ACCT 6302: Exam 1 Prep

What are core competencies?

- Areas of significant competitive advantage. - Building blocks for the organization's overall strategy.

A firm's choice of costing system depends upon the:

- Firm's industry and product or service. - Firm's strategy and management information needs, and - Costs and benefits of acquiring, designing, modifying, and operating a particular system.

What are the benefits of the Balance Scorecard (BSC)?

- Provides a means for tracking progress on implementing strategy. - Aligns managers' efforts with strategy. - When an organization changes strategy, the B S C provides a means to achieve the desired change. - Can be used to determine management's compensation and rewards. - Coordinates efforts within the firm to achieve C S F s.

To develop a competitive advantage, a firm must consider the following:

- What is our competitive advantage (strategy)? - Where can we add value for the customer? - Where can we reduce costs?

Cost drivers provide two roles for the management accountant:

1) Assigning costs to cost objects 2) Explaining cost behavior, i.e., how total cost changes as the cost driver changes

What are the four types of cost drivers? Hint: AVSE

1. Activity-based 2. Volume-based 3. Structural 4. Executional

Billy Bob's Manufacturing had the following data for the fiscal year ended December 31. Direct Materials Inventory, January 1 = $ 33,300 Direct materials purchases = 388,500 Direct materials used = 382,950 Fixed factory overhead = 532,800 Total factory overhead = 621,600 Total manufacturing costs to account for = 1,200,170 Work-in-Process Inventory, January 1 = 46,620 Work-in-Process Inventory, December 31 = 49,950 Finished Goods Inventory, January 1 = 36,000 Goods available for sale = 1,186,220 Cost of goods sold = 1,142,220 Required: Calculate the following costs: 1. Direct Materials Inventory on December 31. 2. Direct labor costs for the year. 3. Variable factory overhead costs for the year. 4. Cost of goods manufactured for the year. 5. Finished Goods Inventory on December 31.

1. Direct Materials Inventory on December 31 = $38,850 2. Direct labor costs for the year = $149,000 3. Variable factory overhead costs for the year = $88,800 4. Cost of goods manufactured for the year = 1,150,220 5. Finished Goods Inventory on December 31 = $44,000

The BSC groups the organization's CSFs into four perspectives:

1. Financial perspective (financial measures). 2. Customer perspective (customer satisfaction). 3. Internal process perspective (for example, productivity and speed). 4. Learning and growth (for example, training and number of new patents or products).

Value-chain analysis has two steps:

1. Identify the value-chain activities at the smallest level possible. 2. Develop a competitive advantage by reducing cost or adding value.

Once a firm chooses which competitive strategy to follow, what are the various means of implementation?

1. SWOT analysis. 2. Focus on execution. 3. Value-chain analysis. 4. Balanced scorecard (BSC).

What is a strategy map?

A cause-and-effect diagram of the relationships among the critical success factors in a BSC

What is the Balanced Scorecard (BSC)?

A comprehensive performance report that contains the organization's critical success factors; the BSC is used in implementing the organization's strategy.

A cost is incurred when:

A cost is incurred when a resource is used for some purpose

If the volume of production is increased over the level planned, the cost per unit would be expected to: A) Decrease for fixed costs and remain unchanged for variable costs. B) Remain unchanged for fixed costs and increase for variable costs. C) Decrease for fixed costs and increase for variable costs. D) Increase for fixed costs and increase for variable costs. E) Decrease for fixed costs and decrease for variable costs.

A) Decrease for fixed costs and remain unchanged for variable costs.

What are the Qualitative Attributes of Cost Information?

Accuracy (impacted by internal accounting controls) Timeliness (often involves sacrificing in the other two areas) Cost and value of information (the cost of information is affected by desired accuracy, timeliness, and level of aggregation and should not outweigh the associated benefits)

Cost drivers that are developed at a detailed level of operations using activity analysis-a cost driver is determined for each activity are called:

Activity-based cost (ABC) drivers

A value-chain analysis is:

An analysis for better understanding the details of the organization's competitive strategy. It helps a firm better understand its competitive advantage by analyzing what processes add value. CSFs must be implemented in each and every phase of operations. Full Definition: A strategic analysis tool used to identify where value to customers can be increased or costs reduced, and to better understand the firm's linkages with suppliers, customers, and other firms in the industry.

