Shared Flashcard Set

Details

Final
Managerial Accounting final
63
Accounting
Graduate
05/06/2014

Additional Accounting Flashcards

 


 

Cards

Term
Activity Based Costing
Definition
  • -Tries to allocate overhead more accurately than traditional volume based system
  • -Assigns overhead to products based on the activities that product requires (instead of based only on how many units are produced)
  • Uses 2 stage process to assign overhead
Term
Flaws of Traditional Volume Based Costing systems
Definition
  • undercost low-volume products
  • overcosts high volume products 
Term

ABC Costing

Process to assign overhead

Definition
  1. assign overhead to activities
  2. assign overhead to products 
Term

ABC Costing Activities

 

 

 

 

 

(PF CUB)

Definition
  • Facility/Companywide- benefit company as a whole
    • Supervision, janitorial, accounting, etc
  • Product Level- benefit certain product lines
    • engineering of porduct, prototypes, templates, etc
  • Customer Level- Benefits specific customers
    • Customize Products for specific customers
  • Batch-Level- benefits a group of units
    • quality control, ordering raw materials, set up of machines
  • Unit Level- benefits the unit
    • Assembly of unit
Term
ABC STAGE 1
Definition

Step 1: ID activities associated w/each product line

Step 2:

  • Group activities into cost pools
    • ex: Machining & installation, machine set up, quality control
  • Estimate and determine the amount of overhead that should be assigned to each cost pool
Term
ABC Stage 2
Definition

Step 3: choose a cost driver for each cost pool

    • Volume based cost drivers: Number of units, machine hours etc
    • Non volume based Cost drivers: number of setups, design changes, quality inspections
  • Will assign more overhead to products that require more time to set up, more quickly control, more engineering, etc
    • Ex: Machining and installation pool-> machine hours
    • Machine Set up-> number of set ups
    • quality control-> activity cost drivers
Term
Types of activity cost drivers
Definition
  • Transaction Drivers
  • Duration Drivers
  • Intensity Drivers 
Term

Activity cost drivers

 

Transaction drivers

Definition

count how often an activity is performed

Term

Activity cost drivers

 

 

Duration Drivers

Definition
Count how often an activity is performed
Term

Activity cost drivers

 

 

Intensity Drivers

Definition
directly charge for the resources that are used each time for an activity performed
Term

ABC- Stage 2

 

Step 4

Definition

Step 4

Assign indirect costs (overhead costs)to products/services based on their activity usage

Term

2 methods of assigning indirect costs in ABC

 

Definition
  • Activity rate method
    • similar to predetermined overhead rate calc

 

  • Activity proportion method 
    • calculates a % for each product

-Either method, after all allocation of costs, make sure that:

total costs allocated= total cost in the pool that you started with

Term

ABC

 

Activity rate method

Definition

Total Activity Cost

Total Activity Driver

 

Multiply answer above w/ actual product activity driver to allocate overhead

Term

ABC

 

Activity Proportion Method

Definition

Product Activity Driver

Total activity driver

 

-Multiply answer w/total overhead cost assigned to that cost pool

 

Note: MUST have all information for ALL products to use this method

Term
Advantages of Activity Based Costing (ABC)
Definition
  • calculates more accurate manufacturing costs for products
  • considers factors other than volume in cost allocation
  • good for businesses that have cost drivers other than production value 
Term
Disadvantages of Activity Based Costing (ABC)
Definition
  • Time consuming
    • tracking activities
    • calculation
  • Costly to implement
  • Not helpful to businesses that make a single product or have a simple production process 
Term
When to apply Activity Based Costing (ABC)
Definition
  • Willie Sutton Rule: "B/C that's where the money is" 
    • Go after large expenses in indirect and support resources
  • When there is HIGH DIVERSITY
    • Look for a situation where a large variety exists in products, customers, or processes
Term
Break Even Analysis
Definition
  • Determine number of units that must be sold or amount of revenue in order to cover all costs and have zero profit
  • Uses contribution margin and contribution margin ratio
  • The lower the number, the better-->Less risky

 

Term

Formula to calculate

Break Even in Units

Definition

Total Fixed Costs + Target Profit

Unit Contribution Margin

Term

Formula to calculate

Break Even REVENUE

Definition

Total Fixed Costs

CM Ratio

Term
Target Profit Analysis
Definition
  • Determine number of units to sell or amount of revenue that must be earned to meet a specific profit goal

 

  • Can use break even formulas
    • but instead of profit being zero, add desired profit to fixed costs
Term

Target Profit Analysis

 

Formula to calculate

Target Profit in Units

Definition

Total fixed costs + Target Profit

Unit Contribution Margin

Term

Target Profit Analysis

 

Formula to calculate

Target Profit REVENUE

Definition

Total Fixed Costs + Target Profit

CM Ratio

Term
Margin of Safety
Definition
  • Compares actual or expected sales to break-even points
    • Monitors actual sales throughout the period and determines if theres a need for more advertising etc.
    • Useful Planning tool when estimating future sales
  • Determines how much revenue decrease can occur before the business incurs a loss (AKA Buffer zone or cushion)
  • Higher=Better=Less Risky 
Term

