Principles of Accounting - D074: UNIT 4 & UNIT 5

Michael Jordan is the manager of Segment B in Chicago Company. Michael has heard internal rumors that his segment is to be shut down. He has heard that the company chief financial officer (CFO) has done some calculations indicating that Segment B is losing money. Michael has been with Chicago Company for many years, and he suspects that the CFO's calculations are heavily influenced by headquarters cost allocations. What mistake is the CFO making?

Including uncontrollable costs in the performance evaluation measure of Segment B It is important that managers be held responsible only for controllable costs and not for uncontrollable costs.

What factors below contribute to a company's pattern of cash collections?

Industry, firm size, and the firm's credit policies

In what way does a cash budget allow a manager to take action now?

It allows the manager to identify cash shortages in advance.

What information can a company use to create a forecast, or budget, of expected future cash inflows and outflows?

Past patterns of a company's cash collections and cash disbursements

What label is given to a business unit in which the manager is responsible for costs and revenues only?

Profit center

direct materials budget

a detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories

production budget

a detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs

direct labor budget

a detailed plan that shows the direct labor-hours required to fulfill the production budget

sales budget

a detailed schedule showing expected sales expressed in both dollars and units

segment margin statement

a profit and loss statement that identifies costs directly chargeable to a segment and further divides them into variable and fixed cost behavior patterns

Responsibility accounting

a system in which managers are assigned and held accountable for certain costs, revenues, or assets

budget

an estimate of income and expenditure for a set period of time.

master budget

an integrated group of detailed budgets that outline the overall operating and financing plans for a specific period, usually one year

decentralized company

an organization in which managers in all levels have the authority to make decisions concerning the operations for which they are responsible

noncontrollable costs

costs incurred indirectly and allocated to a responsibility center that are not controllable at that level

direct costs

costs that can be easily and accurately traced to a cost object. The costs over which they have control are usually

controllable costs

costs that can be influenced or changed by management

indirect costs

normally incurred for the benefit of several segments or activities. sometimes called common costs or joint costs

segments

parts of an organization requiring separate reports for evaluation by management

selling and administrative expense budget

planned expenditures for all non-production expenditures,The costs of supplies used by the office staff, the salaries of the sales manager and company president, and the depreciation of administrative office buildings (not production facilities) all belong in this category

You could also construct a column, chart, for example, to compare.....

revenues or even certain types of expenses over a period of time. This would be an example of comparing different categories of items.

cost variance

the difference between actual and standard costs

segment-margin ratios

the segment margin divided by the segment net sales revenue; the measure of the efficiency of the segments operating performance and its profitability

What is the correct sequence of budgets in a manufacturing business?

Sales, production, direct labor

What problem can occur if inventories are too high?

Selling and administrative expense budget

What is a cost variance?

The amount by which the actual cost differs from the budgeted cost

What is the segment margin?

The difference between segment revenue and direct segment costs

Segment Margins

The difference between segment revenue and direct segment costs; a measure of a segment contribution to cover indirect fixed costs and provide costs in effect the operating profit created by the segment

For what purpose are column charts used?

To compare different categories of items or the same category over time

According to a company's cash budget, when can management plan to repay the company's loans?

When excess cash is available

cash budget

a budget that estimates cash inflows and outflows during a particular period like a month or a quarter

The sales and administrative expense budget includes which expenses?

All expenses besides production-related expenses

What is one important factor to consider when preparing a production budget?

Amount of beginning inventory

responsibility center

An organizational unit for which a manager has control over and is held accountable for its performance

cost center

An organizational unit in which a manager has control over and is held accountable for cost performance.

The manufacturing overhead cost budget includes which manufacturing costs?

Both fixed and variable manufacturing overhead costs

What are the principal sources of a company's cash inflows?

Cash sales and the collection of cash from prior credit sales

Which items does a manager have control over in a profit center?

Costs and revenues

Which items does a manager have control over in a cost center?

Costs only

On September 30 of Year 1, Davis Company had finished goods inventory of 1,000 units. Davis Company has created a forecast of its sales for each month for the next four months. What additional information is needed in order to compute budgeted production for Davis Company for October?

Desired amount of ending inventory each month Factors to be considered in preparing the production budget are (1) projected sales volume for the period, (2) the desired amount of ending inventory, and (3) the amount of inventory already on hand in the beginning inventory.

The production budget supplies the information required for which other budget in the master budgeting process?

Direct materials budget

With respect to cash collections, what is an aging schedule?

An analysis of past cash flow patterns to reveal the expected timing of future cash collections

manufacturing overhead budget

A detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period.

The master budgeting process begins with which forecast?

A forecast of sales

What is the concept behind responsibility accounting in management accounting?

A manager should be evaluated only on factors he or she can directly control.

When can management determine the amount of direct materials, direct labor, and manufacturing overhead needed during the period?

Only after production quantities are known

Segment managers should be evaluated on which items included in a budget?

Only the items they can control or influence

As mentioned before, column charts are particularly useful when comparing.....

different categories of items or the same category over time

pro forma financial statements

financial statements projecting future years' operations

operating capital

funds available for use in financing the day to day activities of a business

profit center

has responsibility for both costs and revenues. found at higher levels in an organization than are cost centers

investment center

manager is responsible for costs, revenues, and assets. This means that the manager is responsible not only for operating costs and revenues but also for determining the amount of funds to be invested in the center's plant and equipment and for the rate of return earned on those investments.usually found at relatively high levels in organizations.