# Shared Flashcard Set

## Details

CMA Part 1 Quick Study
Quick review of part 1 of the CMA exam
34
Accounting
10/21/2012

Term
 Roles of BudgetingEach company may use budgets for different purposes. Use the acronym PREMECC to help to remember them.
Definition
 PlanningRitualEvaluationMotivationEducationCoordinationCommunicationPage 37
Term
 For a simple regression equation what is the Least Squares Method and it's formula
Definition
 y = a + bxy=estimated value of dependent variable (estimated cost for a given level of cost driver)x=independent variable (cost driver)a=the point of intersection (is a fixed cost)b=slope of the regression line (the variable cost per unit of the cost driver)It is used to estimate the relationship between a dependent variable and one or more independent variables.Page 49
Term
 What are the three schedules associated with the Cash Budget?
Definition
 Cash Receipts Schedule: The major component of cash receipts are cash sales and receipts from credit salesCash Disbursements Schedule: A major component is payments to suppliers.Summary Schedule: This is the actual cash budget document itself. Beginning cash balance, + receipts, -disbursements = Ending cash balancePage 66
Term
 What are Standard costs?What is a Standard cost System. Where are standard costs assigned to?
Definition
 Are designed to control the two components of the cost of producing something: 1) the price paid per unit of input 2) the quantity of input units usedIt represents the budget to produce one unit.A standard cost system results when standard costs are incorporated into the accounting system. Actual costs are accumulated in input accounts, but standard costs are assigned to Work-in-Process. Differences are reconciled using variance accounts.page 75
Term
 What is an Annual/Master Budget?What is the annual/master budget also referred to as?
Definition
 An annual/master budget is the detailed financial blueprint, expressed in monetart terms, to plan for the future of the company during the next year, to achieve the goals and objectives established in the planning process.Page 38The annual/master budget is also referred to as a STATIC or FIXED budget because it is calculated for a single level of output activity. Master Budget formula is SQ X S\$Page 78
Term
 What is a Flexible Budget?How is the flexible budget calculated?What is one comparing when looking at the flexible budget?
Definition
 The budget needs to be adjusted to the actual level of activity. The flexible budget can be calculated at the same time as the master budget for several levels of activity within an expected range of sales or production.The flexible budget is calculated using standard costs. One is comparing the costs that should have been incurred for the actual level of production with the costs that were actually incurred.The flexible budget uses the actual quantity:TC = (VCS x QA) + FCSQA = Standard Quantity for Actual ActivityVCS = Standard Variable CostsFCS = Standard Fixed CostsIn Short Flexible Budget formula is:AQ x S\$Page 78
Term
 What are the 4 types of Responsibility Centers?
Definition
 Cost Center: Responsible only for costs and is evaluated on its success in controlling costs within its budget. Generally production, administration, and service departments are cost centers.Revenue Center: Responsible only for revenueProfit Center: Responsible for both costs and revenueInvestment Center: Expected to make a profit, but also invests in assets. Therefore it is evaluated on the return on that investmentPage 89
Term
 What do Return on Assets (ROA)/Return on Investment (ROI) measure?When does this ratio improve?What is it's formula?When measuring segments within an organization what happens to the numerator?
Definition
 Measures the return (profits) relative to investment in total assets. This ratio improves as profits get larger, relative to a firm's investment in total assets.Net Income (After Taxes) / Average Total AssetsWhen measuring segments within an organization, the numerator is often calculated on a pretax basis and may be adjusted for other items. page 96
Term
 What is the DuPont Analysis?What is it's formula?How are the subcategories calculated?
Definition
 The DuPont Analysis breaks down ROA.ROA = Profit Margin x Asset TurnoverROA = Income / Total AssetsProfit Margin = Income / SalesAsset Turnover = Sales / Total Assets
Term
 The profit Margin is part of the DuPont Analysis of ROA. What is it's formula?What does it measure?When does the Profit Margin improve?How can improvements be achieved?
Definition
 ROA = Profit Margin x Asset TurnoverROA = Income / Total AssetsProfit Margin = Income / SalesAsset Turnover = Sales / Total AssetsProfit margin ratio measures the profit per dollar of sales. Profit Margin improves when costs are lower, relative to sales.Improvements can be achieved by reducing costs or by generating more sales relative to costs. page 97
Term
 The Asset Turnover is a part of the DuPont Analysis of ROA.How is the Asset Turnover ratio calculated?What does the Asset Turnover ratio measure?When does the asset turnover ratio improve?
Definition
 ROA = Profit Margin x Asset TurnoverROA = Income / Total AssetsProfit Margin = Income / SalesAsset Turnover = Sales / Total AssetsThe Asset Turnover ratio measures the firm's ability to generate sales in relation to total assets.The asset turnover ratio improves through increased sales or through reductions in assets.page 97
Term
 What is residual income?How is residual income calculated?
