PRINCIPLES OF FINANCIAL AND MANAGERIAL ACCOUNTING - D196 WGU COMPLETE TEST BANK: 300+ OA AND PREASSESSMENT QUESTIONS WITH VERIFIED SOLUTIONS | 2025/2026 ACTUAL EXAM | WESTERN GOVERNORS UNIVERSITY

the production budget

Sales budget + ending finished goods inventory - beginning finished goods inventory

direct materials production budget

Production budget × direct materials per unit

the direct materials purchases budget

Direct materials production budget + ending direct materials inventory - beginning direct materials inventory

Cash collected from customers

(current period revenue × current period collection rate) + cash collected from previous period sales

Cash payments to suppliers

(current period purchases × current period payment rate) + cash paid on previous period purchases

Cost Variance

Difference between actual costs and budgeted costs

Contribution Margin

= Sales Revenue - Variable Costs

The difference between total sales and variable costs; the portion of sales revenue available to cover fixed costs and provide a profit.

Target Income

= Sales Revenue - Variable Costs - Fixed Costs

A profit level desired by management.

At break-even

Target income = 0

Sales Revenue

= Sales Price x Number of Units

Variable Costs

= Variable Cost per Unit x Number of Units

Costs that change in total in direct proportion to changes in activity level.

Variable Cost Ratio x Sales Revenue

Variable Costs

Unit-level activities

Activities that take place each time a unit of product is produced.

Batch-level activities

Activities that take place in order to support a batch or production run, regardless of the size of the batch.

Product-line Activities

Activities that take place in order to support a product line, regardless of the number of batches or individual units produced.

cost pool

Total cost being generated by a specific overhead cost activity.

cost driver

A numerical measure used to reflect the amount of a specific cost that is associated with a particular activity

Activity rate

The amount of the estimated cost pool divided by the estimated number of cost driver events

How do expenses impact the accounting equation?

Expenses decrease owners' equity

Purpose of the accounting cycle?

To turn information about transactions into financial statements

How is gross profit computed?

Sales minus cost of good sold

Which type of account is retained earnings?

Equity

How does a classified balance sheet provide useful info to a decision maker?

It distinguishes between current and long-term assets

What are the three primary functions that company managers use managerial accounting info for?

Planning, controlling, evaluating

How could a period cost be reported in an income statement?

As an admin expense

How are the wages of the cashiers classified in a merchandising company?

Selling expense

What is the label given to the quantity computed as estimated level of activity

Predetermined overhead rate

In a job order costing system, what is the proper accounting for a product cost?

It is reported as a part of cost of goods sold

Which item is a period cost?

Utility bills to heat the headquarters building

Accounting System

The procedures and processes used by a business to analyze transactions, handle routine bookkeeping tasks, and structure information so it can be used to evaluate the performance and health of the business.

Activity-based Costing (ABC)

A method of attributing overhead costs to products based on measurable factors that relate to activities that create overhead costs.

Arm's-length Transaction

A transaction in which a buyer and seller act independently to get the best possible deal.

Articulation

The interrelationships among the financial statements.

Assets

Economic resources that are owned or controlled by a company.

Accounting Equation

An algebraic equation that expresses the relationship between assets (resources), liabilities (obligations), and owner's equity (net assets, or the residual interest in a business after all liabilities have been met): Assets = Liabilities + Owners' Equity.

Batch-level Activities

Activities that take place in order to support a batch or production run, regardless of the size of the batch.

Book Value

The value of a company measured by the amount of owner's equity in the company.

Break Even

To make just enough income to cover costs without any profit or loss.

Break-even Point

The amount of sales at which total costs of the number of units sold equal total revenues; the point at which there is no profit or loss.

Budget

A quantitative expression of a plan that shows how a firm or organization will acquire and use resources over some specified period of time.

Business

An organization operated with the objective of making a profit from the sale of goods or services.

Business Documents

Records of transactions used as the basis for recording accounting entries; include invoices, check stubs, receipts, and similar business papers.

Capital Budgeting

Systematic planning for long-term investments in operating assets.

Accounting Cycle

The procedure for analyzing, recording, summarizing, and reporting the transactions of a business.

Cash Budget

A short-term schedule of expected cash inflows and outflows during a period of time.

Certified Public Accountant (CPA)

An accountant who has met specified professional requirements established by the AICPA and local and state societies. A key service provided by CPAs is the performance of independent audits of financial statements.

Classified Balance Sheet

A balance sheet that distinguishes between current and long-term assets.

Comparative Financial Statements

Financial statements that include information for both the current year and preceding year(s) that are prepared for users to identify any significant changes in particular items.

Contribution Margin Ratio

The percentage of net sales revenue left after variable costs are deducted; the contribution margin divided by net sales revenue.

Controllable Costs

Costs over which a manager has direct authority and can change.