Which one of the following is not usually included as a perspective of the balanced scorecard? A) Financial Performance. B) Tax Reporting. C) Learning and Growth. D) Customer Satisfaction. E) Internal Business Processes.

B) Tax Reporting.

Assume the following information pertaining to Star Company: Prime costs = $ 204,000 Conversion costs = 239,000 Direct materials used = 91,300 Beginning work in process = 106,100 Ending work in process = 84,600 Direct labor used is calculated to be: A) $330,300. B) $35,000. C) $112,700. D) $90,300. E) $113,700.

C) $112,700 $204,000 prime costs − $91,300 direct materials used

During which step of value chain analysis will the company discover whether or not it has a cost advantage, and why? A) During the first step, when the value-chain activities are identified. B) During the first step, when the cost driver(s) are identified. C) During the second step, when the firm develops a competitive advantage by either reducing cost or adding value. D) The entire purpose of value chain analysis is to determine if the company has a cost advantage; therefore, it occurs in all steps. E) In the third step, when the company adopts and implements the balanced scorecard.

C) During the second step, when the firm develops a competitive advantage by either reducing cost or adding value.

What are the three choices that must be made when developing a product-costing system?

Cost accumulation method (That is, job or process costing). Cost measurement method (That is, actual, normal, or standard costing). Overhead assignment method (That is, volume-based or activity-based).

What are the two main competitive strategies?

Cost leadership and differentiation

The Zipcar website provides details on membership and mentions a $8.00 monthly membership fee. A car can be rented for an hourly or daily rate. While the actual rate can vary, a car can be rented for about $8.00 per hour, which includes 20 free miles, or for a $77 daily rate, which includes 184 free miles per day, and a charge of $0.45 per mile for each mile over 184. Required: Assume you will take a two-day trip to visit some friends over the weekend and you will drive 408 miles. What is the total cost of this trip?

Cost of Trip = $172 Explanation: The cost of the trip will include the daily rate and the cost of mileage in excess of the 180 miles per day limit.

The Zipcar website provides details on membership and mentions a $8.00 monthly membership fee. A car can be rented for an hourly or daily rate. While the actual rate can vary, a car can be rented for about $8.00 per hour, which includes 20 free miles, or for a $77 daily rate, which includes 184 free miles per day, and a charge of $0.45 per mile for each mile over 184. Required: You are trying to estimate your monthly spending on your Zipcar membership. You plan to make four weekly trips to run errands like grocery shopping, going to the pharmacy, etc. Each trip will take about two hours and be about 19 miles. You will also take a trip over a three-day weekend to visit your family and expect the trip will cover a total of 458 miles. How much do you expect your Zipcar costs to be for the coming month?

Cost of Trip = $303

Costing systems help management:

Costing systems help management estimate costs and accurately charge customers

Using the four Balance Scorecard perspectives, select the BSC for the customer perception of order-taking convenience and accuracy CSF: Learning and Growth Internal Processes Customer Satisfaction Financial Perspective

Customer Satisfaction

Using the four Balance Scorecard perspectives, select the BSC for the customer retention CSF: Learning and Growth Internal Processes Customer Satisfaction Financial Perspective

Customer Satisfaction

Which of the following types of organizations can most benefit from value chain analysis? A) Service firms. B) Not-for-profit organizations. C) Manufacturing firms. D) All types of organizations can benefit from value chain analysis. E) None of these types of organizations can benefit from value chain analysis.

D) All types of organizations can benefit from value chain analysis.

Direct material costs are:

Direct material costs are the cost of materials that can be readily traced to outputs e.g. purchase price of materials + freight - purchase discounts + reasonable allowance for scrap and defective units

Effective execution of cost leadership is: A) Tight cost control B) Frequent, detailed control reports C) Structured organization and policies D) Incentives based on meeting strict quantitative targets E) All of the above

E) All of the above

______ cost drivers facilitate operational decision making by focusing on short-term effects

Executional cost drivers Workforce involvement, design of the production process, and supplier relationships are examples of operational decisions

Using the four Balance Scorecard perspectives, select the BSC for the revenue growth CSF: Learning and Growth Internal Processes Customer Satisfaction Financial Perspective

Financial Perspective

Using the four Balance Scorecard perspectives, select the BSC for the selling expense to sales ratio CSF: Learning and Growth Internal Processes Customer Satisfaction Financial Perspective

Financial Perspective

For the cost item rental of each location, indicate whether it is fixed or variable relative to the cost object and also indicate whether it is a product or a period cost.

