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low frequency, high severity
frequent and severe
low frequency, low severity
high frequency, low severity; prevent controls vs detect controls; controlling involves gathering feedback to ensure that the plan is being properly executed or modified (second activity)
a part or activity of an organization about which managers would like cost, revenue, or profit data. ex: product lines, customer groups
properties of managerial accounting
reports to managers inside the organization for planning, controlling, and decision making; emphasizes decisions affecting the future (not historical info); emphasizes relevance; emphasizes timeliness (at the sacrifice of some precision); emphasizes segment reports; doesn't have to foll...
the three vital activities
planning (involves establishing goals and specifying how to achieve them), controlling (involves gathering feedback to ensure that the plan is being properly executed or modified), decision making (involves selecting a course of action from competing alternatives)
planning process
begin by establishing a goal, then specify how to achieve this goal by answering numerous questions. plans are accompanied by a budget.
a detailed plan for the future that is usually expressed in formal quantitative terms. budget may have multiple parts
controlling process
gathering, evaluating, and responding to feedback to ensure that this year's recruiting process meets expectations. also evaluate so this process will be more effective next time. don't want to answer questions with yes/no, want to get to underlying reasons why things happen.
performance report
part of controlling process, compares budgeted data to actual data to identify and learn from the experience
decision making process
most basic managerial skill is the ability to make intelligent, data driven decisions. revolve around the following three questions: what should we be selling? who should we be serving? how should we execute?
essential to keeping the company running; institute of management accountants in USA has adopted an ethical code called the statement of ethical professional practice that describes the ethical responsibilities of management accountants. first part gives outline for ethical behavior. se...
a "game plan" that enables a company to attract customers by distinguishing itself from competitors. the focal point of a company's strategy should be its target customers.
enterprise risk management
process used by company to identify those risks and develop responses to them that enable it to be reasonably assured of meeting its goals. risk management is also a critically important aspect of decision making.
corporate social responsibility
a concept whereby organizations consider the needs of all stakeholders when making decisions (customers, environment, community, etc.); beyond legal measures to include voluntary actions that satisfy stakeholder expectations
business process
a series of steps that are followed in order to carry out some task in a business, managers must cooperate across functional departments
value chain
consists of the major business functions that add value to a company's products and services. managers need to understand it to be effective in terms of planning.
lean production
a management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders. also called just-in-time production because products are only manufactured in response to customer orders. result...
orporate governance
the system by which a company is directed and controlled. incentives provided for board and top management to pursue objectives that are in interests of company's owners. shareholders elect BOD who hire CEO.
sarbanes-oxley act of 2002
intended to protect the interests of those who invest in publicly traded companies by improving the reliability and accuracy of corporate financial reports and disclosures. CEO/CFO certification; PCAOB; audit committee gets power; restrictions of audit firms; internal control report; se...
internal control
a process designed to provide reasonable assurance that objectives are being achieved. to reduce the risk of these unfortunate events from occurring, we implement controls in our lives. companies want to make sure financial reports are reliable. they do not guarantee anything though.
preventive control
deters undesirable events from occurring; includes: authorizations (things have to be approved), segregation of duties, physical safeguards (cameras, locks), information systems security
detective control
detects undesirable events that have already occurred. includes: reconciliations, performance reviews, information systems security
skill will matrix
test of leader is what to do about highly skilled but low willed employees, you are accountable for the results no matter what
ustomer intimacy strategy
focus on individual customer needs, gain loyalty of customers
operational excellence strategy
faster production and lower cost, like walmart
product leadership strategy
offer higher quality products, like apple
cost object
anything for which cost data is desired- including products, customers, jobs, and organizational subunits. costs either classified as direct or indirect
direct cost
a cost that can be easily and conveniently traced to a specific cost object
indirect cost
a cost that cannot be easily traced to a specific cost object. if you can take away the cost object and the cost still exists, then it is indirect.
common cost
a cost that is incurred to support a number of cost objects but cannot be traced to them individually. this is a type of indirect cost
raw materials
the materials that go into the final product
direct materials
type of raw materials; those materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. must be able to touch.
indirect materials
type of raw materials; materials that it isn't worth the effort to trace because they are relatively insignificant. included as part of manufacturing overhead.
direct labor
labor that can be easily traced to individual units of a product; called touch labor because direct labor workers touch the product while it is being made. person touched the product.
indirect labor
labor costs that cannot be physically traced to particular products or that can only be traced at great cost and inconvenience. inside the factory walls, part of overhead.
manufacturing overhead
all manufacturing costs except direct materials and direct labor. inside the factory walls.
selling costs
non manufacturing cost, includes all costs that are incurred to secure customer orders and get the finished product to the customer. advertising, shipping, sales travel, etc. selling costs can be direct or indirect costs
administrative costs
include all costs associated with the general management of an organization rather than with manufacturing or selling. can be direct or indirect
product costs
a cost is incurred to acquire or make something that will eventually be sold, so the cost should be recognized as an expense only when the sale takes place. include direct labor, direct materials, and overhead. debit inventory. assigned to an inventory account on the balance sheet. when...
period costs
all costs that are not product costs. includes selling and administrative expenses. they are expensed on the income statement in the period in which they are incurred
prime cost
the sum of direct materials and direct labor
conversion cost
the sum of direct labor and overhead
cost behavior
refers to how a cost reacts to changes in the level of activity. manager must be able to anticipate when a cost will change.
cost structure
the relative proportion of each type of cost in an organization
variable cost
varies in total in direct proportion to changes in the level of activity. common examples include COGS, direct materials, direct labor, etc.
activity base
for a cost to be variable, it must be variable with respect to something. that something is the activity base. it is a measure of whatever causes the incurrence of a variable cost. also called a cost driver. the "x" in the equation.
fixed cost
cost that remains constant in total regardless of change in activity.
relevant range
the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid
mixed cost
contains both variable and fixed cost elements Y= a + bX
least squares regression method
used in classifying mixed costs into their parts. cost goes on y axis because it is dependent variable. the activity level is plotted in the x axis and is the independent variable. r2 value tells how accurate line is. 80+ is good.
high low method
y= mx+b type estimation, not as accurate because it only uses two data points
contribution approach
distinguish between variable and fixed costs on an income statement, this aids in planning, controlling, and decision making
contribution margin
deducting variable expenses from sales; this amount contributes towards covering fixed costs and then towards profits for the period. its an internal tool.
differential costs
when making a decision, a difference in costs between any two alternatives. a difference in revenues is differential revenue. can be fixed or variable
opportunity costs
the potential benefit that is given up when one alternative is selected over another. not found in accounting records or written down. they are the things that didn't happen
sunk costs
have already been incurred and cannot be changed by any decision in the future. they are irrelevant to the decision making process.
quality costs
refer to all the costs that are incurred to prevent defects or that result from defects in products
prevention costs
most effective way to manage costs. support activities whose purpose is to reduce the number of defects. includes: quality circles, statistical process control, technical support to suppliers, systems development, engineering, training, supervision, etc.
appraisal costs
incurred to identify defective products before they are shipped to customers. includes: testing, inspecting of incoming materials and final product, anything to do with testing and inspecting
internal failure costs
result from indentifying defects before they are shipped to customers. include: scrap, rejected products, reworking of defective units, and downtime caused by quality problems
external failure costs
result when a defective product is delivered to a customer. includes: warranty repairs and replacements, product recalls, liabilities from legal action, and lost sales due to poor reputation

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