Accounting 201 Exam 4 (copied)

irrevelant/unavoidable costs

FIXED conversion costs

Hannah is deciding where she wants to teach now that she is done with her PhD. she is looking at two schools: UCLA and Cal-tech. Her PhD program cost her $40,000. each school will pay her $15,000 to cover moving costs. UCLA is willing to pay her $25,000 more than Cal-tech. which information is relevant to Hannah's decision? a.PhD program costs b. moving costs c. UCLA's higher salary d. both B and C

UCLA's higher salary

what best defines "responsibility accounting"?

a system for evaluating the performance of each responsibility center and its manager.

unit level activity

activity performed for each individual unit. ex) quality control testing or drilling holes in a plane to attach wings and a tail

product level activity

activity performed for entire product line, regardless of the number of units or batches. ex) product design

customer level activity

activity performed for specific customers. ex) creating a plane template for painting

batch level activity

activity performed once for a group of products, regardless of the number of units in the batch. ex) crane setup

organization level activity

activity performed to keep the business running & enable the manufacture of products. ex) renting factory, or paying insurance premiums

Activity based costing (ABC)

assign costs to cost objects (products or customers) based on activities those cost objects consume.

keeping or eliminating operations decision rule:

calculate what would be gained or lost by eliminating the segment: -if we'd have an overall LOSS by eliminating the segment, KEEP the segment until a better use of resource is found -if we'd have an overall GAIN by eliminating the segment, ELIMINATE the segment

why would a company want to outsource? (5)

cheaper labor, free up resources, focus on strengths, reduce operating costs, lack of internal resources/expertise

Delis payroll department prepares its budget based on payroll costs and technology requirements (like laptops for its payroll employees. the payroll department would be a(n): a. investment center b. cost center c.profit center d. revenue center

cost center

sunk cost

costs incurred in the past that can not be changed regardless of future action (irrelevant)

avoidable cost

costs that can be avoided if you STOP a particular activity (relevant)

_____ acquire _______ that are consumed by _______ to product products.

costs, resources, activities

qualitative issues for special order pricing:

customers demand special pricing, competitors undercutting, etc.

relevant/avoidable costs

direct materials, & VARIABLE conversion costs

decentralization: as companies grow, it becomes difficult for top management to continue making day to day decisions. it is necessary for top management to trust lower-level managers to direct specific pieces of the company. to facilitate this delegation of duties, companies decentralize operations by:

dividing operations into smaller segments allowing each segment to be responsible for its own success.

responsibility accounting

evaluates the performance of each responsibility center and its manager by comparing budgets with actual performance. 3 types of responsibility centers: investment, profit, cost.

If ABC is so great, why doesnt everyone use it?

expensive to implement (new software, consultant costs) and track product use to cost drivers.

which of the following is NOT a section of the balanced scorecard? a. financial b. customer c. external shareholders d. learning and growth

external shareholders

customer perspective goals & KPI's: How do customers see us?

goals: 1. competitive price 2. product quality 3. sales service 4. delivery time KPI's: (must be measurable) 1. customer satisfaction ratings 2. call center complaints 3. new or repeat customers 4. market share 5. on time delivery or number of complete deliverys

learning and growth perspective goals & KPI's: Can we continue to improve and create value?

goals: 1. employees- motivated, skilled, and empowered 2. information systems- accurate and timely 3. climate for action- open, supporting change, and growth KPI's: 1. employees- production levels; retention; employee satisfaction surveys; training hours; suggestions implemented 2. information systems- % of employees with online access to customers; quality; cost info 3. climate for action- use balanced scorecard to communicate strategy and provide feedback on processes

financial perspective goals & KPI's: How do we look to shareholders?

goals: 1. increase revenue 2. control costs 3. improve productivity KPI's: 1. more sales to current customers; new customers; innovation 2. eliminate unnecessary expense (gross margin growth) 3. eliminate waste; use resources more efficiently (ROI)

internal business perspective goals & KPI's: What business processes must we excel at to satisfy our customer and financial objectives?

goals: 1. innovation- improve or develop products 2. operations- efficient and effective 3. after sales service KPI's: 1. innovation- a. number of new products developed b. research and design expense c. product development time 2. operations- a. manufacturing cycle time b. number of units produced c. defect rate 3. after sales service- repeat customers; reviews; warranty claims; avg. repair time; recalls; hotline wait time

which of the following statements is NOT true of non-value-added activities? a. eliminating non value added activities will result in significant cost savings only if the resources consumed by those activities are also eliminated b. if a manager is creative enough, all non value added activities can be eliminated completely c. an activity is defined as non value added from the customers perspective d. activities can be considered non value added in some scenarios and value added in others

if a manager is creative enough, all non value added activities can be eliminated completely

outsourcing decision rule:

if purchase price is LESS than the avoidable costs to produce, outsource if purchase price is MORE than avoidable costs to product, continue to make the product in-house