Fixed cost Period cost

For the cost item tools, indicate whether it is fixed or variable relative to the cost object and also indicate whether it is a product or a period cost.

Fixed cost Product cost

For the cost item technicians who change the oil and replace parts, indicate whether it is fixed or variable relative to the cost object and also indicate whether it is a product or a period cost.

Fixed cost Product cost

The portion of total cost that does not change with changes in quantity of the selected cost driver are called _____ costs:

Fixed costs Examples: Include many indirect costs, especially facility costs (depreciation, rent, insurance, taxes on the plant building), production supervisors' salaries, and other manufacturing support costs that do not change with the number of units produced. Some indirect costs that are not traceable to a cost object are nevertheless variable because they change with the number of units produced (example: lubricant for machines)

Costs that are defined for a period of time rather than in relation to volume of output and will not change during this period of time (usually a year) are ___ costs:

Fixed costs Example: Rent is a fixed cost that is normally the same amount per year and does to vary with volume

The strategy map focuses on:

Focuses on the financial perspective because financial performance is the ultimate goal for most profit-seeking organizations.

The strategy map illustrates how:

Illustrates how success in the customer, internal processes, and learning & growth perspectives leads directly to improved financial performance.

Using the four Balance Scorecard perspectives, select the BSC for the materials inventory CSF: Learning and Growth Internal Processes Customer Satisfaction Financial Perspective

Internal Processes

Using the four Balance Scorecard perspectives, select the BSC for the order processing time CSF: Learning and Growth Internal Processes Customer Satisfaction Financial Perspective

Internal Processes

Using the four Balance Scorecard perspectives, select the BSC for the product manufacturing time CSF: Learning and Growth Internal Processes Customer Satisfaction Financial Perspective

Internal Processes

What are the four elements of the SWOT analysis? Hint: two are internal to the firm and two are external

Internal: S - strengths/internal. W - weaknesses/internal. Look at product lines, management, R&D, manufacturing, marketing, and strategy. External: O - opportunities/external. T - threats/external. Look at barriers to entry, intensity of rivalry among competitors, substitute goods, and customer/supplier bargaining power.

Using the four Balance Scorecard perspectives, select the BSC for the number of emerging technologies evaluated CSF: Learning and Growth Internal Processes Customer Satisfaction Financial Perspective

Learning and Growth

Using the four Balance Scorecard perspectives, select the BSC for the number of new manufacturing processes developed CSF: Learning and Growth Internal Processes Customer Satisfaction Financial Perspective

Learning and Growth

Using the four Balance Scorecard perspectives, select the BSC for the training dollars per employee CSF: Learning and Growth Internal Processes Customer Satisfaction Financial Perspective

Learning and Growth

Costs used to refer to a total cost figure that includes both a fixed and variable component are called _____ costs:

Mixed costs

______ costs include all other costs incurred by the firm in managing or selling the product (costs outside the manufacturing step of the value chain)

Period costs (also called non-product costs)

______ costing is the process of accumulating, classifying, and assigning direct materials, direct labor, and factory overhead costs to cost objects, which most commonly are products, services, or projects:

Product costing Example: Direct costs are traced to a cost object (For Example, a job). Indirect costs are allocated to a cost object (using one or more cost-allocation bases/cost drivers).

______ costs include only the costs necessary to complete the product at the manufacturing step in the value chain (manufacturing) or to purchase and transport the product to the location of sale (merchandising)

Product costs

Company A has 50% of its total variable manufacturing cost in labor and the other 50% in fuel. Company B has 40% of its total variable manufacturing cost in labor and the remainder in fuel. Suppose in a given year labor costs rise 5% and fuel costs rise 10%. Required: 1. Using the information above, calculate the percentage increase in total variable cost for each company. (Enter your answers as whole percentages rounded to 1 decimal place.) 2. Which company has the higher percentage increase in total variable cost?

