managerial accounting

Card Set Information

managerial accounting
2010-02-23 04:42:48
midterm 1

Show Answers:

  1. Inventory flows
    beginning balance + additions to inventory = ending balance + withdrawals from inventory
  2. Schedule of Cost of Goods Manufactured
    • Raw Materials
    • Beginning raw materials + Raw materials purchased = Raw Materials available for use in production - Ending raw materials inventory = Raw Materials used in production
    • Manufacturing Costs
    • Direct Materials + Direct Labor + Manufacturing Overhead = Total Manufacturing costs
    • Work in Process
    • Beg. work in process inventory + Total Mfg. cost = Total Work in process for the period - Ending work in process inventory = Cost of Goods Manufactured
    • Beg Work in process Inventory + Total Mfg costs = Total work in process for the period - Ending work in process inventory = Cost of Goods Manufactured
    • Beg. Finished goods inventory + Cost of Goods Manufactured = Cost of Goods Available for Sale - Ending finished goods inventory = Cost of Goods Sold
  4. Identify the 3 basic manufacturing cost categories
    Direct Materials, Direct Labor, Manufacturing Overhead
  5. Define Direct Materials and give examples
    • Raw materials that become an integral part of the product and that can be conveniently traced directly to it.
    • Ex. Radio installed in a car
  6. Direct Labor and ex.
    • labor costs that can be easily traced to individual units of product.
    • Ex. Wages paid to automobile assembly workers
  7. Manufacturing Overhead and ex.
    • costs cannot be traced directly to specific units produced
    • ex. Indirect Materials
    • Materials used to support the production process. Examples: Lubricants and cleaning supplies used in the automobile assembly plant.
    • ex. direct materials= Wages paid to employees who are not directly involved in production work. Examples: Maintenance workers, janitors and security guards.
  8. What are the two NonManufacturing costs
    • Selling costs = Costs necessary to get the order and deliver the product
    • Administrative costs = All executive, organizational, and clerical costs.
  9. Example of Product Costs
    • Rent on equipment used in the factory, Lubricants used for machine maintenance, Soap and paper towels used by factory workers at the end of a shift. Factory supervisors' salaries, Heat, water, and power consumed in the factory,Manufacturing equipment depreciation. Direct materials costs.
    • Electrical costs to light the production facility.
  10. Example of Period costs
    Depreciation on salespersons' cars. Salaries of personnel who work in the finished goods warehouse. Advertising costs. The wages of the receptionist in the administrative offices.Property taxes on corporate headquarters.Sales commissions
  11. Variable cost =
    • Total variable costs change when activity changes. Variable Cost per unit remains the same over wide ranges of activity
    • Ex. 1.Merchandising companies – cost of goods sold. 2.Manufacturing companies – direct materials, direct labor, and variable overhead. 3.Merchandising and manufacturing companies – commissions, shipping costs, and clerical costs such as invoicing. 4.Service companies – supplies, travel, and clerical.
  12. Fixed cost
    • Total fixed costs remain unchanged when activity changes. Avg fixed cost per unit goes down as activity level goes up.Ex. CommittedLong-term, cannot be significantly reduced in the short-term.--
    • Examples Depreciation on Buildings and Equipment and Real Estate Taxes. Discretionary May be altered in the short-term by current managerial decisions-- Examples Advertising and Research and Development
  13. Sunk Costs, Differential Cost, Opportunity cost ex.
    • SC = Cost of the old X-ray machine
    • DC= Cost of electricity to run the X-ray machines
    • OC= Benefits from a new DNA analyzer
  14. Direct and Indirect Cost
    • Direct costs that can be easily and conveninetly traced to a unit of product or other cost object. Ex-- Direct material and direct labor
    • Indirect costs that cannot be easily traced . Ex-- manufacturing overhead
  15. True Statements about cost behavior.
    • a.Fixed costs per unit vary with the level of activity.
    • b.Variable costs per unit are constant within the relevant range.
    • c.Total fixed costs are constant within the relevant range
  16. Total Mixed Cost line
    • Y= a + bX
    • Y=the total mixed cost
    • a=the total fixed cost ( the vertical intercept of the line)
    • b=the variable cost per unit of activity (the slope of the line)
    • X=the level of activity
  17. The High Low Method
    • The variable cost per hour of maintenance is equal to the change in cost divided by the change in hours. Ex Hours Cost
    • High 800 9800
    • Low 500 7400
    • Change 300 2400 = $2400/300 hours= 8.00/hour
  18. How to find the Total fixed cost in the High-Low Method
    • Total Fixed Cost = Total Cost – Total Variable Cost
    • Total Fixed Cost = $9,800 – ($8/hour × 800 hours
  19. Which method will produce the highest values for work in process and finished goods inventories
    Absorption costing
  20. The Contribution Format
    (costs organized by behavior and used primarily by management) Sales - Variable expenses = Contribution Margin - Fixed Expenses = Net Operating Income
  21. The Traditional Approach
    (costs organized by function and used primarily for external reporting) Sales - Cost of Goods Sold = Gross Margin - Operating Expense = Net Operating Income
  22. Overview of Absorption and Variable Costing
    • Absorption Costing Product Cost= Direct Materials, Direct Labor, Variable MOH,Fixed MOH. Period Cost= Variable Selling And administrative expenses, fixed selling and administrative expenses
    • Variable Costing Product Cost= Direct materials, direct labor, Variable MOH. Period Cost= Fixed MOH, variable selling and administrative expenses, fixed selling.
  23. CVP Relationship in Equation Form
    • Profit = (Sales – Variable expenses) – Fixed expenses
    • Sales = Quantity Sold (Q) x Selling Price Per Unit (P)
    • Variable Expenses= (Q) x Variable Expenses per unit (V)
    • Profit= (QxP - QxV) - Fixed Expenses
  24. Contribution margin Ration
    The CM ratio is calculated by dividing the total contribution margin by total sales.
  25. Preparing a CVP Graph
    1.Draw a line parallel to the volume axis to represent total fixed expense. 2.Choose some volume of unit sales and plot the point representing total expense (fixed and variable) at the sales volume you have selected. 3. Again choose some sales volume and plot the point representing total sales dollars at the activity level you have selected
  26. Target Profit Analysis
    • Two ways to find the Target profit by The Equation forumula= Profit = Unit CM × Q – Fixed expenses
    • The Formula Method= Unit sales to attainthe target profit= (Target profit + Fixed expenses) / CM per unit
  27. Break Even in Unit Sales Using both equations
    • Equation Method Profits = Unit CM × Q – Fixed expenses *
    • Profits are zero at the break-even point. Forumula Method Unit sales to break even= Fixed expenses /CM per unit
  28. Break Even in Dollar Sales using both forumulas
    • Equation Method Profit = CM ratio × Sales – Fixed expenses (solve for sales)
    • Forumula Method Dollar sales tobreak even= Fixed expenses / CM ratio
  29. Margin of Safety in Dollars
    • is the excess of budgeted (or actual) sales over the break-even volume of sales.
    • Margin of safety in dollars = Total sales - Break-even sales
  30. Operation Leverage
    • is a measure of how sensitive net operating income is to percentage changes in sales. It is a measure, at any given level of sales, of how a percentage change in sales volume will affect profits.
    • Degree of operating leverage= Contribution margin / Net operating income
  31. Using the degree of operating leverage, estimate the impact on net operating income of an increase in sales.
    Multiply the percentage being raised by the operating leverage to get the percent increase in profits