB

Budgeting helps managers decide whether their ___ can be achieved, and if not, what ____ are necessary

Goals Modifications

Gross Margin equation

Gross Margin = Sales - COGS

The term ___ ___ for a manufacturing firm refers to the excess of sales over cost of goods sold, including fixed indirect manufacturing costs

Gross margin

In the long run, differential costs are ____ than in the short run

Higher

Financial accounting has a ___ focus

Historic

Prime Costs equation

Prime Costs = Direct Materials + Direct Labor

Cost assigned to units of production in the period they are incurred and recognized (expensed) when the product is sold

Product (Manufacturing) Costs

Decision on what products or services to offer (product mix)

Product Choice Decisions

The costs of fire insurance for a manufacturing plant is generally considered to be a:

Product costs

Managers evaluate value-added activities to determine how they contribute to the final product's ___, ____, and ____

Service, quality, and cost

The period of time over which capacity will be unchanged, usually one year

Short Run (Relevant Range)

DM of a skateboard and remote

Skateboard: board, frame, wheels Remote: plastic, keys (NOT INK)

An order that will not affect other sales and is usually a one-time occurrence

Special orders

Increase in steps

Step/Semifixed Cost

With the enactment of the Sarbanes-Oxley Act of 2002, CEOs and CFOs are now responsible for all of the following:

Stipulating that the financial statement do not omit material information Attesting to the adequacy of the company's internal controls Disclosing that they have notified the company's auditors and audit committee of any fraud that involves management

Costs incurred in the past that cannot be changed by present or future decisions

Sunk costs

Linked set of organizations that exchange goods and services in combination to provide a final or service to the customers

Supply (Distribution) Chain

Change profit into a break-even equation Profit=(cm *X) -TFC

TFC/cm=X

Target Cost equation

Target Cost=Target Price-Desired Profit

Target Sales equation

Target Sales=(Total Fixed Cost + Profits)/Contribution Margin Ratio

Target Units equation

Target Units=(Total Fixed Cost + Profits)/Contribution Margin Per Unit

In essence, the value chain and the supply chain are similar, each creates something for which the customer is ____ __ __

Willing to pay

Is Marketing a value added activity?

Yes

Responsibility does not work without ____

Accountability

____ systems are important because they are a primary source of information for managers

Accounting

Opportunity cost did not happen therefore not reflected in the ___ system. They are never on the ____ statement

Accounting Financial

We want information to be as ___ as possible

Accurate

Costing method that first assign costs to activities and then assigns them to products based on the products' consumption of those activities

Activity-Based Costing (ABC)

Managers rely on financial information that is either ____ info or ____ info

Actual Estimated

The goal of a value chain is t find areas where a company can either ____ value for reduce ____

Add Cost

Decision to add or drop a product line or close a business unit

Add-or-Drop Decision

Indirect costs ____ to the cost of product

Adds

Producing products ____ value, moving it around ____ ___ value

Adds Doesn't add

Performing a task correctly ____ value; correcting mistakes does _____ value

Adds Not add

____ expenses are necessary but not included as part of the value chain as they are included in every business function of the ___ ___

Administrative Value chain

Costs required to manage the organization and provide staff support, including executive and clerical salaries; costs for legal, financial, data processing, and accounting services; and building space fro administrative personnel

Administrative costs

Basis Account Balance

Beginning Balance + Transfer Ins - Transfer Outs = Ending Balance (BB + TI - TO = EB)

Cost of Goods Sold Equation

Beginning Inventory + Purchases of Inventory - Cost of Goods Sold = Ending Inventory (BI + Purchases - COGS = EI)

Cost of Goods Sold Equal =

Beginning Inventory + Purchases of Inventory - Ending Inventory

A continuous process of measuring a company's products, services, or activities against competitor's performance

Benchmarking

Operating where the work required limits production

Bottleneck

When total sales equals total costs; there is no profit

Break-Even

Break-Even Sales equation

Break-Even Sales=Total Fixed Cost/Contribution Margin Ratio

Break-Even Units equation

Break-Even Units=Total Fixed Costs/Contribution Margin per Unit

Financial plan of the revenues and resources needed to carry out activities and meet financial goals

Budget

What is an example of the distribution chain?

Buy from Amazon delivered by UPS

Includes only the actual costs of the goods that were sold

COGS

What do manufacturing costs include?

