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| Management Accounting Info System |
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Definition
| Provides info to satisfy management objectives. Described by collecting, measuring, storying, analyzing, reporting, and managing info |
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| Ways to increase overall efficiency and productivity of activities by reducing waste, increasing quantity and reducing costs |
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| Strategic decision making |
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| Choosing among alternate strategies with the goal of selecting one or more strategies with a reasonable assurance of long term growth and survival |
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| Detailed formulation of action to achieve a particular end. |
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| Monitoring a plan's implementation and taking corrective action as needed |
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| Process of choosing among competing alternatives |
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| Internal users (managers) who plan, control, and make decisions |
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| External users and follows restrictive rules and regulations |
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| Activity Based Management |
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Definition
| System-wide, integrated approach that focuses on management's attention on activities with the objective of improving customer value and resulting profit |
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Customer value
Strategic positioning
Value chain framework |
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| Cross functional perspective |
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Definition
| Understand importance of value chain from manf. to marketing to dist. to customer service |
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| Strive to create an environment that will enable workers to manufacture perfect (zero-defect) products, has replaced the “acceptable quality” attitude of the past |
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| positions that have direct responsibility for the basic objectives of an organization. |
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| positions that are supportive in nature and have only indirect responsibility for an organization’s basic objectives. |
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| Management accuracy of paperwork to public traded companies |
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| 10 Core values: Honesty, integrity, promise keeping, fidelity, fairness, caring, respect, citizenship, pursuit of excellence, accountability |
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| Competence, Confidentiality, Integrity, Objectivity, Ability for conflict resolution |
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| Requirements met for education, experience, and passed a qualifying exam |
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| Certified Management Accountant |
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| Certified Public Accounting |
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| Certified Internal Auditor |
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| Amount of cash/cash equivalent sacrificed for goods and/or services expected to bring a current or future benefit |
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| What is "Future Benefit" of a cost? |
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Definition
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| Costs that provide future revenue earning potential |
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| Expired Costs - Amounts that provide no future revenue earning potential |
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| any item for which costs are measured and assigned such as products, customers, departments, and regions |
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| Can easily and accurately traced to a cost object |
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| Cannot be easily traced to a cost object |
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| ability to assign a cost to a cost object in an economically feasible way by means of a cause-and-effect relationship |
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| assigning indirect costs to cost objects based on convenience or some assumed linkage |
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| Cost Assignment Trade-off |
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Definition
General: Inexpensive, Financial
Specific: Costly, Management |
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| are goods produced by converting raw materials through the use of labor and capital inputs |
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| tasks or activities performed for a customer or an activity performed by a customer using an organization's products or facilities |
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| the set of all activities required to design, develop, produce, market, distribute, and service a product |
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| Materials that are a part of the final product and can be directly traced to the goods and services being produced |
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| Labor that can be directly traced to the goods or services being produced. |
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| Everything else: Indirect costs, facilities, equipment, supplies not part of the finished product |
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| Carried in inventory until goods are sold |
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| Expensed in period in which they are incurred or occurred: Selling and Admin costs |
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| Absorption-costing (full costing) |
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Definition
| Income computed by following functional classification |
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| Cost of direct materials, labor, and overhead attached to units sold |
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| Cost of Goods Manufactured |
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| Represents the total cost of goods completed during the current period |
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| Production (unit-level) drivers |
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| Assigning costs using D. Matls, D. Labor, Machine hrs |
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| Other than production that describe cause and effect relationships |
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| Operational Efficiency View |
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| Managers responsible for controlling costs to derive operating efficiency |
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| Activity based management system (ABM) |
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| Cost view, operational efficiency view |
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| (Total cost) / (# units produced) |
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| Different costs for different purposes |
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| Strategic profitability analysis |
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Definition
| Uses all costs and revenues associated with product |
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| Shortrun (tactical) profitability analysis |
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Definition
| Production, marketing, distributing & servicing, esp. for special orders |
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| External financial reporting |
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Definition
| Uses only production costs |
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| Assigns the actual costs of Direct materials, Direct Labor, and overhead to products |
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| Assigns actual costs of d.matls, d.labor, but OVERHEAD are estimated on a predetermined rate |
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| Functional Based Management (FBM) |
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Definition
| Control costs by assigning them to organizational units then holding the org unit mgr responsible for costs |
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| D.Matls & labor assigned by DIRECT Tracing, Ohd: DRIVER tracing & alloc. |
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| Predetermined rate (Equation) |
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| Budgeted cost / Estimated activity usage |
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| Unit Level Drivers (Production related drivers) |
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Definition
| Assign manuf. overhead by UNITS produced, Direct labor hours, Machine hours |
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| Expected Activity Capacity for FBC |
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Definition
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| Normal activity capacity for FBC |
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| Average activity experienced over long term |
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| Theoretical activity capacity for FBC |
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Definition
| Absolute max that can be achieved in a perfect world |
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| Practical activity capacity for FBC |
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| Max that can be achieved under efficient operation |
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| Predetermined overhead rate (Equation) |
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Definition
| Est. Annual Manf. OHD / Est. ann. alloc. base |
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| Applied overhead (Equation) |
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| Predetermined OHD rate * Act. Alloc. Base level |
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| Total overhead assigned to actual production at any point in time |
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| Difference between actual overhead and applied overhead |
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| Underapplied (overapplied) |
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| OHD is a variance that is added to (subtracted from) COGS |
