Managerial Accounting

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Managerial Accounting
2011-10-04 21:18:05
Managerial test

Chapter 1, 2, 3
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  1. Product costs
    • all costs related to obtaining or manufacturing a product intended for sale to customers
    • accumulated in inventory accounts and expensed as cost of goods sold at the point of sale
  2. period cost
    general, selling, and administrative costs that are expensed in the period in which the economic sacrifice is incurred
  3. product costs in manufacturing companies
    • materials
    • labor
    • overhead
  4. costs can be assets or expenses
    • product cost -> asset -> COGS
    • period cost ----> expense
  5. cost flow in manufacturing companies
    • raw materials: materials waiting to be processed
    • work in process: partially complete products - material to which some labor and/or overhead has been added
    • finished goods
    • finished goods: completed products awaiting sale
  6. the inventory equation
    BI + cost added = cost transferred + EI

    • Materials Inventory:
    • BI + Material Purchase - Material Used = EI

    • Work In Process Inventory:
    • BI + Material Used + Labor + Overhead - Cost of goods manufactured = EI

    • Finished Goods Inventory:
    • BI + cost of goods manufactured - cost of goods sold = EI
  7. Overhead costs
    • Indirect costs
    • depreciation- supervisor's salary- utilities
  8. to explain how product costing differs in service, merchandising, and manufacturing companies
    • service companies: provide services to customers
    • merchandising companies: sell products other companies make

    also incur materials, labor, and overhead costs, these costs are normally treated as general, selling and administrative expenses rather than accumulated in inventory accounts
  9. To identify and describe fixed, variable, and mixed cost behavior
  10. fixed cost behavior
    • total fixed cost remains constant
    • fixed cost per unit:
    • activity increases: cost per unit decreases
    • activity decreases: cost per unit increases
  11. variable cost behavior
    • total variable cost:
    • activity increases: increases proportionately
    • activity decreases: decreases proportionally
    • variable cost per unit: remains constant
  12. variable cost behavior
    total variable cost increases in direct proportion to the number of tickets sold
  13. mixed costs
    a mixed cost has both fixed and variable components
  14. fixed cost are usually characterized by:
    total costs that remain constant
  15. variable costs are usually characterized by
    total costs that increase as activity increases
  16. to demonstrate the effects of operating leverage on profitability
    operating leverage
  17. operating leverage
    • a measure of the extent to which fixed costs are being used in an organization
    • greatest in companies that a have a high proportion of fixed costs in relation to variable costs
    • when all costs are fixed, every additional sales dollar contributes one dollar to gross profit
  18. highly leveraged
    • more risk and more reward
    • low risk and less reward
  19. high revenue =
    high profit
  20. risk and reward assessment
    • risk: refers to the possibility that sacrifices may exceed benefits
    • risk may be reduced and potential for profits by converting fixed costs into variable costs
  21. when a number of units sold increase a fixed company
    will gain the most
  22. if sales decrease the income decreases greater in
    the all fixed company
  23. to prepare an income statement using the contribution margin approach
    • sales revenue
    • less: variable costs
    • Contribution margin
    • less: fixed costs
    • Net Income/ operating profit
  24. gross margin (gross profit)
    • the excess of sales over the cost of goods sold
    • revenue - COGS = GM
  25. cost of goods sold
    the cost of the merchandise that is acquired or manufactured and resold
  26. contribution margin
    • focuses on sales in relation to all variable costs
    • format emphasizes cost behavior
    • covers fixed costs and provides income
  27. income statement using GM
    • sales revenue
    • Less: COGS (V+F)
    • Gross Margin:
    • Less: SGA (V+F)
    • Operating Profit
  28. Using Fixed Cost to Provide a Competitive Operating Advantage
    Fixed costs are better if volume is increasing, but variable costs may be better if business is declining
  29. measuring operating leverage using contribution margin
    • operating leverage = Contribution margin/ net income
    • operating leverage is a measure of how a percentage change in sales will effect profits
  30. fixed cost are not always fixed
    relevant range
    total fixed cost doesn't change for a range of activity, and then jumps to a new higher cost for the next higher range of activity
  31. variable cost per unit are not always fixed
    Relevant range
    • our variable cost assumption (constant unit variable cost) applies within the relevant range
    • economy of scale -> get better price

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