managerial accounting terms part 1

If the NPV is zero, the investment is what?

generating a rate of return exactly equal to the required rate of return and should be likely undertaken.

Internal decision making has 4 parts what are they

planning, organizing, directing, controlling

The predetermined rate is referred to as what?

plant wide rate

Management accounting

used to measure both financial and non financial info

Allocated fixed costs

are those fixed costs that are not directly traceable.

what is the first step in cost management decision making?

Incremental analysis

What is fundamental account analysis tool: BARE represent? in terms of each letter.

(B) beginning Balance Add: (A) additions Less: (R) retirements (E) ending Balance

what are the 4 main tactical decisions?

1) Additional processing 2) Make or Buy 3) Dropping a line 4) joint cost analysis

what are the three things to remember with respect to EVA

1) EVA is a dollar figure and not a percentage 2) If EVA is positive, the company is creating wealth. 3) If EVA is negative, the company is destroying capital.

to make capital investment decisions a manager must do the following 3 thing

1) Estimate the quantity and timing of cash flows 2) Assess the risk 3) Consider the impact

The key to applying cost management is to understand which processes are most important. We can do this by examining what 3 things?

1) Expenditure level 2) The Weight or "Involvement" of Input or Process relative to the Ultimate Output 3) The Availability of Inputs

what are the 4 dimensions of the balanced scorecard

1) Financial 2) customer 3) internal business (process) 4) learning and growth

what are the 3 steps of Net present value

1) Identify the amount and time period of each cash flow associated with the project. 2) Discount the cash flows to their present value using a required rate of return. 3) Evaluate the net present value.

The process value chain is composed of what three processes?

1) Innovation 2) Operations 3) Post-sales

what are the 3 types of decision making?

1) Strategical 2) Tactical 3) operational

Total Cost function

1) Total Fixed Costs + Total Variable Costs 2) TFC + TVC(UVC*X)

steps in the planning and control process (DIGCEC)

1) design, 2) Implement, 3) Gather, 4) Compare, 5) Evaluate, 6) Change

what are the 5 steps of the general decision model?

1) identify 2) obtain 3) predict 4) chose 5) implement and evaluate

what are the 5 steps of the theory of constraints?

1) identify the bottle neck or binding constraints 2) optimize the use of the constraint 3) subordinate everything else to the constraints 4) evaluate the binding constraints 5) repeat the process

* what are the 3 types of inventory

1) material (that are held and waiting to enter the production process) 2) Work in progress (units in the production process but incomplete) 3) Finished goods (units that are complete and waiting to be sold)

what are the 2 approaches to allocating joint cost?

1) physical units method 2) Relative sales value method

Tactical decisions should include what 8 steps?

1) recognize and define the problem 2) Identify alternatives 3) identify the costs and benefits 4) classify the costs and benefits 5) eliminate irrelevant costs and revenues 6) total the relevant costs and benefits(revenues) 7) assess qualitative factors 8) select the best choice

what are the 2 other names that incremental costs goes by and why

1) relevant costs 2) differential costs

the inclusion of overhead to a job requires what 2 things?

1) the calculation of a predetermined overhead allocation rate (PDOR) 2) the actual level of the overhead driver (base) used by the job.

The innovation process:

Anticipates the future needs of customers and the products needed to satisfy

Accounting Rate of Return equation

Average Net Income / Average Investment

Direct Materials equation

Beginning Balance Add: Purchases =Total Materials Available Less: Ending Inventory =Direct Materials Used

Cost of Goods Sold equation

Beginning Finished Goods Add: Cost of Goods Manufactured =Cost of Goods Available for Sale Less: Ending Finished Goods =Cost of goods sold

Selling costs

Costs associated with securing and filling customer orders.

General costs

Costs associated with the firms general management.

direct costs

Costs that are directly traceable

what makes up conversion costs

DL+OH

what makes up prime Costs

DM+DL

what are the 3 things that make up manufacturing costs (production costs)

DM, DL, OH

* Operational decisions

Focus on day-to-day activities within the company made by lower-level managers. Decisions made at this level help to ensure that daily activities proceed smoothly and therefore help to move the company toward reaching the strategic goal.

Example of Strategic decisions

If there is a new product or the company wants to increase production output.

* Physical Units Method

In this approach, joint costs are distributed to products on the basis of some physical measure such as pounds, tons, gallons, etc. However, if the joint products do not share the common or same physical measure or the physical measure is not appropriate, this may present a problem.

Actual Overhead < Applied Overhead means what to overhead and COGS?

Overapplied Overhead and COGS is decreased.

The operations process:

Produces and delivers existing products and services to customers

The post-sales process:

Provides critical and responsive services after the product has been delivered

cost accounting under Value chain analysis

Responsible for tracking costs along the value chain to to ensure cost reduction and efficiency.

what is the structure for a manufacturing income statement

Sales Less: COGS =gross margin less: operating expenses (selling and administrative expenses) =Income before taxes

Unit Costs equation

TC/TUC

What type of decision making strategy were we focused on during this class?

