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ACC 221: EXAM 1
insure |
low frequency, high severity |
avoid |
frequent and severe |
accept |
low frequency, low severity |
control |
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) |
segment |
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 follow GAAP; not mandatory |
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. |
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? |
ethics |
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. second part specifies what should be done in the case of ethical misconduct. it is the foundation of managerial accounting. |
strategy |
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. results in minimal inventory. fewer defects, less wasted effort, and quicker customer response times. |
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; severe penalties possible. |
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 sold, they are released as an expense (COGS). also known as inventoriable costs. |
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 |