COGS Product (Manufacturing) Costs Period (Nonmanufacturing) Costs

Explains the relationship between sales, cost, and volume and their effect on profit

CVP Analysis

Method or process used to assign the costs in the cost pool to the cost object

Cost allocation rule

Any end to which a cost is assigned

Cost object

Classifying a cost as either direct or indirect depends upon the ___ ___ to which the cost is being related

Cost object

Distribution chain ____ to customers

Distributing

Cost, managerial, and responsibility accounting ____ depend on GAAP

Do not

Cost of goods sold ___ include selling costs

Does not

Exporting a product to another country at a price below domestic cost

Dumping

East Coast (EC) Division and West Coast (WC) Division share the Information System (IS) costs equally; each is charged $500,000 for IS services. The West Coast manager argues that WC is much smaller than EC so the allocation should be based on a measure of divisional size, such as revenues. EC revenue $80 million; WC revenue $20 million. The East Coast manager argues that most of IS time is spent on the WC, where the equipment is more complex and requires more maintenance

East Coast $800,000 West Coast $200,000 Work in notebook

Cost accounting system looks at the ___ to ___ cost

End to end cost

Integrated information systems that link the various systems of the enterprise into a single comprehensive information system

Enterprise Resource Planning (ERP) System

Compliance with Sarbanes-Oxley does not mean that the manager has met all of his or her ___ responsibilities

Ethical

Professional accountants, managers, and business owners face ___ situations on a everyday basis

Ethical

Cost charged against revenue in an accounting period

Expense

Cost of direct labor as an asset (WIP Inventory or Finished Goods Inventory) and is treated as an ____ (COGS) on income statement when related products are sold. Inventory ____ and COGS _____

Expense Decrease; Increase

Financial accounting is designed for ___ parties

External

Example fo a cost object

A unit of product or service, a department, or a customer

Process of assigning costs

Cost allocation

Want to target cost to be ___

More

Opportunity cost is also known as the

"Next best alternative"

Calculate conversion costs from the following information: Fixed manufacturing overhead $1,800 Variable manufacturing overhead $1,200 Direct materials $2,500 Direct labor $1,000

$4,000 1,000 + 1,800 + 1,200

During 2020, the Beach Resident had sales revenues and food costs fo $800,000 and $600,000, respectively. During 2021, Beach plans to introduce a new menu item that is expected to increase sales revenues by $100,000 and food costs by $60,000. Assuming no changes are expected for the other items, operational profits for 2021 are expected to increase by?

$40,000 (operating profits) 100,000-60,000 Increase in revenues-Increase in costs

Resolving an ethical dilemma (IMA):

-Discuss the situation with an immediate supervisor, expect when it appears that the supervisor is involved, or with the next level supervisor if involvement of the immediate supervisor is suspected -Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethical Counselor, an appropriate and confidential ethics hotline, or other impartial advisor -Consult your own attorney as to legal obligations and rights concerning the ethical conflict

What are the three lines of defense?

1. Responsible people 2. Internal controls 3. Auditors

Find the contribution margin ratio per unit: Selling price per unit $10 Variable cost per unit $7

30% Contribution Margin per unit=10-7=3 3/10

Ex of dumping

China-fidget spinners

Ex. of peak-load pricing

Christmas time, toilet paper

What is an example of a value added activity of a car?

Color of the car

Important criteria for financial accounting include ___ and ___ ___ (for investors)

Comparability Decision relevance

Individuals making decisions using financial accounting data are more interested in ____ firms

Comparing

Institute of Management Accountants (IMA) Code of Ethics:

Competence Confidentiality Integrity Credibility

A bottleneck is a ____ resource

Constraining

Activities, resources, or policies that limit the attainment of an objective

Constraints

How much sales is left, after paying off variable cost, that contributes towards paying the fixed costs

Contribution Margin

Contribution Margin Ratio per Unit equation

Contribution Margin Ratio=Contribution Margin per Unit/Selling Price per Unit

Contribution Margin Ratio equation

Contribution Margin Ratio=Total Contribution Margin/Total Sales

Contribution Margin per Unit equation

Contribution Margin per Unit=Selling Price per Unit - Variable Cost per Unit

Contribution margin per unit of a particular input with limited availability

Contribution margin per unit of scarce resources

Cost info itself is the product with its own customers, who are mangers that need to ___ and ____ operations

Control Improve

Conversion Costs equation

Conversion Costs = Direct Labor + Manufacturing Overheads

In general, if activities that don't add value too the company can be eliminated, then ____ associated with them will also be eliminated

Cost

In real world, the boundary between what is ___ accounting and what belongs to another discipline is often blurred

Cost

Sacrifice fo resources made to acquire it

Cost

Sarbanes-Oxley is important for managers who design ____ information systems

Cost

___ accounting is more likely to have ethical issues

Cost

The term ____ is used for managerial purposes, while the term ___ refers to external financial reports

Cost Expense

Provides much of the info necessary for the coordination fo the value chain

Cost Accounting System

Factors that cause costs to increase as the activity increases

Cost Drivers

Identify costs of producing defective units as well as the lost sales associated with poor-quality product

Cost of Quality Systems

Collection of costs waiting to be assigned to a cost object

Cost pool

Considering both the costs and benefits of a proposal

Cost-Benefit Analysis

Allow firms to target more precisely those customers who are profitable by assessing the costs to serve a customer along with the revenues a customer generates

Customer Relationship Management (CRM) Systems

Ex of product costs

DL, DM, overhead costs

Manufacturing Cost Flows

DM Inv/Raw Materials Inv -> WIP Inventory -> Finished Goods Inv -> COGS

Important criteria for cost accounting include ___ ___ (for managers) and _____

Decision relevance Timeliness

The design of the cost accounting system has the potential to be misused to ____ customers, employees, or shareholders

Defraud

What could be considered a responsibility center?