Controlling

Tracking the actual performance of a company.

Cost Accountant

An accountant who is specially trained to prepare and analyze accounting information for internal decision-making.

Cost Behavior

The way a cost is affected by changes in activity levels.

Cost Center

An organizational unit in which a manager has control over and is held accountable for cost performance.

Cost Drivers

A numerical measure used to reflect the amount of a specific cost that is associated with a particular activity.

Cost Objects

An output of a business, such as a product, service, or division.

Cost Pool

Total cost being generated by a specific overhead cost activity.

American Institute of Certified Public Accountants (AICPA)

A professional organization for CPAs in which membership is voluntary.

Cost of Goods Sold Statement

A statement that sums the cost of goods sold for an accounting period based on the cost of goods sold formula.

Cost-volume-profit (C-V-P) Analysis

Techniques for determining how changes in revenues, costs, and level of activity affect the profitability of an organization.

Current Assets

Cash and other assets that are expected to be converted to cash within a year.

Current Liabilities

Liabilities expected to be satisfied within a year or the current operating cycle, whichever is longer.

Decentralized Company

An organization in which managers at all levels have the authority to make decisions concerning the operations for which they are responsible.

Differential Costs

Future costs that change as a result of a decision; also called incremental or relevant costs.

Direct Costs

Costs that are specifically traceable to a unit of business or segment being analyzed.

Direct Labor

Wages paid to those who physically work on direct materials to transform them into a finished product and are traceable to specific products.

Direct Labor Budget

A schedule of direct labor requirements for the budget period.

Direct Materials

Materials that become part of the product and are traceable to it.

Direct Materials Budget

A schedule of direct materials to be used during the budget period and direct materials to be purchased during that period.

Dividends

A sum of money distributed to the owners (stockholders) of a corporation.

Earnings (Loss) Per Share (EPS)

The amount of net income (earnings) related to each share of stock; computed by dividing net income by the number of shares of stock outstanding during this period.

Annual Report

A document that summarizes the results of operations and financial status of a company for the past year and outlines future plans.

Estimated Manufacturing Overhead

Budgeted manufacturing overhead costs that are used to establish the predetermined overhead rate.

Ethics

The basic moral principles that govern an individual's behavior.

Evaluating

Analyzing results, rewarding performance, and identifying problems.

Accounting

A system for providing quantitative, financial information about economic entities that is useful for making sound economic decisions. Accounting provides the means of recording and communicating business activities and the results of those activities.

Actual Manufacturing Overhead

Manufacturing costs other than direct materials and direct labor.

Account

An accounting record in which the results of transactions are accumulated; shows increases, decreases, and a balance.

Applied Manufacturing Overhead

The amount of the manufacturing overhead that is assigned to the goods produced. This is usually done by using a predetermined annual overhead rate.

Balance Sheet

A summary of the financial position of a company at a particular date.

Capital Stock

The portion of stockholder's equity that represents investment by owners in exchange for shares of stock; also referred to as paid-in capital.

Cost of Goods Manufactured Statement

A schedule supporting the income statement that summarizes the total cost of goods manufactured and transferred out of the work-in process inventory account during a period. These costs include direct materials, direct labor, and applied manufacturing overhead.

Economy of Scale

A pattern of decreasing costs per unit as unit volume increases.

Expenses

The amount of assets consumed through business operations; the costs incurred in normal business operations to generate revenues.

External Transaction

An exchange that occurs between a company and an external party and that is recorded in the financial records of the company.

Financial Accounting

The area of accounting concerned with reporting financial information to interested external parties.

Financial Accounting Standards Board (FASB)

The organization responsible for studying accounting issues and establishing accounting standards to govern financial reporting in the United States.

Financial Statement Analysis

The examination of both the relationships among financial statement numbers and the trends in those numbers over time.

Financial Statements

Reports such as the balance sheet, income statement, and statement of cash flows, which summarize the financial status and results of operations of a business entity.

Financing Activities

Activities whereby cash is obtained from or repaid to owners and creditors.

Finished Goods Inventory

Inventory that has completed the production process and is ready for sale to customers.

Fixed Costs

Costs that remain constant in total, regardless of activity level, over a certain range of activity

Form 10-K

A form required by the SEC for businesses to report a comprehensive summary of financial perfomance, including the three primary financial statements.

Gains

Money made on activities outside the normal business of a company

Governmental Accounting Standards Board (GASB)

An independent private organization that sets the accounting and financial reporting standards for state and local governments following GAAP.

Gross Margin

The difference between sales and cost of goods sold; gross profit.

Gross Profit

The difference between sales and cost of goods sold; gross margin

Horizontal Analysis

A method of financial statement analysis that compares a firm's results from year to year.

Illiquid

Assets that take time and effort to convert into cash.

Income Statement

The financial statement that reports the amount of net income earned by a company during a period.