Definition
 Residual income is the earnings of a division reduced by an amount representing the cost of capital. Sometimes referred to as imputed interest or a target income. Net Income - Cost of capital = Residual income20,000 - 10,000 = 10,000page 100
Term
 What is Economic Value Added (EVA)?How is EVA calculated?
Definition
 EVA is a type of residual income calculation that takes into account 1) the after-tax operating income 2) a required rate of return equal to the weighted-average cost of capital, and 3) investment measured as total assets less current liabilitiesIt is computed as:After-tax Operating income - [the weighted-average cost of capital x (total assets less current liabilities)]page 101
Term
 What is Market Value Added (MVA)What does a positive MVA mean?
Definition
 MVA is the difference between the market value of capital (debt plus equity) and the capital contributed by investors (i.e., book value of debt plus equity)A positive MVA means that the company has increased the value of capital contributed by investors, thus creating shareholder wealth.page 101
Term
 Cost of quality can be thought of as the difference between.....What are the two types of Costs of Quality?How are these two types of Costs of Quality broken further?
Definition
 Cost of quality can be thought of as the difference between.... the actual cost of making and selling products and services and the costs if no failures or defects were to occur.Costs of Quality 1) Costs of Conformance: Costs incurred for control activities that either prevent or screen out defects before completion or delivery. They are policies and procedures put in place to assure conformance 2) Costs of Non-Conformance: The costs of dealing with defective items detected through appraisal controls. Thus these are the costs of dealing with failureCosts of Conformance 1) Prevention Costs: Costs of preliminary activities used to control input resources prior to the organizational transition process. Purpose is to prevent problems before they occur. They limit activities in advance. 2) Appraisal Costs: Costs that relate to screening controls, data analysis, and measurement procedures used to monitor products and work processes to ensure that outputs meet requirements. They are incurred during and after production but before deliver to the customer. Costs of Non-Conformance 1) Internal Failure Costs: Costs related to the disposition of defective units that are detected before deliver to the customer. Examples include trouble shooting, scrap, rework or repair, disposal of spoilage, and costs to re-inspect and re-test 2) External Failure Costs: (post-action controls) These costs relate to quality issues discovered after delivery and represent lost profits caused by not satisfying customer needs or requirements. Examples warranty repairs, customer returns, product recalls, product liability, lost orders and lost market sharepage 120
Term
 What is a balanced Scorecard?
Definition
 A balanced screcard is a strategic management tool that assists managers in translating their organizational vision and core competencies into objectives that are measured and monitors using both financial and non financial performance measures.p122
Term
 What is a Cost Assignment?What is a Cost Objective (Cost Object)?What are examples of cost objects?What is a cost driver?What are examples of cost drivers?What is cost allocation?What is a cost pool?What is the allocation base?
Definition
 A cost assignment is the process of tracing direct costs and allocating indirect/common costs to cost objects.A cost objective or cost object is an entity to which costs can be attached. Examples are products, processes, employees, departments, and facilities.A cost driver is the basis used to assign costs to a cost object. Said another way it is a measure of activity that is a causal factor in the incurrence of cost to an entity.Examples include direct labor hours, machine hours, beds occupied, computer time used, flight hours, miles driven, or contractsCost allocation is the process of assigning indirect (i.e. common) costs to cost objects.A cost pool is an account into which a variety of similar cost elements with a common cause are accumulated (a type of indirect costs) Manufacturing overhead is a commonly used cost pool into which various untraceable costs of the manufacturing process are accumulated prior to being allocated.The allocation base is a measure used to allocate cost pool dollars to cost objects. The ideal allocation base is a cost driver. page 135
Term
Definition
 Overhead is also called manufacturing overhead, factory overhead, or burden. It includes all costs other than direct labor and direct materials that are part of making the product but which are not directly traceable to a specific product. page 138
Term
 Assuming a periodic inventory system calculate: 1) Raw Materials inventory 2) Work-In-Process (WIP) Inventory 3) Finished Goods Inventory
Definition
 Raw Materials Inventory Beginning raw materials inventory + purchases of new materials (both direct and indirect) - ending raw materials inventory = raw materials usedWork-In Process (WIP) Inventory Beginning WIP + raw materials used (from #1 above) + direct labor used + overhead - ending WIP = Cost of Goods ManufacturedFinished Goods Inventory Beginning finished goods + cost of goods manufactured (from #2 above) - ending finished goods = Cost of Goods Soldpage 139
Term
 Actual Overhead Application Rate is calculated by.....Predetermined Overhead Application Rate is calculated by.....If the disposition of Under/Overapplied Overhead is not material......If the Disposition of Under/Overapplied Overhead is material....