Boeing is manufacturing a batch of five 747 airplanes for AirDubai. which of the following is most likely a batch level activity? a. adjusting cranes and lifts to the right height for attaching the wings and tail b. installing rows of seats c.designing the controls for all 747 airplanes manufactured by Boeing d. painting the AirDubai logo onto the tail of each plane

installing rows of seats

which of the key performance indicators is starbucks most likely to use to measure success in the internal business perspective? a. introduce 3 new bakery items each quarter b.decrease customer wait time by 2 minutes c. reduce the amount of wasted coffee discarded each day by 5% d. improve employee retention by 10%

introduce 3 new bakery items each quarter

balanced scorecard:

is a comprehensive method of performance evaluation. it considers both financial and operating measures when evaluating the performance of a company and its segments.

qualitative issues with outsourcing:

lay off workers, quality control, delivery time

what is a potential disadvantage of participative budgeting?

managers may build slack into the budget

residual income (RI)=

operating income - (avg. assets * managements target rate of return)

return on investment (ROI) =

operating income / average total assets (how much do we earn for every $1 of assets?)

outsourcing

outsourcing means paying an external third party instead of using internal resources.

examples on how to decentralize operations:

product line, brand, geography, function, customer type, supply chain....etc.

cost center:

responsible for costs only. ex) production supervisor, function (HR), warehouse service and production departments, which typically do not generate revenue are often considered cost centers. Accounting department.

profit center:

responsible for profit only (revenue-costs). ex) product line, division, or store

investment center:

responsible for revenues, costs and capital investments. ex) entire company (the Gap), division, or brand (Banana Republic) most organizations use measures such as ROI and RI, which consider both the units income and its level of assets.

constrained resource:

restricts our capacity in some way, bottleneck. ex) using the same machine

which of the following financial performance measures would a shareholder of the Gap be most concerned with? a. return on investment b. residual income c. economic value added d. direct labor rate variance

return on investment

qualitative issues with allocating constrained resources:

sales of other products may suffer if we change product mix, lose customers if we fail to meet demand on a timely basis. can we outsource? increase capacity?

non-value added activities:

storage waiting time transportation changing clothes on mannequins

either non-value or value added activities (depending on what type of store):

taking items to the dressing room for the customer cleaning dressing rooms cleaning the store

keeping or eliminating operations: fixed production costs are ______________

unavoidable/irrevelant

value-added activities:

unpacking shipments stocking shelves ringing up sales restocking shelves after customers try on items closing the register at the end of the day depositing daily receipts at the bank

What is a non-value-added cost?

what the customer doesn't want to pay for

qualitative issues with keeping or eliminating operations:

what to do with unused capacity? close plants, layoff workers, have to outsource

special order pricing decision rule:

- if we DO HAVE excess capacity, accept the special order if the lower special order sales price is enough to cover the relevant costs of filling the order. - if we DO NOT have excess capacity, accept the special order if the lower special order sales price is enough to cover both the relevant costs of filling the order and the reduction of normal sales

allocating constrained resources decision rule:

-maximize the CM per unit of the constrained resource, NOT per unit of finished product -produce the product with the highest CM per unit of constrained resource FIRST, up to the quantity demanded by customers. Then produce the product with the second highest, and so on until the scarce resource is completely used up.

advantages of decentralization:

-more focused customer relations -empowerment= job satisfaction -training ground for future top management -executive team can focus on strategic high-level decisions -allows management to utilize experts

disadvantages of decentralization:

-self serving segments might fail to to see the big picture/ long term strategic plan. solution- balanced score card -duplication of efforts/costs like HR, finance, legal. solution-centralize services

identify 3 ways activity based costing can be used by a company to make decisions:

1. analyze MOH to reduce product costing 2. analyze service line profitability 3. analyze customer profitability

to be useful in decision making, information must be (3):

1. relevant- a. pertains to the future b. differs between alternatives 2. accurate- because bad information leads to bad decisions 3. timely- we need the information BEFORE the decision has to be made

What are some ways I can identify non-value-added costs? (2)

1.Is the activity necessary for my production process? 2.Is the activity efficiently performed?

calculate activity cost pool rates

= activity cost pool resources\costs / cost driver volume

allocate costs to products or services

= actual cost driver * activity cost pool rates

calculate unit product costs

= total costs allocated to product / units produced = indirect costs allocated to product --> MOH/product