Question 1: Company A: 7.5% Company B: 8.0% Explanation: The increase in total variable manufacturing cost, averaging both labor and fuel costs, is 7.5% for Company A and 8.0% for Company B. The increase is higher for Company B because it has a higher percent of fuel costs, which have risen faster than labor costs. This result holds for whatever amounts are given for fuel and labor costs, as long as the costs are in the prescribed percentage relationship Calculations: 7.5% = (0.5 × 5%) + (0.5 × 10%) 8.0% = (0.4 × 5%) + (0.6 × 10%) This example illustrates that two companies that may have the same total variable costs, and facing the same changes in materials or labor costs, will be affected differently if the mix of variable costs is not the same for the two companies. Question 2: Company B

Quantitative measures are required for:

Required for each critical success factor.

The following data pertain to Babor Company for the fiscal year ended December 31: Purchases of Materials: Dec 31 (current) = $ 187,500 Direct labor: Dec 31 (current) = 125,250 Indirect labor: Dec 31 (current) = 49,500 Factory insurance: Dec 31 (current) = 8,900 Depreciation—factory: Dec 31 (current) = 35,250 Repairs and maintenance—factory: Dec 31 (current) = 13,700 Marketing expenses: Dec 31 (current) = 147,150 General and administrative expenses: Dec 31 (current) = 87,350 Materials inventory: Dec 31 (prior) = $ 27,500 Dec 31 (current) =61,750 Work-in-Process inventory: Dec 31 (prior) = 15,250 Dec 31 (current) = 17,800 Finished Goods inventory: Dec 31 (prior) = 17,900 Dec 31 (current) = 24,400 Sales in the current year were $628,000. Required: Prepare a schedule of cost of goods manufactured and an income statement for the current year for Babor Company.

STATEMENT OF COGM Direct Materials: Beginning materials inventory = $27,500 (beginning materials inventory) Materials purchases = $187,500 (purchases of materials, ending) Materials available = $215,000 (beginning materials inventory + material purchases) Less: ending materials inventory = $61,750 (materials inventory, ending) Direct materials used = $153,250 (materials available - ending materials inventory) Direct labor - wages = $125,250 (provided in question) Factory Overhead: Factory insurance = $8,900 (provided in question) Repairs and maintenance = $13,700 (provided in question) Depreciation expense - plant = $35,250 (provided in question) Indirect labor - wages = $49,500 (provided in question) Total factory overhead = $107,350 (add all factory overhead costs from question) Total manufacturing costs = $385,850 (direct materials used + direct labor-wages + total factory overhead) Add: beginning WIP inventory = $15,250 (beginning WIP inventory) Total manufacturing costs to account for = $401,100 (total manufacturing costs + beginning WIP inventory) Less: ending WIP inventory = $17,800 (ending WIP inventory) COGM = $383,300 (total manufacturing costs to account for - ending WIP inventory) INCOME STATEMENT Sales revenue = $628,000 (provided in question) COGS: COGM = $383,300 (pull from previous question) Beginning FGI = $17,900 (provided in question) COGAFS = $401,200 (COGM + beginning FGI) Less: ending FGI = $24,400 (provided in question) COGS = $376,800 (COGAFS - ending FGI) Gross margin = $251,200 (sales revenue - (add COGS)) General and admin = $87,350 (provided in question) Marketing expenses = $147,150 (provided in question) Total selling & admin expenses = $234,500 (general & admin + marketing expenses) Operating income = $16,700 (gross margin - total selling & admin exp.)

Cornelius Company produces women's clothing. During the year, the company incurred the following costs: Factory rent = $396,500 Direct labor = 333,000 Utilities—factory = 42,400 Purchases of direct materials = 582,500 Indirect materials = 75,350 Indirect labor = 66,600 Inventories for the year were as follows: Materials Jan 1 = $30,500 Dec 31 = $48,250 Work-in-Process Jan 1 = 47,750 Dec 31 = 42,200 Finished Goods Jan 1 = 146,000 Dec 31 = 81,050 Prepare a statement of cost of goods manufactured and calculate cost of goods sold.