Department, division segment, or subsidiary

Value chain activities can overlap:

Design, production, distribution, and customer service

Cost accounting contains ___ info for management in the various operations segments of the business

Detailed

The process of estimating revenues and costs of alternative actions available to decision makers and of comparing these estimates to the status quo

Differential Analysis

Cost that changes in response to a particular course of action

Differential Costs

Costs that change in response to an alternative course of action

Differential costs

Product costs can include both ___ and ___ costs

Direct and indirect

Costs that can be unambiguously related to a cost object

Direct costs

Workers who can be identified directly with the product

Direct labor

Feasibly identified direct with the product

Direct materials

Costs that cannot be unambiguously related to a cost object

Indirect costs

Ex of printer paper

Indirect costs

Effective internal control system for publicly owned firms include:

Internal audits of strategic decisions A code of ethics A system of preparing and reporting on investment decisions

The Sarbanes-Oxley Act of 2002 requires an effective ___ ___ system for publicly owned firms

Internal control

Sunk costs are known as

Irrelevant costs

Activities are conducted just in time of their need thus reducing costs

Just-in-Time (JIT) System

Designed to minimize wasteful or unnecessary transaction processes

Lean Accounting Systems

Techniques that can be applied to design materials, and cost accounting decisions throughout the life of a product

Lean Manufacturing

Decision to make goods or services internally or purchase them externally

Make-or-Buy Decisions

Cost and responsibility accounting are subdivisions of ____ accounting

Managerial

Cost accounting is designed for ____

Managers

In cost accounting, information must be relevant for ____ making operational decisions

Managers

Cost of goods sold includes all ____ costs (both fixed and variable)

Manufacturing

All other costs of transforming the materials into a finished product

Manufacturing Overhead

How much room you have until loss

Margin of Safety

Margin of Safety Sales equation

Margin of Safety Sales=Total Sales - Break Even Sales

Margin of Safety Units equation

Margin of Safety Units=Total Units - Break Even Units

Costs required to obtain customer orders and provide customers with finished products

Marketing costs

If a cost is recorded as an asset it becomes an expense when the asset has been consumed

Matching Principle

Managers must be aware of the potential that cost information could be ___ or support ____ activity

Misleading Fraudulent

ABC provides ____ cost numbers than conventional

More

Adding value is good for ____ purchases by consumers

More

CM should be ____ than FC for profit

More

In an accounting system perfect information is ____ available, there is always some ____

Never Uncertainty

State whether the following is: value added or non-value added: Accounting

Non value added

If a poor facility layout exists and WIP inventory must be moved during the production process, the company is likely to be performing ____ activities

Non-value added

State whether the following is: value added or non-value added: Rework of defective items

Non-value. added

Financial accounting info is ___ for managers to make operational decisions

Not sufficient

Costs may change in response to ___ course of action but not in response to a ___ course of action

One Different

Forgone benefit that could have been realized from the best forgone alternative use of a resource

Opportunity Cost

Past, present, or future cash outflow

Outlay Cost

Distribution chain is part of the value chain ____ the firm

Outside

If a company cannot compete in a specific area of the value chain, it might ____ that portion of the value chain to another entity which can perform it better

Outsource

Having one or more of the firm's activities performed by another firm or individual in the supply or distribution chain

Outsourcing

Snuggle Toys, Inc. had the following summarized results for the month ending July 31: Revenues: Actual $60,000; Budget $52,000 Costs: Actual $53,600; Budget $45,600 Operating Profits: Actual $6,400; Budget $6,400 What did this show?

Overspent; your want the increase in revenue to be more than increase in cost

Ex of DL

Packaging labor, paint (NOT repair and maintenance

What is an example of a poor facility layout?

Part A is one corner, and Part B in another corner, with CDE in the middle

Practice of setting prices highest when the quantity demanded for the product approaches capacity

Peak-load pricing

A metric that indicates how well an individual, business product, or firm is working

Performance Measure

Managers need to understand that ____ ___ and ____ systems can lead to unethical conduct

Performance measurement Compensation

Where there is a lack of good performance measures, it is difficult to motivate managers by using _____ incentives

Performance-based

All other cohosts and are expensed as they are incurred

Period (Nonmanufacturing) costs

A company which manufacturers custom-made machinery routinely incurs sizable telephone costs in the process of taking sales orders from customers. What is the proper classification of this cost?

