ACC293 Management Accounting Flashcards q&a

Flashcards generated from ACC293 Management Accounting lecture notes to aid in exam preparation.

Management Accounting

Processes and techniques focusing on the effective and efficient use of organizational resources to support managers in enhancing customer and shareholder value.

Financial Accounting

Externally focused, aimed at stakeholders like investors and regulators.

Management Accounting Focus

Internally focused, catering to managers and employees for planning and control.

Value Addition by Management Accountants

Enhance organizational value by supporting management functions and decision-making.

Sociological Perspective of Management Accounting

A socially constructed discipline that both reflects and develops society.

Emergence of Management Accounting

They emerged as companies adapted to new technologies during the industrial revolution.

Cost Classifications

Direct costs, indirect costs, product costs, period expenses, fixed costs, and variable costs.

Important Aviation Costs

Fuel costs, maintenance and repairs, labor costs, aircraft lease and depreciation, and airport fees.

Manufacturing Cost Components

Direct material, direct labor, and manufacturing overhead.

Direct Materials

Raw materials physically incorporated into the final product and easily traceable.

Direct Labor

Wages of personnel directly involved in manufacturing products, treated as variable costs.

Manufacturing Overhead

Indirect costs necessary for production but not tied directly to a specific product.

Conversion Costs

Sum of direct labor and manufacturing overhead; costs incurred in converting raw materials to finished products.

Prime Costs

Direct labor and direct materials, often major costs in production.

Cost Allocation in Manufacturing

Allocate costs based on direct and indirect resources used; overhead is aggregated and applied using cost drivers.

Flow of Manufacturing Costs

Raw Materials Inventory, Work In Progress (WIP) Inventory, Finished Goods Inventory, Cost of Goods Sold (COGS).

Profit Measurement

Sales Revenue - Cost of Sales = Gross Profit; Operating Expenses deducted from Gross Profit lead to Net Profit.

Perpetual Inventory System

Continuously records purchases and sales using technology; requires constant updating of inventory records.

Periodic Inventory System

No detailed records maintained; physical stock takes necessary at period-end; Cost of Goods Sold calculated by: Beginning Inventory + Purchases - Ending Inventory.

Freight In

Freight costs to acquire inventory; considered part of inventory cost.

Cost Driver

Activity that incurs costs; typically, production volume.

Variable Costs

Change proportionally with production volume.

Fixed Costs

Remain unchanged within a relevant range.

Fixed Cost Behavior

Do not change with production activity; cost per unit changes as production level changes.

Variable Cost Behavior

Remain constant per unit based on production activity, with total variable costs rising/falling proportionally.

Step-Fixed Costs

Remain fixed within a range, then increase at certain activity levels.

Semi-Variable Costs

Contain both fixed and variable components.

Curvilinear Costs

Follow a non-linear relationship with activity levels.

Relevant Range

Level of activity where cost behavior is stable.

Cost

Value of consumed resources.

Cost Drivers

Factors causing costs to change.

Direct Costs

Traceable to a specific product.

Indirect Costs

Cannot easily be traced; allocated to products.

Product Costs vs. Period Costs

Assigned to goods, while Period Costs are associated with the time period.

Categories of Costs

Direct materials, direct labor, manufacturing overhead (includes indirect costs).

Budgeting

Transforming organizational plans into financial projections, guiding business operations throughout the year.

Budget

A comprehensive plan covering a specified future time period.

Operational Budgets

Focus on short-term performance, typically covering the next year. The sales budget is crucial.

Financial Budgets

Include the budgeted income statement, balance sheet, cash budget, and capital expenditure budget.

Master Budget

Represents a comprehensive view, interlinking various independent budgets.

Responsibility Accounting

Establishing accountability within departments, assigning budgetary targets that individuals and teams must meet.

Feedforward Control

Anticipating potential future variances allows for proactive adjustments.

Cost Center

Focused on managing costs without direct revenue generation.

Revenue Center

Primarily responsible for generating revenues.

Profit Center

Accounts for both revenues and costs, facilitating profitability analysis.

Investment Center

Manages both revenues and costs but is also responsible for investment decisions.

Participatory Budgeting

Engages lower-level managers in budget preparation, resulting in better coordination but can lead to time delays or padding budgets.

Budgetary Slack

Practice where managers deliberately underestimate revenues or overestimate costs to create a safety net.

Zero-Based Budgeting (ZBB)

Requires justification for all budgeted activities starting from zero, fostering resource efficiency.

Program Budgeting

Emphasizes performance outputs rather than inputs, focusing on the objectives of specific programs.

Cost Control in Budgeting

Controlling costs by identifying opportunities to reduce expenses without sacrificing product quality.

Variance Analysis

Analyzing actual costs against standard costs to identify where expenses diverge from expectations.