STATEMENT OF COGM YEAR ENDED DEC 31 Direct Materials Beginning materials inventory = $30,500 (Jan 1 materials) Materials purchases = $582,500 (Purchases of direct materials) Materials available = $613,000 (beginning materials inventory + materials purchases) Less: Ending materials inventory = $48,250 (Dec 31 materials) Materials Used = $564,750 (materials available - ending materials inventory) Direct Labor = $333,000 (provided in question) Factory Overhead Factory Rent = $396,5000 (provided in question) Indirect Labor = $66,600 (provided in question) Indirect Materials = $75,350 (provided in question) Utilities - Factory = $42,400 (provided in question) Total factory overhead = $580,850 (add factory rent, indirect labor, indirect materials, utilities-factory) Total manufacturing costs = $1,478,600 (materials used + direct labor + total factory overhead) Add: beginning work-in-process inventory = $47,750 (Jan 1 WIP) Total manufacturing costs to account for = $1,526,350 (total manufacturing costs + beginning WIP inventory) Less: ending work-in-process inventory = $42,200 (Dec 31 WIP, ending) Cost of goods manufactured = $1,484,150 (total manufacturing costs to account for - ending WIP inventory) Cost of Goods Sold Cost of goods manufactured = $1,484,150 (pull from above) Beginning finished goods inventory = $146,000 (provided in question) Cost of goods available for sale = $1,630,150 (COGM + beginning FGI) Ending finished goods inventory = $81,050 (Dec 31 finished goods) Cost of goods sold = $1,549,100 (COGAS - ending FIG)

The strategy map shows how:

Shows how the achievement of CSFs in one perspective should affect the achievement of goals in another perspective.

Cost that vary with the change in cost driver volume but does so in steps are called _____ costs:

Step costs

Critical Success Factors (CSFs) are tied to ______?

Strategy Examples: Product innovation. Quality. Skill development.

Effective execution of differentiation is:

Strong coordination among functions: research, product development, manufacturing, and marketing.

____ cost drivers facilitate strategic decision making because they involve plans and decisions that have long-term effects

Structural cost drivers Scale, experience, technology, and complexity are considered in hopes of improving competitive position

The Accounting Club wants to have a party for its members. The cost of renting space is $1,670, and the cost of refreshments will be $19 per person. Required: What is the total cost if 100 people attend? What is the average cost? (Round your answer to 2 decimal places.)

Total Cost = $ 3,570 Explanation: $ 1,670 (fixed cost of space rental) + 1,900 (variable cost of refreshments = $19 × 100) Average cost = $35.70 per person Explanation: $3,570/100 people = $35.70 per person

The Accounting Club wants to have a party for its members. The cost of renting space is $1,670, and the cost of refreshments will be $19 per person. Required: What is the total cost if 200 people attend? What is the average cost? (Round your answer to 2 decimal places.)

Total Cost = $5,470 Explanation: $ 1,670 (fixed cost of space rental) + 3,800 (variable cost of refreshments = $19 × 200) Average cost = $27.35 per person Explanation: $5,470/200 people = $27.35 per person

What are the three-phases of the value-chain analysis?

Upstream: product development, links with suppliers. Operations: manufacturing or service done. Downstream: links with customers, delivery, service.

For the cost item purchase of oil and tires, indicate whether it is fixed or variable relative to the cost object and also indicate whether it is a product or a period cost.

Variable cost Production cost

For the cost item parts, indicate whether it is fixed or variable relative to the cost object and also indicate whether it is a product or a period cost.

Variable cost Production cost

The change in total cost associated with each change in quantity of a selected cost driver are called _____ costs:

Variable costs Example: The cost of direct materials

Cost drivers that are developed at an aggregate level and relate to the amount produced or quantity of service provided are called:

Volume-based cost drivers Additional Notes: The relationship between the cost driver and total cost is approximately linear within a relatively short range of output

_________ costing systems allocate overhead using a volume-based cost driver, such as units produced, direct labor-hours, direct labor costs, or machine-hours

Volume-based costing systems This approach relies heavily on the assumption that overhead cost incurrence is related to output volume.