Tactical decisions

Production costs will eventually become a part of what?

The Cost of Goods Sold which is an expense

* What is the advantage of the Relative Sales Value Method

The advantage of this approach is that the joint cost allocation will not produce consistently profitable or unprofitable items.

incremental analysis

The analysis of incremental revenue and incremental costs incurred when one decision alternative is chosen over another.

joint costs

The costs of the common inputs

Value chain analysis

The review of the sequence of business functions that regard to products or services that add value to the customer.

split-off point.

The stage of production at which the individual products are identified

Non-manufacturing costs also known as period costs

They are all other costs that are not associated with the production of goods.

Relevant costs also known as differential costs

They are future costs that differ across alternatives.

required rate of return

This is the rate of return that a company believes should be earned on its investments.

* Relative Sales Value Method

Under this approach, the amount of joint costs allocated to products depends on the relative sales value of the products at the split-off point.

Actual Overhead > Applied Overhead means what to overhead and COGS?

Underapplied Overhead and COGS is increased.

joint products

When two or more products are produced as a result of using common inputs

Strategic cost managements questions

Who are the most important customers, what are the substitute products, make sure that there is enough cash available in the funds, how does that company deal with threats and opportunities.

what are the 3 components under job order costing?

actual DM,DL and applied OH

* Strategic decisions

affect the long-term direction of the company, these decisions are made by top managers. These types of decisions are often complex and the outcomes uncertain.

management myopia

an excessive focus on short-term performance, is an almost inevitable side-effect of the use of financial results based control systems built on accounting measures of performance.

Manufacturing costs also known as production costs

are all of the costs associated with the production of goods.

Sunk Costs

are costs that were incurred in the past.

why are cash flows difficult to estimate

because they often extend into the future.

How is control achieved

by evaluating the management and the things that they control

investment decisions are called what

capital budgeting decisions

COST

cash or cash equivalents value that is sacrificed for the goods

Job Order Costing accounts for what?

costs on a job by job basis - the focus is on a single job Firms adopt this method when the products they produce are distinct and costly.

Indirect Costs

costs that either cannot be directly traced or are not worth tracing.

cost management activities

decisions that deal with materials used, changes in the production process, and changes in the product design.

Supply chain analysis

describes the flow of inputs in the production process.

Fixed costs with respect to the level of output.

do not change with the level of output with in the relevant range.

Period Costs

expenses in the period incurred

* Tactical decisions

focus on intermediate-term issues, they are by middle managers. This type of decision is to help move the company closer to reaching the strategic goal.

Example of Operational decisions

include scheduling employees, handling employee conflicts, and purchasing raw materials needed for production.

Incremental analysis requires computing what 3 things?

incremental: revenue, cost, profit

Cost management

is a phrase that describes the approaches and activities a manager can use to increase firm value relative to the costs incurred within a firm.

Internal Rate of Return (IRR)

is an alternative to net present value for evaluating investment possibilities. Like NPV, it takes into account the time value of money. Specifically, the IRR is the rate of return that equates the present value of future cash flows to the investment outlay. If the IRR is equal to or greater than the required rate of return, the investment should be undertaken.

product costing system

is an integrated set of documents and accounting procedures used to measure and record the cost of a product.

Incremental cost

is the additional cost incurred as a result of selecting one decision alternative over another.

Incremental revenue

is the additional revenue received as a result of selecting one decision alternative over another.

Relevance

is the condition where a revenue or cost will change under different scenarios.

The payback method

is the length of time it takes to recover the initial cost of an investment.

Residual income

is the net operating profit after taxes of an investment center in excess of the profit required for the level of investment.

cost accounting under Supply chain analysis

is the tool that can track the impact of cost management on decision making.

A plan communicates what?

it communicates the goal to the internal shareholders.

the use of applied overhead is selected to avoid what?

it is selected to avoid fluctuation, which will help the management manage costs.

If the NPV is positive what does that mean

it should also be undertaken because it is generating a rate of return that is even greater than the required rate of return.

what if NPV is negative

it should not be accepted because the rate of return is less than the required rate of return.

One key thing to remember is that incremental analysis requires that we include only those revenues and costs that are what?

relevant

Theory of Constraints

recognizes that the performance of any organization (system) is limited by its constraints. also it is about promoting a continuous improvement approach that starts with the weakest link.

what are some examples of costs that are considered as Non manufacturing costs

selling and general and administrative expenses

Effective cost management is a sign of what

superior management quality

Total cost depends on what

the output and the relevant range.

Crucial to an understanding of capital budgeting decisions is the underlying concept of what

the time value of money

Variable Costs with respect to output.

they change with the level of output.

Opportunity Costs

this is the benefit that was forgone from the decision that was not chosen.

what does "You get what you measure" mean

this means that what you measure has a direct impact on performance.

Example of Tactical decisions

to pick an advertising agency to promote a new product or to provide an incentive plan to employees to encourage increased production.

Goal of managerial accounting

to provide the information

* when is the best time to use the Physical units method

when one is under rate or price regulation.