ACC 211 Final Exam Review

Describe absorption costing

•Assigns all manufacturing costs to the product •Direct materials, direct labor, variable overhead, and fixed overhead •Fixed overhead is viewed as a product cost, not a period cost

Consumption ratio

•Product cost will be distorted whenever the product consumes unit-based overhead and nonunit-based overhead in different quantities •The cost of shared resources should be assigned in proportion to the amount of the resources consumed

Who is responsible for controlling the labor efficiency variance?

Controlling the labor efficiency variance is usually the responsibility of production managers and supervisors.

What is an example of an irrelevant cost?

Costs that can't be affected by any future action Ex: depreciation

Cycle time vs velocity

Cycle time measures how long it takes to produce an output from start to finish cycle time = time / units produced

Division A had ROI of 15% last year. The manager of Division A is considering an additional investment for the coming year. What step will the manager likely choose to take? A. Accept the investment as long as it provides positive operating income. B. Accept the investment as long as its ROI is positive. C. Reject the investment if it returns more than 15% ROI. D. Reject the investment if it returns less than 15% ROI. E. Reject the investment if it returns an ROI equal to 15%

D. Reject the investment if it returns less than 15% ROI.

Economic Value Added is residual income with the cost of capital equal to the firm's A. budgeted cost of capital. B. average cost of capital. C. standard cost of capital. D. actual cost of capital.

D. actual cost of capital.

What is sales mix?

Sales mix is the relative combination of products being sold by a firm.

Standard costing vs actual costing

Standard costing: Budgets set standards that are used to control/evaluate managerial performance -Helps improve planning and control -Helps facilitate product costing Actual costing: uses actual costs only

Standard costing vs normal costing vs actual costing in relation to how DM, DL, OH are accounted for

Standard: all three are standard, budgeted costs Normal: DM and DL are actual costs, OH is budgeted Actual: all three use actual costs

Describe the break even point

The break-even point is the point where total revenue equals total cost (the point of zero profit)

Describe the cost of goods manufactured

The total product cost of goods completed during the current period and transferred to finished goods inventory

What is the margin of safety?

The units sold or the revenue earned above the break-even volume sales-break even units

What are the four ways activity management reduces costs?

-Activity elimination: focuses on nonvalue-added activities. How can we not continue doing this activity? -Activity selection: involves choosing among different sets of activities Is there a different activity that would be more valuable to do? -Activity reduction: decreases the time and resources required by an activity. -Activity sharing: sharing increases the efficiency of necessary activities by using economies of scale. Is there a way to share parts or components among multiple activities to avoid duplication?

What are the four responsibility centers?

-Cost center: manager is responsible only for costs -Revenue center: manager is responsible for only sales, or revenue -Profit center: manager is responsible for both revenues and costs -Investment center: manager is responsible for revenues, costs and investments

Describe product costs

-Costs, both direct and indirect, of producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale -Only the production section of the value chain -Direct materials, direct labor and manufacturing overhead -Product costs are inventoried until they are sold, at which time they transfer to COGS.

Cost behavior analysis

-Describes whether a cost changes when the level of output changes -Costs can be variable, fixed or mixed

What are the four parts of the scorecard?

-Financial perspective: economic consequences of the actions taken by the other three perspectives -Customer perspective: the customer and market segments the business will compete in -Internal business process: internal processes that provide value (and identifying the organization's core internal business processes needed for creating customer and shareholder value to achieve the customer and financial objectives) -Learning and growth: capabilities an organization needs to create long-term growth and improvement

Managerial Accounting Who does it provide information for? Is it bound by GAAP? What are the three objectives?

-Internal Users (managers, employees, CEOs, etc.) -Not bound by GAAP -Planning, Controlling, Decision Making

What are the three types of ratios? What do they measure?

-Liquidity ratios: ability of a company to meet its current obligations -Leverage ratios: measure the ability of a company to meet its long- and short-term obligations. (aka - degree of protection) -Profitability ratios: measure the earning ability of a company. Allow investors, creditors, and managers to evaluate how efficiently investment funds are being used

Describe variable costing

-Only assigns variable items to unit costs -Fixed overhead is treated as a period expense and is excluded from the product cost

NOTECARD 4: Appletime grows apples and then sorts them into one of three grades, A, B, or C, based on their condition. Appletime must decide whether to sell the Grade B apples at split-off or to process them into apple pie filling. The company normally sells the Grade B apples in 120 five-pound bags at a per-unit price of $1.25. If the apples are processed into pie filling, the result will be 500 cans of filling with additional costs of $0.24 per can. The buyer will pay $0.90 per can.•What is the contribution to income from selling the Grade B apples in five-pound bags?•What is the contribution to income from processing the Grade B apples into pie filling?•Should Appletime continue to sell the Grade B apples in bags or process them further into pie filling?

-Revenue: 0.9(500)=450 -Cost: 0.24(500)=120 -Income= 450-120=330 You should further process to make $300 vs the $150 you're making from apples in bags.

Describe flexible (variable) budgets Before the fact vs after the fact

-Serves planning and control needs -A flexible (variable) budget enables a firm to compute expected costs for a range of activity levels -Before the fact: the budget gives expected outcomes for a range of activity levels and provides useful information for planning and decision making -After the fact: a budget is based on the actual level of activity. Is useful for control

Difference between absorption and variable costing with cost per unit

-The only difference between the two approaches is the treatment of fixed factory overhead. -The unit product cost under absorption costing is always greater than the unit product cost under variable costing

What do fixed costs look like per unit and in total?