Period costs (selling)

Codes of conduct look good on paper, but ultimately much of ethical behavior comes from an individuals ___ beliefs

Personal

A code of ethics needs to be in ___ space where people can look at it

Physical

Ex of price discrimination

Pink packaging

Any product that has a ____ CM you should keep

Positive

What are legal issues relating to costs and sales price?

Predatory Pricing Dumping Price discrimination Peak-Load pricing Price fixing

Practice of setting price below cost with the intent to drive competitors out of business

Predatory pricing

What is an example of a matching principle?

Prepaid rent for an office building

The cost accounting system influences what ___ the product should be sold

Price

Practice of selling identical goods to different customers at different prices

Price discrimination

Agreement among businesses to set prices at a particular level

Price fixing

Cycle is concerned with covering costs in all categories of the life cycle

Product life cycle

The value chain focuses on the entire ___ __, as well as the sale of the product and services ___ the sale

Production process After

What is an example of relevant information?

Production schedule must be relevant

Anything above break even is a ___, anything below break even is a ___

Profit Loss

What are the different ways to write the profit equation?

Profit=TS * TC Profit=(s*X) - [(vc * X) + TFC] Profit=TS-(TVC+TFC) Profit=CM-TFC Profit=(cm*X)-TFC

Profit equation

Profit=Total Sales-Total Costs

Supply chain ___ ___ coming in

Raw materials

Eliminating non value dded activities always ___ costs without affecting the value fo the product to ____

Reduces Customers

Range within which the total fixed costs and unit variable costs do not change

Relevant Range

Differential costs are known as

Relevant costs

What are the categories of the life cycle?

Research and development Design Manufacturing Marketing and distribution Customer service Take back (disposal)

The value chain compromises activities from ___ through the ___ process to ___ ___

Research and development (R&D) Production Customer service

Specific units of an organization, assigned to a manager who is held accountable for it operations and resources

Responsibility Center

Managers are usually responsible for both the ___ and ___ needed to carry out activities and meet financial goals

Revenues and resources

Examples of expense

Salary and wages

What is an example of non value added activities?

Salary of HR department or accounting Nobody cares about these when they are buying a product

Desert Adventures has received a one-time offer for 5 additional tours at a discounted price of $700 per tour. The regular price is $900 per tour and they have enough idle capacity in the month to take the offer. Sales (20 tours at $900) $18,000 VC (20 tours at $300). $6,000 Total Contribution Margin $12,000 FC $5,400 Operating Profit $6,600 Find alternative and tell what to do Can't produce below ____

Sales $21,500 VC $7,500 Total Contribution Margin $14,000 FC $5,400 Operating Profit $8,600 Differential operating profit $2,000 $300

Has both fixed and variable components

Semi-Variable/Mixed Cost

Focuses on revenue and cost management when fixed with bottlenecks

Theory of Constraints

Sales dollars minus direct materials cost and variables such as energy and piecework labor

Throughput Contribution

Correcting mistakes takes more ___

Time

Contribution Margin equation

Total Contribution Margin=Total Sales-Total Variable Cost

Total Costs equation

Total Costs=Total Variable Cost + Total Fixed Cost

Management method by which the organization seeks to excel on all dimensions of quality by determining the company's performance standards according to what is important to customers

Total Quality Management (TQM)

Total Sales equation

Total Sales=Selling Price per Unit * Number of Units Sold

Break even equation

Total Sales=Total Cost

Total Variable Cost equation

Total Variable Cost=Variable Cost per Unit * Number fo Units Produced

Both ____ and ____ are likely to be affected by changes in the output

Total revenues Total costs

Set of activities that transforms raw materials into the goods and services end users purchase and consume

Value Chain

State whether the following is: value added or non-value added: Production

Value added

State whether the following is: value added or non-value added: Customer service (reply to customer service questions via email)

Value added

State whether the following is: value added or non-value added: Distribution: delivery of products or services to customers

Value added

State whether the following is: value added or non-value added: Marketing advertisement

Value added

State whether the following is: value added or non-value added: Product design

Value added

State whether the following is: value added or non-value added: Research and development

Value added

Under the value chain concept, ____ activities are those that firms perform and that consumers perceive as adding utility to the goods they purchase

Value-added

In the long run, an organization must cover all ___ and ____ costs-both manufacturing and selling

Variable Fixed

___ cost must always be covered. ____ cost must be covered in the long ru n

Variable Fixed

Change in direct proportion to the change in volume of activity

Variable Costs

Ex of predatory pricing

Walmart back in the day

Manufacturing Overhead includes...

indirect materials, indirect labor, other manufacturing costs