Cost exam 1

What is the main difference between managerial and financial accounting?

Managerial: internal, flexible, future-focused, segmented.
Financial: external, follows GAAP, historical, company-wide.

What are the four functions of management?

Strategic management
Planning and decision making
Management and operational control
Preparation of financial statements

What are the major contemporary business environment changes

Global business, lean manufacturing, information technology, customer focus, changes in management organization, and social/political/cultural considerations.

What are the 13 contemporary management techniques?

1. Balanced Scorecard and Strategy Map

2. Value Chain

3. Activity-Based Costing and Management

4. Business Analytics

5. Target Costing

6. Life-Cycle Costing

7. Benchmarking

8. Business Process Improvement

9. Total Quality Management

10. Lean Accounting

11. Theory of Constraints

12. Sustainability

13. Enterprise Risk Management

Lean Accounting

Supports lean operations by focusing on eliminating waste and providing useful, timely cost information.

Total Quality Management (TQM)

Focuses on continuous improvement and preventing defects while meeting customer needs.

Benchmarking

Compares your company’s processes or performance against a standard or another organization to identify areas for improvement.

Target Costing

Starts with the price customers are willing to pay, then determines the allowable cost needed to achieve the desired profit.

What are the two competitive strategies?

Cost leadership and differentiation.

What are the four IMA ethical standards?

Competence, confidentiality, integrity, credibility.

What are the four types of cost drivers?

Activity-based, volume-based, structural, executional.

What is a variable cost?

Total cost changes as the quantity of the cost driver changes

What is a fixed cost?

The portion of total cost that does not change as the cost driver changes.

What are product costs?

Manufacturing costs necessary to complete the product. They are inventoriable and become COGS when sold.

What are period costs?

Costs outside product manufacturing that are expensed in the period incurred.

What are the three manufacturing cost categories?

Direct materials, direct labor, manufacturing overhead.

prime costs?

DM + DL

conversion costs?

DL + MOH

What are the qualitative attributes of cost information?

Accuracy, timeliness, and cost/value of the information.

When is job costing used?

When costs can be identified with specific customers, jobs, or projects.

When is process costing used?

When producing homogeneous products through continuous mass production

What is actual costing?

Uses actual costs incurred for product cost.

What is normal costing?

Uses actual DM, actual DL, and applied factory overhead.

standard costing?

Uses standard costs for all cost elements.

What is a job cost sheet?

Records and summarizes DM, DL, and factory overhead for a particular job.

How are direct materials tracked?

Bill of materials + materials requisition.

What is the predetermined overhead rate formula?

OH Rate = Estimated Factory Overhead ÷ Estimated Total Cost Driver

What is applied overhead?

OH Applied = OH Rate × Actual Activity

When is overhead overapplied?

Applied OH > Actual OH

When is overhead underapplied?

Applied OH < Actual OH

How can over/underapplied overhead be handled?

Adjust COGS or prorate the difference to WIP, Finished Goods, and COGS.

When are departmental OH rates better than a plantwide rate?

When departments differ significantly in overhead costs and driver usage.

Why can volume-based costing distort product costs?

Indirect costs do not always occur in proportion to output volume, causing some products to be over costed and others undercosted.

What is ABC

A costing system that assigns costs based on the activities that drive those costs.

A costing system that assigns costs based on the activities that drive those costs.

Unit-level, batch-level, product-level, facility-level.

What is a unit-level activity

Performed for each unit.

What is a batch-level activity?

Performed for each batch.

What is a product-level activity?

Supports a specific product line.

What is a facility-level activity?

Supports the overall facility/operations.

What are the main benefits of ABC?

More accurate profitability, better decision making, process improvement, better cost planning, and identification/control of unused capacity.

What is ABM?

Managing activities to improve value, competitiveness, and profitability.

What is operational ABM?

Improves efficiency, asset utilization, and cost.

What is strategic ABM?

Alters demand for activities to increase profitability

What is customer profitability analysis?

Combines customer revenues and customer costs to assess customer profitability.

What is customer lifetime value?

The NPV of all estimated future profits from the customer.

What is process costing?

Accumulates costs by process or department and spreads those costs over the output of the period.

When is process costing used

or repetitive processes producing similar/homogeneous products.

What are equivalent units

Partially completed units converted into the equivalent number of fully completed units.

Are equivalent units calculated separately?

Yes — for each manufacturing cost element, especially DM and conversion costs.

What are the five steps of process costing?

• Analyze physical flow of units

• Calculate equivalent units

• Determine total costs

• Calculate cost per equivalent unit

• Assign costs to completed units and ending WIP

What does the weighted-average method do?

Combines beginning inventory costs with current-period costs to calculate an average cost.

What is operation costing?

A hybrid system using job costing for DM and process costing for conversion costs.

Prime Cost

DM + DL

Conversion Cost

DL + MOH

Predetermined OH Rate

Estimated MOH ÷ Estimated Cost Driver