-Unit costs decrease -Total costs are constant (flat line)

Describe the two characteristics of a relevant cost and give examples

1. They are future items AND 2. They differ across alternatives Examples: -Future costs and revenues -Opportunity costs - costs that can't be affected by any future action -DM, DL, variable OH -Purchase price -Sales price -Advertising -Supervision

What are the formulas for the following: 1. Contribution margin 2. Contribution margin ratio 3. Contribution margin per unit

1. sales - variable costs 2. contribution margin / sales 3. price - variable cost per unit

What is a static budget?

A budget for a specific area of the company based on estimations.

Activity based management

A system-wide, integrated approach that focuses management's attention on activities with the objective of improving customer value and profit achieved by providing this value

In going from the sales budget to the production budget, adjustments to the sales budget need to be made for A. finished goods inventories. B. cash receipts. C. factory overhead costs. D. selling expenses.

A. finished goods inventories.

An after-the-fact flexible budget: A. is useful for control. B. is used to provide the expected cost for a range of activity levels. C. is used only when the actual level of activity is the same as the static budget level of activity. D. is the key to receiving frequent feedback from customers. E. All of these are correct.

A. is useful for control.

Describe period costs

All costs that are not product costs (all areas of the value chain except for production) -Office supplies -Research and development activities -The CEO's salary -Advertising

A good investment will earn: A.Back its original investment B.Back its original investment and a reasonable return C.A reasonable return

B.Back its original investment and a reasonable return

The quick ratio differs from the current ratio in that it: A.excludes inventories and accounts receivable from the numerator of the fraction because of obsolescence and possible default on payment. B.is a stricter test of a company's ability to pay its current debts as they are due. C.represents the amount of cash on hand instead of the amount of working capital.

B.is a stricter test of a company's ability to pay its current debts as they are due.

Which of the following costs is not relevant to a decision to sell a product at split-off or process the product further and then sell the product? A. the selling price of the product after further processing B. the selling price of the product at split-off C. joint costs allocated to the product D. the additional processing costs after split-off

C. joint costs allocated to the product (irrelevant costs)

A budget prepared for a particular level of activity is a(n) A. operational budget. B. ABC budget. C. static budget. D. flexible budget. E. variable budget.

C. static budget.

The fixed overhead volume variance is a measure of A. the cost of overspending on fixed overhead items. B. the effect of the actual output differing from the output used to calculate the predetermined fixed overhead rate. C. the cost of unused activity capacity acquired. D. both the effect of the actual output differing from the output used to calculate the predetermined fixed overhead rate and the cost of unused activity capacity.

D. both the effect of the actual output differing from the output used to calculate the predetermined fixed overhead rate and the cost of unused activity capacity.

Describe the steps in the value chain

Design Develop Produce Market Deliver Service

Describe direct vs indirect costs

Direct: -Costs that can be easily and accurately traced to its object. Indirect: -Costs that cannot be easily and accurately traced to its object.

Cost driver analysis

Driver analysis identifies factors that are the root causes of activity costs.

Describe expected cash receipts

Expected cash receipts include all sources of cash for the period being considered -The principal source of cash is from sales which can be included in accounts rec.

Having a risky investment doesn't change the desire payback period. True False

False

What are some of the differences between financial and managerial accounting?

Financial Accounting: -Externally focused-Bound by GAAP -Objective is financial information -Historical orientation -Focuses on information about the firm as a whole -Self contained Managerial Accounting: -Internally focused -No mandatory rules, not bound by GAAP -Financial and non-financial information -Emphasis on the future -Focuses on information about specific parts of the business -Much more broad

What is Kaizen costing?

Kaizen costing focuses on the continuous reduction of the manufacturing costs of existing products and processes

Is reinvesting using the required rate of return or computed IRR more reliable for mutually exclusive projects?

Required rate of return - AKA NPV

Describe decentralization

Managers at lower levels make and implement decisions relating to their area

What are the two activity drivers?

Nonunit level: batch, product, and facility sustaining factors Unit level:

Operatinig budgets vs financial budgets

Operating: Sales, production (DM, DL, OH), ending finished goods, COGS, selling and admin, income statement Financial: Cash, balance sheet, capital expenditures, statement of cash flows.

Describe opportunity costs

Opportunity costs are the benefit given up or sacrificed when one alternative is chosen over another.

Describe planning, controlling, decision making

Planning: -Creating a path for the future -Setting objectives and identifying methods of achieving those methods -Improving quality Controlling: -Monitoring a plans implementation -Taking corrective action as needed Decision Making: -Choosing among competing alternatives/proposals/offers

Predetermined overhead

Predetermined overhead rates help to maintain a constant application of overhead throughout the year

Prime costs vs conversion costs

Prime: -The sum of DM and DL Conversion: -The sum of DL and MOH NEVER ADD TOGETHER

What do variable costs look like per unit and in total?

Variable costs vary in direct proportion to output -Per unit costs are shown in a graph with a flat line -Total costs are shown with an increasing line

Velocity

Velocity is the number of units of output that can be produced in a given period of time velocity = units produced / time

Which of the following is an example of a direct cost? a. Power charges for an office building b. Depreciation on an office building c. The salary paid to the labor used to produce the finished goods d. Property tax on plant and land

c. The salary paid to the labor used to produce the finished goods

Which of the following is true of opportunity costs? a. They are equal to the sum of the prime cost and conversion cost. b. They are costs that vary in total as output increases or decreases. c. They are never included in the accounting records because they are costs of something that did not occur. d. They are costs that can be easily and accurately traced to their cost objects.

c. They are never included in the accounting records because they are costs of something that did not occur.

Wages paid to a factory supervisor are treated as: a. both a direct labor cost and a product cost. b. a period cost but not as a direct labor cost. c. a direct labor cost but not as a period cost. d. a product cost but not as a direct labor cost.

d. a product cost but not as a direct labor cost.