Cost accounting Exam 1

The slope of the line

b variable cost per unit

The most important issue in estimating a cost function is determining whether a _____ relationship exists between the level of an activity and the costs related to that level of activity.

cause-and-effect

Without a _____ relationship, managers will be less confident about their ability to estimate or predict costs.

cause-and-effect

Variable costs are _____ on a per-unit basis

constant

a sacrificed or forgone resource to achieve a specific objective.

cost

anything for which a cost measurement is desired

cost object

For manufacturing companies, all manufacturing costs are _____

inventoriable costs.

Production and distribution together are known as

the supply-chain

a cost that has occurred

Actual cost

_____ accumulated costs with an indirect relationship to a cost object

Allocating

The independent variable:

x the cost driver

The dependent variable:

y the cost that is being predicted

Merchandising company Cost of direct materials

Beg inv - DM + purchases - end inv - DM = direct materials used

Merchandising company CGS

Beg inv - finished goods + CGM - end inventory = CGS

Merchandising company Cost of goods manufactured

Beg inv. - WIP + TMC = TMC to account for - End inv. - WIP = CGS manufactured

How to compute Cost of Goods Sold?(Retail/merchandising)

Beg inventory + cost of goods purchased = cost of goods available for sale - ending inventory = cost of goods sold

people are involved in decisions, not just dollars and cents.

Behavioral and technical considerations

the most important planning tool-is the quantitative expression of a plan of activity by management and is an aid to coordinating what needs to be done to execute that plan.

Budget

a predicted cost

Budgeted cost

different objects may result in different classification of the same cost.

Choice of cost object

The four standards of ethical conduct for management accountants as advanced by the Institute of Management Accountants are:

Competence, confidentiality, integrity, objectivity

_____ takes actions that implement the planning decision, evaluates performance, and provides feedback and learning to the organization.

Control

_____ is a term referring to direct labor and indirect manufacturing costs.

Conversion cost

measures, analyzes and reports financial and nonfinancial information related to the costs of acquiring or using resources in an organization.

Cost accounting

the collection of cost data in an organized way by means of an accounting system.

Cost accumulation

a general term that encompasses the gathering of accumulated costs to a cost object in two ways

Cost assignment - Trace and allocate

_____ is approximated by a linear cost function within the relevant range

Cost behavior

Variations in the level of a single activity (_____) explain the variations in the related total costs

Cost driver

a variable, such as the level of activity or volume, that causally affects costs over a given time span.

Cost driver

_____ is a mathematical description of how a cost changes with changes in the level of an activity relating to that cost

Cost function

Today, most accounting professionals take the position that _____ is part of management accounting; therefore, the distinction between the two is not clear-cut and in this book, we often use the terms interchangeably.

Cost information

Two broad strategies

Cost leadership and product differentiation

Examples of information the management accountant can provide for each strategic decision follow: Celine cosmetics has been asked to provide a "store brand" lip gloss that will be sold at a discount retail stores

Cost of producing the "store-brand" lip gloss. Productivity, efficiency, and cost advantages relative to competition. Prices of competitive products, Sensitivity of target customers to price and quality. The production capacity of Celine cosmetics and its competitors. How the market for lip gloss is growing

Examples of information the management accountant can provide for each strategic decision follow: Flash computers is trying to decide whether to produce and sell a new home computer software package that includes the ability to interface with a sewing machine and vacuum cleaner. There is no such software currently on the market

Cost to develop. produce, and sell new software. Premium price that customers would be willing to pay due to product uniqueness. Price of basic software/ Price of closest competitive software/ Cash needed to develop, produce, and sell new software

Examples of information the management accountant can provide for each strategic decision follow: Pedro phones is about to decide whether to launch production and sale of a cell phone with standard features

Cost to manufacture and sell the cell phone. Productivity, efficiency, and cost advantages relative to competition. Prices of competitive cell phones. Sensitivity of target customers to price and quality. The production capacity of Pedro phones and its competitors. How the market for cell phones with standard features is growing

Examples of information the management accountant can provide for each strategic decision follow: Nicholus Meats is considering developing a special line of gourmet bologna made with sundried tomatoes, pine nuts, and artichoke hearts

Cost to produce and sell new line of gourmet cologne. Premium price that customers would be willing to pay due to product uniqueness. Price of basic meat product. Price of closest competitive product. Cash available to develop, produce, and sell special line of gourmet bologna

benefits of an action/purchase generally must exceed costs as a basic decision rule

Cost-benefit approach

Three guidelines help management accountants provide the most value to the strategic and operational decision- making of their companies:

Cost-benefit approach, behavioral and technical considerations, different costs for different purposes

compensation of all manufacturing labor that can be traced to the cost object

DL

acquisition costs of all materials that will become part of the cost object

DM

Merchandising company Total manufacturing costs

DM + DML + MC = TMC

Managers use alternative ways to compute costs in different decision-making situations.

Different costs for different purposes

Annual awards dinner for Teana suppliers Direct or indirect? Fixed or variable?

