Topic 9: Management Accounting and Cost Concepts

fixed costs

Costs that remain constant in total, regardless of activity level, over a certain range of activity.

Sunk costs

Costs that are past costs and do not change as a result of a future decision.

Direct costs

Costs that are specifically traceable to a unit of business or segment being analyzed.

variable costs

Costs that change in total in direct proportion to changes in activity level.

Out-of-pocket costs

Costs that require an outlay of cash or other resources.

return on investment

A measure of operating performance and efficiency in utilizing assets; computed in its simplest form by dividing net income by average total assets (also known as return on assets or ROA).

C. Make all of these decisions

Accounting information helps management to A. Decide what prices to charge B. Decide how to control operations C. Make all of these decisions D. Decide how to market products

Manufacturing overhead

All costs incurred in the manufacturing process other than direct materials and direct labor.

Evaluating

Analyzing results, rewarding performance, and identifying problems.

Strategic planning

Broad, long-range planning usually conducted by top management.

product costs

Costs associated with products or services offered.

Indirect costs

Costs normally incurred for the benefit of several segments within the organization; sometimes called common costs or joint costs.

Period costs

Costs not directly related to a product, service, or asset. They are charged as expenses to the income statement in the period in which they are incurred.

Manufacturing overhead costs

Costs that are NOT classified as direct materials or direct labor but are essential to the production of goods and services are:

differential costs

Future costs that change as a result of a decision; also called incremental or relevant costs.

Manufacturing overhead

Glue used in the manufacture of chairs would most likely be classified as

Management's desire to improve

Good management accounting is motivated by

Controlling

Implementing management plans and identifying how plans compare with actual performance.

indirect labor

Labor that is necessary to a manufacturing or service business but is not directly related to the actual production of the product.

production prioritizing

Management's continual evaluation of various product lines and divisions' profitability in order to analyze and identify opportunities to improve profits.

operational budgeting

Managerial planning decisions regarding current and immediate future (a year or less) operations that are characterized by regularity and frequency.

Indirect materials

Materials that are necessary to a manufacturing or service business but are not directly included in or are not a significant part of the actual product.

Direct materials

Materials that become part of the product and are traceable to it.

planning

Outlining the activities that need to be performed for an organization to achieve its objectives.

The continual evaluation of the profitability of the various product lines and divisions.

Production prioritizing is

capital budgeting

Systematic planning for long-term investments in operating assets.

cost-volume-profit (C-V-P) analysis

Techniques for determining how changes in revenues, costs, and level of activity affect the profitability of an organization.

Opportunity costs

The benefits lost or forfeited as a result of selecting one alternative course of action over another.

applied to cover a company's fixed costs

The excess of sales over variable costs is:

Differential costs

The most important costs to consider when making a decision involving future action are:

Tracking actual results

The process of control involves

Controller

The top accountant in most large organizations is usually called the:

Direct labor

Wages paid to those who physically work on direct materials to transform them into a finished product and are traceable to specific products.

Discuss the problem with the immediate supervisor.

What is the first step a business professional should take when confronted with a situation that may involve an ethical conflict?

D. Opportunity costs

Which of the following costs would NOT be reported on a financial statement? A. Fixed costs B. Indirect costs C. Sunk costs D. Opportunity costs

C. Regulating

Which of the following is NOT a function of management? A. Controlling B. Planning C. Regulating D. Analyzing

D. Results in only financial data

Which of the following is NOT a fundamental characteristic of management accounting as compared to financial accounting? A. Results in both financial and nonfinancial information B. Exists to serve the competitive needs of organizations C. Evolves from the best practices of companies D. Results in only financial data

D. All of these are correct

Which one of the following is NOT an ethical guideline that the Institute of Management Accountants (IMA) requires its members to follow? A. Not disclose confidential information B. Maintain objectivity when communicating information to decision makers C. Act with both actual and apparent integrity in all situations D. All of these are correct

Sunk cost

You currently work as a machinist in a factory. Your salary is $15 per hour. You are thinking about quitting your job and going back to college. It will take you two years to obtain your college degree. Tuition and other costs of the education will total $21,000. You spent $9,000 preparing to be a machinist. In considering whether to go back to school, the $9,000 of prior training is a(n):