Margin of Safety

 

Formula to calculate

Margin of safety in sales

Definition

Actual or Budgeted Sales*

-  Break Even Sales

Margin of safety**

 

 

*Use this value when calculating Margin of Safety %

**Use this value when calculating margin of safety %

Term

Margin of Safety

 

Formula to calculate

Margin of safety %

Definition

Margin of safety

Actual or Budgeted Sales

Term
Operating Leverage
Definition
  • Analyzes how fixed cost impact profits
    • To the extent that fixed costs can be used to turn a small change in sales into a large change in profits
  • Creates multiplier to estimate effect on profits based on changes in revenue
    • Known as DEGREE OF OPERATING LEVERAGE (see formula)
  • The higher the fixed costs, the more revenue is needed to generate profit
  • The more risky the business, the higher the operating leverage
Term

Operating Leverage

 

Formula for calculating

The Degree of Operating Leverage

Definition

Total Contribution Margin

Profits

 

*closer result is to 1, the less risky it is

Term
Multiproduct Analysis
Definition
  • Assumption: Proportion of sales per product line or service is consistant
    • Ex:50% of sales is attributable to Product A; 25%->Product B; 25%->Product C
  • In order for CVP analysis to be accurate, it is assumed these percentages are the same under all scenarios
  • Use either:
    • Product Mix- % based off number of units sold
    • Sales Mix- % based off total sales revenue
Term

Multiproduct Analysis

 

 

 (WAUCM)

Definition
  • Step 1: Calculate Unit Contribution Margin(CM) for each product
  • Step 2: Calculate product mix percentages to each product
  • Step 3: Multiply Each Products percentage by its specific CM
  • Step 4: Add results of all products together to get the weighted average unit CM

 

  • WAUCM is then used in CVP analysis in replace of the single product unit CM
Term
Balanced Scorecard
Definition
  • Managers shouldnt have to choose between financial and operational measures
  • A balanced presentation of both financial and operational measures provide a focus of attention on critical areas of the business
  • Allows managers to look at business from 4 important perspectives
  • Forces managers to focus on a handful of measures that are most critical to the business
  • Brings together in a single report, the disparate elements of a company's competitive agenda
Term

Balanced Scorecard

4 important perspectives managers can look at due to the scorecard

Definition
  • Customer perspective- How do customers see us?
  • Internal Business perspective- What must we excel at?
  • Innovation and Learning Perspective- Can we continue to improve and create value?
  • Financial Perspective- How do we look to the shareholders?
Term

Balanced Scorecard

 

Disparate elements of a company's competitive agenda covered in the scorecard

 

 

MR QT CL

Definition
  • Becoming customer oriented
  • Shortening response time
  • Improving Quality
  • Emphasizing Teamwork
  • Reducing new product launch times
  • Managing for the long term
Term

Balanced Scorecard

CUSTOMER PERSPECTIVE

 

List Customer Concern Catagories

Definition

Customer concerns tend to fall into one of these four catagories:

  • Time
  • Quality
  • Performance & Service
  • Cost
Term

Balanced Scorecard

Internal Perspective

Definition
  • Internal measures should come from the business processes that have the greatest impact on customer satisfaction
    • Factors that affect cycle time; Quality; Employee Skills; Productivity
  • Companies should decide what processes and competencies they must excel at and specify measures for each
  • Cycle time measures should be taken to the lowest levels of the business and linked up to overall company goals  
Term

Balanced Scorecard

Innovation and Learning perspective

 

*Description

*Why companies need impoved abilities

Definition
  • Targets for success keep changing
  • The ability to introduce entirely new products with expanded capabilities is required of companies that want to have global success
  • Companies need improved abilities to:
    • Launch new products
    • create more value for customers
    • Improve operating efficiencies
  • Which allows them to grow and increas shareholder value
Term

Balanced Scorecard

Financial Perpective

 

 

*descriptions

*what do financial goal typically have to do with?

Definition
  • Financial performance measures indicate whether the company's strategy, implementation, and execution are contributing to bottom line growth
  • Typical Financial goals have to do with:
    • Profitability
    • Growth
    • Shareholder Value 
Term

Balanced Scorecard

Financial Perpective

 

Why critichs are wrong when asserting financial measures are unnecessary

Definition
  • Well designed financial control can improve quality
  • The linkage between improved operational performance and improved financial performance is not always clear cut
    • A failure to convert improved operational performance into improved financial performance should cause a rethinking of the company's strategy or implementation plan
Term

Balanced Scorecard

Leading Measures of Financial Perspective

Definition
  • Percent of sales from new products
  • percent of sales paid in 30 days 
Term