Job Costing

Used to apply costs to products in industries where items are custom-made or produced in small batches.

Job Costing Process

Each job is documented with a job order or job sheet where costs for direct materials, labor, and overhead are recorded.

Job Cost Cards

Accumulate costs over time and summarize direct materials, labor, and manufacturing overhead incurred against specific jobs.

Work in Process Inventory (WIP) in Job Costing

Contains costs for all unfinished jobs; upon job completion, these costs transfer from WIP to finished goods inventory.

Under or Over Applied Overhead

Differences occur when actual overhead costs deviate from applied costs, requiring adjustments to COGS to reflect true costs accurately.

Appropriate Application of Job Costing

Relevant when manufacturing costs can be directly traced to individual jobs.

Process Costing

Used for mass production and repetitive tasks where products are indistinguishable.

Standard Costing

Allocates costs to specific products or SKU levels.

Stock Keeping Unit (SKU)

Refers to unique products that can be analyzed individually for profitability.

Service Costing Characteristics

The majority of service output is intangible, consumed as they are produced, and often have a time-dependent component.

Process Costing Application

Used in situations where it is not feasible to directly trace the cost of production back to a singular particular product or service.

Operation Costing

Products may vary with respect to the type of quality of raw materials used but passes basically in batches through the same operations.

Joint Costing

Convert a single material into a number of products (joint products).

Byproducts

Products of value other than the product intended.

Overhead Costs

Indirect costs that add to the cost of products, including both manufacturing and non-manufacturing costs.

Cost Pool

Consists of similar costs with a common allocation base or cost driver.

Cost Object

Can be a product, a process, an activity, or a department.

Cost Allocation Basis

A factor or variable that allows the allocation of costs in a cost pool to cost objects.

Cost Driver

Any activity or factor that causes a cost to be incurred.

Plant-Wide Rate

A single overhead rate is used for the entire production plant.

Departmental Overhead Rates

Different departments may have different cost drivers; involves a two-stage allocation process.

Two-Stage Allocation Process

Allocate costs to department pools and support department pools; Reassign support department costs to production departments.

Activity Based Costing (ABC)

Uses activities as cost pools rather than departments; focuses on the cost of different activities, using a larger number of cost pools and cost drivers.

Volume-Based Cost Drivers

Conventional costing systems assume that overhead costs vary proportionally with production volume, which is not always the case.

Service Department Allocation

Choosing an allocation method to allocate costs from service/support departments to production departments and other service departments.

Direct Method

Allocations go directly to production or direct service departments, ignoring services between support divisions; It is the simplest but most subjective.

Step Method

Recognizes that some support departments provide services to other support services to better allocate costs; better than the direct method but still subjective.

Reciprocal Method

Thorough, considers all interaction between support departments but is the most complex costing method.

Purpose of Activity Based Costing (ABC)

Designed to more directly trace overhead costs to products by using activities as cost objects.

Problems with Conventional Product Costing Systems

Increase in technology, automation, non-volume driven overhead costs, and proportions of non-manufacturing costs.

Total Product Costs under Absorption Costing Method

Total Product Costs = Direct materials, Direct labor, Variable overhead, and Fixed overhead.

Variable Costing

Direct Materials, Direct Labor, Variable Overhead.

Advantage of Variable Costing

Better represents the relationship between sales and income, rather than sales, production and income.

Backflush Costing

Simplified cost recording system in which the Raw Material and WIP inventory accounts are combined into a single Raw and In-Process account.

JIT Purchasing Goals

Reduce the number of suppliers build strong relationships, specify quality clearly, and use e-commerce for automated ordering.

Return on Investment (ROI)

A performance metric for investment centers, calculated as profit divided by invested capital. It measures the efficiency of invested capital utilization in percentage terms.

Residual Income

Remaining dollar amount of profit after subtracting an imputed interest charge.

Weighted Average Cost of Capital (WACC)

The return a business needs to earn to satisfy its owners and debt providers commonly used in businesses and financial management.

Standard Material Price

Total delivered cost of direct material per unit, considering order quantities and supplier.

Calculations in Standard Costs

The budgetary costs of one unit of product including materials, labor, and overhead.

Efficiency (Usage) Variance

Measure of how efficiently resources are used.

Price Variance

Relates to the cost per unit of input.

Perfection Standards

Theoretical standards that may motivate or discourage employees.

Practical Standards

Attainable under normal operating conditions, encouraging positive attitudes but potentially fostering inefficiencies.

Management by Exception

Focuses on significant variances, considering size, recurrence, trends, and controllability.

Historical Cost Data in Standard Costing

Analyzing past costs, adjusted for expected price movements or technological changes.

Standard cost

Budgeted cost of one unit of product including materials, labor, and overhead.

Standard cost variance

Difference between actual costs incurred and budgeted (standard) costs.