Definition
 Actual Overhead Application Rate = Overhead costs / Actual Volume of the allocation basePredetermined Overhead Application Rate= Estimated or budgeted overhead costs /estimated or budgeted volume of the allocation base Not material--an adjustment is typically made only to Cost of Goods SoldMaterial-- amount should be prorated amoung the Work-in-Process, Finished Goods, and Cost of Goods Sold based on the applied overhead already in each accountpage 143
Term
 Actual, Normal, and Standard CostingHow are direct materials and direct labor valued when using Normal Costing?Under normal costing how is overhead applied?How are costs charged to inventory when using a standard costing system?
Definition
 Under normal costing DM and DL are valued at their actual cost.Under normal costing overhead is applied on an average or "normalized" basis. Estimated overhead costs are divided by estimated production for the year to determine an application rate. Said another way under normal costing overhead is allocated using a predetermined application rate and actual volume of the allocation base.Standard Costing is a system designed to alert management when the actual cost of production differ significantly from target ("standard") costs. Costs charged to inventory are based on the number of inputs that should have been used to make a unit of product at the price that should have been paid for each input unit.Under Standard Costing overhead is allocated using a standard overhead rate per unit of output. page 141 and 143
Term
 Variable vs. Absorption CostingDetermines which costs are reported as a charge to inventory and which are charged to production periods. What are the differences between Variable and Absorption Costing?
Definition
 Variable (direct) Costing - Gross Margin - Product Costs include only variable production costs - Period costs include Fixed production costs and fixed S&A - Sales less cost of goods sold less variable S&A = Contribution MarginAbsorption (Full) Costing - Contribution Margin - Product Costs include both variable and fixed production costs - Period costs include variable and fixed S&A - Sales less Cost of goods sold = Gross MarginGlime page 152
Term
 What is Material Resource Planning (MRP)
Definition
 Also called Material Requisition PlanningRefers to the use of a computerized information system to schedule and order inventories of raw materials and other components used in manufacturing.page 187
Term
 What is the Theory of Constraints (TOC)?
Definition
 TOC is based on the idea that an organization has a single goal, which is achieved through a complex system of linked activities.Improvement in individual activities often has little effect on achievement of the overall goal.Therefore, TOC focuses on identifying and addressing variable -- called constraints --- that have a significant effect on global performance. page 187
Term
 What is throughput?
Definition
 Throughput is the output relative to input of a system. In TOC (Theory of Constraints) throughput is defined as the rate at which the system generates money based on sales.Thus, the focus is on producing goods that are sold, rather than simply producing goods.page 187
Term
 What is benchmarking?What are the four types of Benchmarking?
Definition
 Benchmarking is a point of reference from which measurements can be made. 1)Internal Benchmarking: Evaluation of business units within the organization which have similar business processes 2)Competitive Benchmarking: Process of measuring an organization's products, services, and processes against those of its toughest competitors 3) Functional Benchmarking: Examines business functions in organizations outside the firm's industry 4)Generic Benchmarking: examines specific activititespage 194
Term
 Internal controls consist of five interrelated components, which can be represented with the acronym CRIME: What are the five components?
Definition
 Control Activities Risk Assessment Information and Communication Monitoring Control Environmentpage 204
Term
 What are the three objectives of internal controls?
Definition
 RECReliability of financial reportingEffectiveness and efficiency of operationsCompliance with applicable laws and regulationspage 204
Term
 What are the four desirable segregation of duties?
Definition
 CARPCustodyAuthorizationRecordkeepingPeriodic reconciliationspage 205
Term
 What are the three types of risk related to financial reporting?Describe each.
Definition
 1)Inherent Risk: the likelihood of a material misstatement, assuming that there are no related internal controls2)Control Risk: Likelihood that a material misstatement could occur and not be prevented or detected by entity's internal control within a reasonable time.3)Detection Risk: likelihood that an internal or external auditor's procedures may not detect a material misstatement that exists.page 206
Term
 The Foreign Corrupt Practices Act of 1977 deals with.....It required corporations to establish?
Definition
 ... bribery and accounting controls for publicly held companies.Internal Controlspage 212
Term
 The ICMA lists four general ethical standards which must be followed by CMAs. What are they?
Definition
 CCICCompetenceConfidentialityIntegrityCredibilitypage 264
Term
 What are IMA's steps to the resolution of ethical conflicts?
Definition
 PROORO1)Policy of the Entity2)Report One Step above Participants3)Objective Advisor4)Own Attorney5)Resignation and Informative Memorandum6)Outside Communications QuestionsPage 269
Term
 What are joint costs?What are the four methods for joint costs?
Definition
 Joint costs are those costs incurred before the split-off point, i.e., since they are not traceable to the end products, they must be allocated.Four methods are Physical unit method, sales value at split off method, estimated net realizable value NRV( method and the constant gross margin percentage NRV method.GLEIM....
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