Cost Accounting Test 1 Chapters 1-3

Contribution Margin per Unit

selling price per unit - variable cost per unit

Total Contribution Margin

revenue - variable costs

Contribution Margin Ratio

c.m. / revenue

Break-Even Point Units

fixed costs / c.m. per unit

Break-Even Point $

fixed costs + $0 / c.m. ratio

Operating Leverage

c.m. / operating income

Operating Income

c.m. - fixed costs

Degree of Operating Leverage

total contribution margin / operating income

Operating Income from Net Income

net income / 1 - taxrate

% Change in Operating Income

operating leverage x % change in sales

Margin of Safety

sales - breakeven sales

Margin of Safety Ratio

margin of safety / sales

Conservatism

reporting policy that requires accountants to err on the side of caution (anticipate no profits, but anticipate all losses)

Cost Structure

the relationship of fixed costs and variable costs to total costs

Operating Leverage

risk-return trade off across alternative cost structure

Gross Profit

measures how much a company charges for its product, Not the same as contribution margin

Cost Accounting

measures, analyzes, and reports financial and nonfinancial information relating to the costs of acquiring or using resources in an organization (Provides information for both management and financial accounting)

Financial Accounting

Communicate orgs financial position to investors, banks, etc

Financial Accounting

Financial statements must follow GAAP, be certified by external auditors

Financial Accounting

Past oriented

Management Accounting

Help managers make decisions to meet orgs goals

Management Accounting

Internal reports do not have to follow GAAP, are based on cost-benefit analysis

Management Accounting

Future-oriented

Value Chain

sequence of business functions by which a product is made progressively more useful to customers

Strategic Cost Management

focused on sources of competitive advantage

Parts of Value Chain

Research & Development, Design of Products and Processes, Production, Marketing, Distribution, Customer Service

Supply Chain

the flow of goods/services and information from the initial sources of materials and services to the delivery of products to consumers

Customer Relationship Management

a strategy that integrates people and technology in all business functions to deepen relationships with customers, partners, and distributors

Budget

financial plan (most important tool when implementing strategy)

5 Step Decision Making Process

Planning (1-4) indentify the problem & uncertainties, obtain information, make predictions about the future, make decisions by choosing among alternatives, Control (5) implement decision & evaluate performance

Key Success Factors- supply chain

cost & efficiency, quality, time, innovation, sustainability

Management Accounting Guidelines

cost benefit approach, behavioral & techinical considerations, alternative ways to compare costs

Cost

monetary value or resources sacrificed or forgone to achieve a specific objective

Budgeted Cost

predicted or future cost

Actual Cost

a cost that has occured

Cost Object

anything for which a measurement of costs is desired

Cost Accumulation

collection of cost data in some organization way by means of an accounting system

Cost Assignment

encompasses both tracing and accumulated costs that have a direct relationship to a cost object and allocating accumulated costs that have an indirect relationship to a cost object

Direct Cost

can be traced to a cost object

Indirect Cost

cannot be traced to a cost object

Materiality

the accounting threshold for significance

Relevant Range

the band of activity or volume where your cost behavior assumptions remain true

Cost Driver

the factor that causes a cost to change

Inventoriable Costs

any expense directly tied to acquiring or manufacturing a product (raw wood, assembly worker wages, factory electricity)

Line Management

directly responsible for achieving goals of the organization

Staff Management

provides advice, support, and assistance to line management

Variable Costs

change in proportion to changes in level of activity or volume produced

Fixed Costs

remain unchanged for a given period despite changes in activity or volume produced

Period Costs

any business expense that is not directly tied to manufacturing or purchasing inventory (sales commissions, admin salaries, headquarters rent)