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| Budgeted OHD accumulated in one pool, rate is computed using unit-level driver |
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| OHD divided up and assigned to departments, unit-based drivers used to compute rates |
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| Non-unit-level Activity Drivers |
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Definition
| factors that measure consumption of non-unit-level activities by product & can distort product costs |
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| factors that measure the consumption of activities by product and other cost objects |
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| Products consume overhead activities in systematically different proportions. |
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| Consumption ratio (of product diversity) |
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| Proportion of each activity consumed by a product |
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| Activity-Based Costing (ABC) System |
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| Traces costs to activities, then to products |
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| Activity dictionary (of ABC) |
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Definition
| Lists activities in an org along with some critical activity attributes |
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| Activity attributes (of ABC) |
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Definition
| Financial and Nonfinancial info that describe individual activities (Primary & Secondary) |
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| Primary Activity (of Act. Attributes) |
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| Activity consumed by product or customer |
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| Secondary Activity (of Act. Attributes) |
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| Activity consumed by other primary & secondary activities |
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| Activities performed each time a unit is produced. (Packaging, inspections) |
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| Performed each time a batch is handled or processed, regardless of how many units in the batch (shipment costs) |
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Definition
| Relate to specific products and typically must be carried out regardless of how many units/batches produced (engineering design, advertising) |
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| Factory sustained activities |
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Definition
| Carried out regardless of which products produced, or how many batches/units made (rent, dep) |
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Definition
| Reduce rates: Using consumption ratios, and approx. ABC |
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Term
| Activity Based Management (ABM) |
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Definition
| Systemwide integrated approach that focuses mgt's attention on activities for improving customer value and profit |
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Definition
| Info on resources, activities, cost objects. OBJ: Improving accuracy of cost assignments |
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| Process Dimension (of ABM) |
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| Info on What, Why and How well act are performed. OBJ: Cost reduction |
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| Improving decision making with accurate cost info, and reducing costs through Con't Improvement |
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| Responsibility accounting (of ABM) |
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Definition
| Fundamental tool of Managerial Accounting control : 3 ways to assign responsibility and measure performance (Fin based system, Act based sys, Strategic based sys) |
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| Responsibilities to ORGANIZATIONAL UNITS. Measures exclusively in financial terms |
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| Assigns responsibilities to processes. Uses Financial and Non-Fin. measures of perf |
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| Process improvement (processed based sys) |
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| Incremental and constant increases in efficiency of existing process |
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| Process innovation (of process. based sys), aka Business Reengineering |
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Definition
| Performance of a process in a radically new way in objective of achieving dramatic improvement in response time, quality, and eff |
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| Process creation (of process. based sys) |
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Definition
| Installation of an entirely new process with the Obj of meeting customer/fin objectives |
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| Process Value Analysis (PVA in Act based respons. acc) |
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Definition
| Focuses on Accountability rather than costs, MAX of system performance, concerned with driver analysis, activity analysis, activity perf. measuremt |
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Definition
| Effort to identify factors that are the ROOT CAUSES of activity costs |
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| Activity inputs (of Driver Analysis) |
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Definition
| Resources consumed by activity in producing its output |
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| Activity input (of driver analysis) |
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| Result or product of an activity |
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| Activity output measure (of Driver Analysis) |
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Definition
| Number of times activity is performed |
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| Root Causes (of driver analysis) |
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| Most basic causes for activity being performed |
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| Process of identifying, describing, and evaluating activities that an org. performs |
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| Activity Analysis Outcomes |
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| Breakdown of activities: NVA vs. VA activities |
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| Necessary to remain in business: Mandatory to comply with laws, discretionary |
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| Non-Value-Added Activities |
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| UNnecessary: Scheduling, moving, waiting, inspecting, storing |
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| Costs to perform VA activities with perfect efficiency |
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| Costs caused by NVA activities or by inefficient performance of VA activities |
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| Effort to reduce costs of existing products & processes |
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| Activity elimination (Kaizen) |
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Definition
| Eliminate NVA by determining root cost and making changes so causes don't exist |
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| Activity selection (Kaizen) |
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Definition
| Choosing activities that enhance overall production process and/or efficiency |
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| Activity reduction (Kaizen) |
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Definition
| Reducing time/resources required by improving their efficiency or limiting necessity |
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| Activity Sharing (Kaizen) |
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Definition
| Obtaining production efficiencies by utilizing common activities across production processes |
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| Activity Performance Measurement |
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Definition
| Assessing how well an activity was performed and results achieved using both financial & non fin measures |
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| Efficiency (of Activity Performing Measurement) |
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| Relationship of activity inputs & outputs |
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| Quality (of Activity perf measurement) |
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| Doing it right the first time |
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| Time (of Activity performance measurement) |
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| Kaizen Cycle, Maintenance cycle |
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| Standard, Do, Check Act . Standard is to lock in prior improvements |
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| Reflects planned improvement for the upcoming period |
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| Standard (of Maintenance Cycle) |
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| Set to lock in prior improvements |
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| Benchmarking (of Act. perf) |
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Definition
| Uses "best practices" as the standard for evaluating activity performance with goal of becoming the best at performing activities and processes |
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| Number of times an activity can be performed. Determined on the expected use of relevant activity driver |
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| Cost of materials and labor necessary to provide activity capacity |
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| Activity Volume Variance (of ActCapMgt) |
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Definition
| Difference between actual activity level acquired and value-added standard quantity of activity that should be used |
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| Unused Capacity Variance (of ActCapMgt) |
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Definition
| Difference between activity availability and activity usage |
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