ACC 208 Test #1

Financial vs. Managerial Accounting

Financial = outside the firm, historical, precision Managerial = inside the firm, future, relevance

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales?

Cont. Margin and Net Operating Income increase by $.70

incremental analysis

when analyzing the change in profits but only changing and revnues and costs part of the equation revenues

True or false when making a decision only relevant cost and revenue data should be considered.

True

variable costs

A cost that varies, in total, in direct proportion to changes in the level of activity.

Direct Costs

A direct cost that can be easily and conveniently traced to a specific cost object. EX: Direct Material/Direct Labor

cost driver

A measure of what causes the variance of that variable cost EX: machine-hours, beds occupied, computer time, or flight-hours, that cause overhead costs"

indirect costs

An indirect cost is something that can't be easily and conveniently traced to a specific cost object. EX: Manufacturing Overhead

cost behavior

How individual costs react to changes in activity level is referred to as cost ...?

Common Costs

Indirect costs are incurred to support a number of cost objects. These costs cannot be traced to any individual cost object.

Direct Materials

Materials that become an integral part of a finished product and whose costs can be conveniently traced to it.

sunk costs

Sunk costs have already been incurred and cannot be changed now or in the future.

Manufacturing Overhead

all manufacturing costs except direct materials and direct labor

cost object

anything for which cost data are desired

COGS equation(important)

beginning inventory + purchases - ending inventory

Any item for which cost data is desired is called a

cost object

Manufacturing costs include?

direct materials, direct labor, manufacturing overhead

1. Manufacturing costs can also be called? 2. Selling and administrative costs can be called?

1. Manufacturing costs can be called product cost 2. Selling and administrative costs can be called period cost

The goal of making decisions is to identify

Costs (or benefits) that are either relevant or irrelevant to the decision To make decisions, it is essential to have a grasp on the concepts of differential costs and revenues, opportunity costs, and sunk costs.

Mixed Costs

Costs that contain both a variable- and a fixed-cost element and change in total but not proportionately with changes in the activity level.

fixed costs

Costs that do not vary with the quantity of output produced

differential cost

Differential costs are the difference in cost between any two alternatives. A difference in revenue between two alternatives is called differential revenue.

Fixed Expense Ratio formula

Fixed Expenses/Sales

Product vs. Period Costs

Product Cost: -all costs related to manufacturing a product ex. glass for automobile Period Cost: -related to nonmanufacturing activities ex. CEO's wage

true or false All of a company's depreciation, property taxes, and insurance premiums are considered manufacturing overhead.

false

Cost structure refers to the relative portion of product and period costs in an organization.

false, it is fixed and variable costs

Are salaries fixed or variable costs?

fixed, bonuses are variable

CVP (Cost-Volume-Profit) Analysis

part of managerial economics and looks at how alterations in the cost and sales volume changes the profit of a company

Managerial accounting helps a firm to do which three things?

planning, controlling, and decision making

nonmanufacturing costs are

selling and administrative costs

sales mix

the combination of products that make up total sales

Cost strucutre

the various types of fixed and variable costs of a business

Direct Labor

the work of factory employees that can be physically and directly associated with converting raw materials into finished goods

direct labor can also be called ... labor

touch labor

opportunity cost

The potential benefit that is given up when one alternative is selected over another

Operating Leverage

measures how sensitive the net operating income is to a percentage change in dollar sales

a company with higher fixed costs(which also means higher cont. margin) is?

more risky and leveraged to do well in good times and bad in bad times

Operating leverage is a measure of how sensitive "Blank______" is to a given percentage change in sales dollars.

net operating income