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ACC 410 (13)
Lecture

Ch1-4, 10

10 Pages
138 Views

Department
Accounting
Course Code
ACC 410
Professor
Alison Beavis

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Effects of Uncertainties & Biases
Uncertainties prevent managers from accurately describing problem, identify all
possible options, knowing outcomes of options, anticipate all future conditions
Biases inhibit recognition of uncertainties, thorough analyses, consideration of
alternatives, critical evaluation of priorities, continuous improvement
Biases Preconceived notions adopted without careful thought; ignore
weaknesses in their preferred course of action & prevent exploring options
Decision Quality characteristics of decision, affect likelihood of achieving positive
outcome
Organizational vision Core purpose and ideology of an organization
Organizational core competencies organization's strengths relative to
competitors
Organizational strategies tactics, taking advantage of core competencies while
working toward organizational vision
Operating plans Specific short-term decisions, organization's daily activities
Actual operations various actions taken & results achieved over period of time
Cost accounting method for determining cost of a project, process, or thing
Management accounting Process of gathering, summarizing, & reporting
information used internally to make decisions; future oriented, not GAAP
Financial accounting process of preparing and reporting financial information
that is used most frequently by decision makers outside organization
Strategic cost management Expansion of management accounting to focus on
reducing costs & strengthening organization's strategic position
Balanced scorecard help organizations translate vision into objectives,
measured & monitored using both financial & nonfinancial performance measures
External reports for government, shareholders, stakeholders
Internal reports evaluating & updating organizational strategies, communicating
& monitoring operating plans, measuring, monitoring & motivating performance
Knowing Identifying Exploring Prioritizing Envisioning
High quality information is more: certain, complete, relevant, timely, valuable
High quality reports are more: relevant, understandable, available
High quality decision-making process is more: thorough, unbiased, focused,
strategic, creative & visionary
Relevant info to choose alternative: concerning future, varying with action taken
Irrelevant info: not useful, unavoidable cash flows
Relevant (incremental) cash flows Cash flows that occur under one course of
action/decision alternative, but not under another
Irrelevant (unavoidable) cash flows - Cash flows that occur regardless of which
course of action/decision alternative is chosen
Open-ended problems problem with no singlecorrectsolution, due to significant
uncertainties
Ethical behaviour rewards integrity, reputation, self-respect, social welfare
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Cost Function
ClassificationsApplicationsCost Terms
Relevance Decision making Relevant vs irrelevant
BehaviourCosts estimation Fixed vs variable
TraceabilityCosts assignmentDirect vs indirect
Function Cost determination Product vs period
Controllability Performance evaluation Controllable vs non
Relevant costs costs that differentiate between 2 alternatives (e.g. opportunity cost)
Irrelevant costs no affect to alternatives/decisions (e.g. sunk cost)
Opportunity cost benefits organization sacrifice when choose option over another
Sunk cost expenses made in past
Fixed costs total cost will not change within relevant range
Variable cost varies in proportion to production level
Cost object any thing/activity which costs measured (products, projects, customers)
Direct cost cost easily traced to cost object
Indirect cost incurred for benefit of more than 1 cost object, not easily/economically traced to particular cost object
Product (manufacturing) cost easily traced to product
Period (non-manufacturing cost) cannot be assigned to products
Controllable costs managers have authority to cut & manage
Uncontrollable costs managers have no authority to cut & manage
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Relevant range span of activity for cost object, TFC & VC per unit = constant
Marginal costs incremental cost of activity (linear = same VC per unit)
Linear Cost function = TC = Q(FC + VC)
Non-linear cost functions
-Economies of scale avg costs decline with volume of production
-Learning curve VC decline with experience
Linear cost functions across more than 1 relevant range
-Stepwise linear FC change across relevant ranges
Piecewise linear VC change across relevant ranges
Engineered estimate of cost analyze amount of labour time, materials, other resources used in activity; estimate costs based on resources used
Analysis at account level review pattern in past costs recorded in accounting system
Two-point method calculate linear mixed cost function using 2 data points of cost & cost driver
High-low method 2-point method, highest & lowest data points of cost driver
-Change in cost / change in cost driver
Regression measure avg change in dependent variable for every unit change in 1+ independent variables
Simple regression 1 independent variable
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Description
Effects of Uncertainties & Biases High quality information is more: certain, complete, relevant, timely, valuable Uncertainties prevent managers from accurately describing problem, identify all High quality reports are more: relevant, understandable, available possible options, knowing outcomes of options, anticipate all future conditions High quality decision-making process is more: thorough, unbiased, focused, strategic, creative & visionary Biases inhibit recognition of uncertainties, thorough analyses, consideration of alternatives, critical evaluation of priorities, continuous improvement Relevant info to choose alternative: concerning future, varying with action taken Biases Preconceived notions adopted without careful thought; ignore Irrelevant info: not useful, unavoidable cash flows weaknesses in their preferred course of action & prevent exploring options Decision Quality characteristics of decision, affect likelihood of achieving positive Relevant (incremental) cash flows Cash flows that occur under one course of outcome actiondecision alternative, but not under another Organizational vision Core purpose and ideology of an organization Irrelevant (unavoidable) cash flows - Cash flows that occur regardless of which Organizational core competencies organizations strengths relative to course of actiondecision alternative is chosen competitors Organizational strategies tactics, taking advantage of core competencies while Open-ended problems problem with no single correct solution, due to significant working toward organizational vision uncertainties Operating plans Specific short-term decisions, organizations daily activities Actual operations various actions taken & results achieved over period of time Ethical behaviour rewards integrity, reputation, self-respect, social welfare Cost accounting method for determining cost of a project, process, or thing Management accounting Process of gathering, summarizing, & reporting information used internally to make decisions; future oriented, not GAAP Financial accounting process of preparing and reporting financial information that is used most frequently by decision makers outside organization Strategic cost management Expansion of management accounting to focus on reducing costs & strengthening organizations strategic position Balanced scorecard help organizations translate vision into objectives, measured & monitored using both financial & nonfinancial performance measures External reports for government, shareholders, stakeholders Internal reports evaluating & updating organizational strategies, communicating & monitoring operating plans, measuring, monitoring & motivating performance Knowing Identifying Exploring Prioritizing Envisioning www.notesolution.com
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