Balanced Scorecard

Lagging Measures of Financial Perspective

Definition
  • Market Share
  • Return on Equity 
Term

Balanced Scorecard

Leading Measures of Customer Perspective

Definition
  • Customer Satisfaction Surveys
  • Product Performance 
Term

Balanced Scorecard

Lagging Measures of Customer Perspective

Definition
  • Percent of sales from new products
  • percent of sales paid in 30 days

 

Term

Balanced Scorecard

Leading Measures of

Learning & Growth Perspective

Definition
  • Training costs per employee
  • average weekly team meetings 
Term

Balanced Scorecard

Lagging Measures of Learning and Growth Perspective

Definition
  • Average employee turnover
  • Employee satisfaction surveys 
Term

Balanced Scorecard

Measures of Internal Processes Perspective

 

A)Service after Sale

B)Operations

C)Innovation

Definition

A) -Service turnaround time 

    -Percent of error free invoices 

B) -Unit cost vs competitors

    -Inventory as a percent of sales

C) -# of new products

    -# of patents taken

 

*In the balanced scorecard, they dont use lagging or leading measures for internal processes. They use Service after sale, Operations, and innovation

Term
Four steps to creating a Balanced Scorecard
Definition
  1. Define measurement architecture around organizations distinct strategy
  2. Brainstorm, define strategic objectives and priorities
  3. Work in groups to determine measures
  4. Implement Balanced Scorecard 
Term
Internal Control Process Role
Definition
  • To provide senior management reasonable assurance that:
    • The company is on track to achieve its mission successfully
    • To minimize the profitability of unexpected surprises 
Term

Internal Control

2 views of internal control

Definition

Broad

Narrow

Term
Broad view of internal control
Definition

Internal controll process encompasses all controls put into place by management to ensure the organization is achieving its strategic goals in  an effective (Doing the right thing) and efficient (economical manner) way.

Term
Narrow view of internal control
Definition
Includes only those controls designed to prevent fraud and to ensure accuracy and completeness of accounting records
Term

Internal Control

5 components which together must be an integrated Internal Control Process

 

(IM RIM)

Definition
  • Internal control environment
  • Risk Assessment
  • Internal Control Activities
  • Info and communication
  • Monitoring 
Term
Internal Control Environment
Definition
  • Tone that supports and enhances internal control process must be set at the top
  • It is the collective result of organizational initiatives, procedures, and policies including:
    • Ethical/Operating Policies;
    •  Board of Directors ethical style;
    • Company's personnel hiring training etc,
    • Mgmt support of regs and statute requirements;
    • mgmt monitoring of employee and dept performance;
    • mgmt response to internal control failurs
Term
Risk Assessment
Definition
  • Senior mgmt must ID & assess the principal risks the entity has to manage in pursuit of its objectives
    • this drives resource allocation to the design, maintenance, & implementation of internal control process
      • High risk areas take priority
  • Since risk faced by companies is always changing, the risk assessment component must be a continuous activity
Term
2 Categories of Internal control activities
Definition
  1. Admin Controls
  2. Accounting controls 
Term

Internal Controls

Administrative Controls

Definition
  • Designed to sassure mgmt that operations are being conducted efficiently and company policies are being followed
    • Organizational structure with assigned responsibilities
    • performance reviews
    • Written policies for dealing with vendors, customers, and regulatory entities 
Term

Internal Controls

Accounting Control

Definition
  • concerned mainly w/the protection of assets and that financial records are reliable and complete
    • procedures to safeguard assets
    • procedures to ensure completeness and accuracy of acct records
    • procedures to ensures timely release of financial statements
Term

Internal Controls

Info and Communication

Definition
  • all employees should recieve a clear message that their control responsibilities should be taken seriously
  • that their role in Internal control should be well defined
  • that serious breaches in the internal control system can and must be reported to senior mgmt and possibly the board of directors

 

Term

Internal Controls

Monitoring

Definition
  • Internal controls process must be monitored so that those that rely on it can be assured it is fulfilling its role
  • Must be an ongoing process of assessing quality of internal controls
  • If risks change, or serious breaches of the system occur, monitoring should increase and evals should be made
  • Senior mgmt has responsibility to assess internal control structure, considering the company's size, business, complexity, and regulatory reqs
Term

Internal Controls

Three Parities that play an important monitoring role

Definition
  1. Audit Committee Board
  2. Internal Auditors
  3. Independent Auditors 
Term

SARBANES-OXLEY (SOX) ACT OF 2002

 

Public Company Requirements

(Annual Reports) 

Definition

Requires companies in each annual report to:

  • Affirm that the mgmt is assuming responsibility for establishing and maintaining an adequate financial reporting internal control process
  • Provide a mgmt assessment of the effectiveness of the firms internal control process
Term

SARBANES-OXLEY (SOX) ACT OF 2002

 

Public Company Requirements

Definition
  • Disclose on a timely basis material changes in their financial condition or operations
  • CEO & CFO must certify that the info contained in the companies financial statements is a fair representation of the results 
Supporting users have an ad free experience!