Costing ______ is critical to a firm's success.

accuracy

An ________ costing system uses actual costs incurred as the measure of product cost.

actual costing system It is rarely used because Unit costs fluctuate significantly, thereby increasing the possibility of error in pricing, adding/dropping product lines, and executing performance evaluations. Factory overhead costs are only known at or after the end of the period (thus, cost information is not available on a timely basis).

The cost drivers used to allocate or assign costs to cost objects are called:

allocation bases

A properly constructed Balance Scorecard (BSC) reflects a:

company's strategy One should be able to infer a company's strategy from its balanced scorecard.

An accurate costing system can provide a:

competitive advantage

Direct labor and factory overhead combined into a single amount is called:

conversion cost

The assignment of indirect costs to cost pools and cost objects through the use of cost drivers is called:

cost allocation

The process of assigning costs to cost pools or from cost pools to cost objects is called a:

cost assignment

Any factor that has the effect of changing the level of total cost is called a:

cost driver

Any product, service, customer, activity, or organizational unit to which costs are assigned for some management purpose is called a:

cost object

Costs are assembled into meaningful groups called:

cost pools (e.g., by type of cost or source)

In differentiated firms, CSFs focus on:

customer satisfaction and innovation.

Costs that can be conveniently and economically traced to a cost pool or a cost object are called:

direct costs

Labor that can be readily traced to outputs are called:

direct labor costs Example: Wages paid plus a reasonable allowance for nonproductive time (e.g., coffee breaks or personal time)

The cost of the materials in the product and a reasonable allowance for scrap and defective units are called:

direct materials costs

The three main types of costs are:

direct materials, direct labor, and overhead

Costs that cannot be traced conveniently or economically to a cost pool or a cost object are called:

indirect costs

Labor costs that cannot be readily or economically traced to outputs (i.e., they are manufacturing support costs) are called:

indirect labor costs Examples: Supervision, quality control, inspection, purchasing and receiving, and other labor-related manufacturing support costs; a component of total manufacturing overhead.

The cost of materials used in manufacturing that are not part of the product or are not easily or economically traceable to the finished product or a component of total manufacturing overhead are called:

indirect materials costs

In a ________ costing system, all manufacturing costs incurred are assigned to specific jobs, customers, projects, clients, or contracts.

job costing system This type of system is appropriate when cost can be readily identified with specific customers, jobs, or projects. Often found in small or medium firms that produce customized products and in professional services firms. Examples: Construction, printing, special equipment manufacturing, shipbuilding, medical services, custom furniture manufacturers, advertising agencies, accounting firms, etc.

Differentiated firms must pay close attention to:

marketing and product development Management accountants assist by gathering, analyzing, and reporting on relevant information.

A _____ costing system uses actual costs for direct materials and direct labor

normal costing system BUT, normal costs for factory overhead: - Involves estimating a portion of overhead to be assigned to each product as it is produced providing a timely estimate of cost. - Choice of an appropriate denominator activity level for allocating fixed overhead costs is a key consideration.

In cost leadership firms, CSFs focus on:

operational performance and quality.

Indirect costs for the manufacturer, including indirect materials, indirect labor, and other indirect items are often combined in a cost pool referred to as:

overhead (or factory overhead, or indirect manufacturing costs)

The sum of direct materials and direct labor is called:

prime costs

______ costing is often found in firms that produce one or a few homogeneous products through continuous mass production.

process costing Examples: Chemical industry, bottling companies, plastics, food products, paper products, cement manufacturing, brick production, etc.

Examples of indirect material costs are:

rags, lubricants, and small tools or materials required by the machines

The range of the cost driver in which the actual value of the cost driver is expected to fall, and for which the relationship between the cost and the cost driver is assumed to be approximately linear is called:

relevant range

A _______ costing system uses standard costs for all cost elements, direct and indirect

standard costing system Standard costs are costs a firm should attain under relatively efficient operating conditions. Standard costing systems provide a basis for cost control, performance evaluation, and process improvement.

The emphasis placed on each performance perspective reflects the:

strategy of the firm. For a cost leader, the operations perspective might be the most important; for a differentiator, the customer perspective...

A group of related products; useful for preparing profitability reports as part of lean accounting; all the activities required to create customer value for a family of products or services is called a:

value stream

A cost for which total costs change in proportion with changes in the volume of output are ___ costs:

variable costs