Direct and fixed

Cost of lubricant used on the Teana assembly line

Direct and variable

_____ can be conveniently and economically traced (tracked) to a cost object.

Direct costs

resources in-stock and available for use

Direct materials

Example of indirect costs

Electricity, rent, property taxes, plant admin expenses

focuses on reporting to external users including investors, creditors, banks, suppliers, and governmental agencies. Financial statements must be based on GAAP

Financial accounting

products completed and ready for sale

Finished goods

remain unchanged in total, for a given time period, despite changes in the related level of activity or volume of output produced

Fixed cists

5 step decision making

Identify the problem and uncertainties. Obtain information. Make predictions about the future. Make decisions by choosing between alternatives. Implement the decision, evaluate performance, and learn.

_____ cannot be conveniently or economically traced (tracked) to a cost object. Instead of being traced, these costs are allocated to a cost object in a rational and systematic manner

Indirect costs

factory costs that are not traceable to the product in an economically feasible way. Examples include lubricants, indirect manufacturing labor, utilities, and supplies.

Indirect manufacturing

Overtime labor costs are considered part of

Indirect overhead costs

_____ costs are all costs of a product that are considered assets in a company's balance sheet when the costs are incured and that are expensed as cost of goods sold only when the product is sold.

Inventoriable

Because there are alternative ways for management to define and classify costs, _____ is required.

Judgement

- Who are our most important customers, and how can we be competitive and deliver value to them? - What substitute products exist in the marketplace, and how do they differ from our own? - What is our most critical capability? - Will adequate cash be available to fund the strategy or will additional funds need to be raised? _____ helps answer important questions

Management accounting

measures, analyzes, and reports financial and nonfinancial information to help managers make decisions to fulfill organizational goals. _____ need not be GAAP compliant.

Management accounting

_____ companies purchase materials and components and convert them into finished products

Manufacturing-sector

Merchandising-sector companies hold only one type of inventory

Merchandising inventory

_____ companies purchase and then sell tangible products without changing their basic form.

Merchandising-sector

costs that have both fixed and variable components; also called semivariable costs.

Mixed costs

Example of direct costs

Parts, wages

They are treated as expenses of the accounting period in which they are incurred

Period costs

are all _____ costs in the income statement other than cost of goods sold

Period costs

_____ selects goals and strategies, predicts results, decides how to attain goals, and communicates this to the organization.

Planning

decisions about pricing and maximizing profits

Pricing and product-mix decisions

_____ is a term referring to all direct manufacturing costs (materials and labor).

Prime cost

Example of cost object

Product, service, project, customer, activity, department

_____ and _____ are the parts of the value chain associated with producing and delivering a product or service.

Production and distribution

How to compute Cost of Goods Purchased (Retail/merchandising)

Purchases + freight-in - purchases returns and allowances - purchase discounts = CGP

The value chain consists of

R&D, design of products and processes, production, marketing, distribution, customer service

behavior is predictable only within this band of activity

Relevant range

the band or range of normal activity level (or volume) in which there is a specific relationship between the level of activity (or volume) and the cost in question.

Relevant range

(Retail/merchandising) Income statement

Revenue - CGS = Gross margin - operating costs = operating income

Merchandising company Income statement

Revenues - CGS = Gross margin - Operating costs = operating income

_____ companies provide services (intangible products) like legal advice or audits.

Service sector

Costs are fixed or variable only with respect to a _____ or a _____

Specific activity, given time period

describes cost management that specifically focuses on strategic issues.

Strategic cost management

_____ specifies how an organization matches its own capabilities with the opportunities in the marketplace

Strategy

_____ was passed in 2002 in response to a series of corporate scandals. The act focuses on improving: Internal controls Corporate governance Monitoring of managers Disclosure practices of public companies

The Sarbanes-Oxley legislation

_____ describes the flow of goods, services and information from the initial sources of materials, services, and information to their delivery regardless of whether the activities occur in one organization or in multiple organizations.

The supply chain

the longer the period, the more likely the cost will be variable.

Time horizon

How to calculate direct manufacturing labor costs?

Total manufacturing costs incurred - DM used - total MOH costs = direct manufacturing labor costs

_____ accumulated costs with a direct relationship to the cost object

Tracing

Fixed costs per unit change inversely with the level of production. As more units are produced, the same fixed cost is spread over more and more units, reducing the cost per unit.

True

a specific cost may be both a direct cost of one cost object and an indirect cost of another cost object

True

Managers should think in terms of total costs rather than _____ for many decisions.

Unit costs

_____ are also called average costs.

Unit costs

_____ should be used cautiously. Because _____ change with a different level of output or volume, it may be more prudent to base decisions on a total cost basis.

Unit costs

_____ that include fixed costs should always reference a given level of output or activity.

Unit costs

Creating _____ is an important part of planning and implementing strategy

Value

_____ is the usefulness a customer gains from a company's product or service. The entire customer experience determines the _____ a customer derives from a product.

Value

The _____ is the sequence of business functions in which a product is made progressively more useful to customers.

Value chain

Customers want companies to use the _____ and _____ to deliver ever-improving levels of performance when it comes to several (or even all) of the following: - cost and efficiency - quality - time - innovation - sustainability

Value chain, supply chain

change in total in proportion to changes in the related level of activity or volume of output produced.

Variable costs

Managers often estimate cost functions based on two assumptions

Variations in the level of a single activity (cost driver) and cost behavior

products started but not yet completed

WIP

The intercept

a fixed costs

A cause-and-effect relationship might arise as a result of:

- A physical relationship between the level of activity and the costs - A contractual agreement - Knowledge of operations