Textbook Notes (362,815)
Canada (158,059)
Commerce (580)
COMM 112 (20)


26 Pages
Unlock Document

Queen's University
COMM 112
Teri Shearer

Chapter 1  Managerial accounting: the provision of accounting information for a company’s internal users  Planning: the detailed formulation of action to achieve a particular end  Controlling: managerial activity of monitoring a plan’s implementation and taking corrective action as needed  Decision making: the process of choosing among competing alternatives  Financial accounting: primarily concerned with producing information for external users  Value chain: inbound logistics, outbound logistics, marketing and sales, service, procurement, technology development, human resources management, developing infrastructure  Continuous improvement: the continual search for ways to increase the overall efficiency and productivity of activities by reducing waste, increasing quality, and managing costs  Total quality management: philosophy in which manufacturers strive to create an environment that will enable workers to manufacture perfect products  Lean accounting: organized costs according to the value chain and collects both financial and nonfinancial information  Line positions: positions that have direct responsibility for the basic objectives of an organization  Staff positions: positions that are supportive in nature and have only indirect responsibility for an organization’s basic objectives  Controller: chief accounting officer, supervises all accounting functions and reports directly to the general manager and chief operating officer  Treasurer: is responsibility for the finance function  Sarbanes-Oxley Act (SOX): established stronger government control and regulation of public companies in the U.S.  Publicly traded companies: issue shares traded on the U.S. stock exchange  Ethical behaviour: involves choosing actions that are right, proper, and just  Certified Management Accountants (CMA) and Certified General Accountants (CGA): have established ethical standards for accountants  Chartered Accountant (CA): education program that focuses on external financial reports and, in particular, auditing functions Chapter 2  Cost: the amount of cash or cash equivalents sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization  Expenses: expired costs  Price: revenue per unit  Accumulating cost: the way that costs are measured and recorded  Assigning cost: the way that a cost is linked to some cost object  Cost object: any item such as a product, customer, department, project, geographic region, plant, and so on, for which costs are measured and assigned  Committed fixed costs: can be avoided  Discretionary fixed costs: can be modified  Direct costs: those costs that can be easily and accurately traced to a cost object  Indirect costs: costs that cannot be easily and accurately traced to a cost object  Allocation: an indirect cost is assigned to a cost object using a reasonable and convenient method Indirect Direct costs costs Direct Allocation Tracing cost cost object object  Variable cost: on that increases in total as output increases and decreases in total as output decreases  Fixed cost: a cost that does not increase in total as output increases and decrease in total in input decrease  Opportunity cost: the benefit given up or sacrificed when on alternative is chosen over anther  Products: goods produced by converting raw materials through the use of labour and indirect manufacturing resources, such as manufacturing plant, land, and machinery  Services: tasks or activities performed for a customer or and activity performed by a customer using an organization’s products of facilities  Manufacturing organizations: organizations that produce products  Service organization: organizations that provide services  Product (manufacturing) costs: those costs, both direct and indirect, of producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale o Direct materials: those materials that are part of the final product and can be directly traced to the foods being produced o Direct labour: the labour that can be directly traced to the foods being produced o Manufacturing overhead: all product costs other that direct materials and direct labour  Prime cost: the sum of direct material cost and direct labour cost  Conversion cost: the sum of direct labour cost and manufacturing overhead cost  Period costs: all costs that are not product costs costs period product capitalize inventory asset asset depreciation period COGS expense expense  Selling costs: those costs necessary to market, distribute, and service a product of service  Administrative costs: all costs associated with research, development, and general administration of the organization that cannot reasonably be assigned to either selling or production  Manufacturing costs: total of: o Direct material cost: the cost of any material that is an integral part of the finished product o Direct labour cost: the wages of employees who are integral to the finished product o Factory overhead costs: costs other than direct materials cost and direct labour cost that are incurred in the manufacturing process  Materials inventory: consist of the costs of the direct and indirect materials that have not entered the manufacturing process  Work in process inventory (WIP): consists of the direct materials, direct labour, and factory overhead costs for products that have entered the manufacturing process but are not yet completed  Finished goods inventory: consists of completed products that have not been sold  Cost of goods manufactured: the total cost of making products that are available for sale during the period  Cost of goods sold: determined by subtracting the ending finished foods inventory from the cost of finished foods available for sale Beginning inventory + Purchases - Direct materials = Ending inventory value of materials used in production of materials  Gross margin: the difference between sales revenue and cost of goods sold  Gross margin %: gross margin / sales revenue  Operating income %: operating income / sales revenue Chapter 3  Cost behaviour: the general term for describing whether a cost changes when the level of output changes  Cost driver: a casual measurement that causes costs to change  Relevant range: the range or output over which the assumed cost relationship is valid for the normal operations of a firm  Fixed costs: costs that in total are constant within the relevant range as the level of output increases or decreases  Discretionary fixed costs: fixed costs that can be changed or avoided relatively easily at management discretion  Committed fixed costs: fixed costs that cannot be easily changed  Variable costs: costs that in total vary in direct proportion to changes in output within the relevant range Total Variable costs = Variable rate X Amount of output Total costs Is fixed throughout the Variable Cost Varies in direct proportion to relevan range Fixed Cost changes in activity Varies inversely with changes Remains fixed through the in activity throughout the relevan range relevant range  Mixed costs: costs that have both a fixed and a variable component Total cost = Total fixed cost + Total variable cost  Step cost: displays a constant level of cost for a range of output and then jumps to a higher level of cost at some point, where it remains for a similar range or output Total cost = Fixed costs + (Variable rate X Output)  Dependent variable: a variable whose value depends on the value of another variable  Independent variable: a variable that measures output and that explains changes in the cost or other dependent variable  Intercept: corresponds to fixed cost (point at which the cost line intercepts the cost (vertical) axis)  Slope: corresponds to the variable rate (the variable cost per unit of output);it is the slope of the cost line Variable rate = Fixed costs = Total cost a high (low) point – (Variable rate X Output at high (low) point)  Scattergraph method: a way to see the cost relationship by plotting the data points on a graph Variable rate =  Method of least squares (regression): a statistical way to find the best-fitting line through a set of data points Chapter 4  Break-even point: the point where total revenue equals total cost  Contribution margin income statement: income statement format that is based on the separation of costs into fixed and variable components  Contribution margin: the excess of sales over variable costs Contribution margin = sales – variable costs  Contribution margin ratio: the percentage of each sales dollar available to cover fixed costs and to provide the percentage of each sales dollar available to cover fixed costs and to provide income from operations Contribution margin ratio = contribution margin / sales Change in income = Change in sales x Contribution margin from operations dollars ratio  Unit contribution margin: for analysing the profit potential of proposed decisions Unit contribution margin = sales price per unit – Variable cost per unit Change in income = Change in sales x Unit contribution from operations units margin Operating income = Total variable expenses – Total fixed expenses Operating income = (Price x Number of units sold) – (Variable cost per unit x number of units sold) – total Fixed cost Break-even units = total fixed cost / (Price – Variable cost per unit)  Variable cost ratio: the proportion of each sales dollar that must be used to cover variable costs Operating income = Sales – Total variable expenses – Total fixed expenses Break-even sales = total fixed expenses / contribution margin ratio BE: (P x Q) = Q X VCU + FC + O P = selling price per unit P x Q – Q x VCU = FC Q = quantity Q (P – VCU) = FC P(Q) = total revenue QCM = FC VCU = variable cost per unit Q = FC / CM VC(Q) = total variable cost FC = total fixed costs Operating income = (Price x Units sold) – (unit variable cost x units sold) – Fixed cost # of units to earn target income = (fixed costs + target income) / (price – variable cost per unit) Sales dollars to earn target income = (Fixed cost + Target income) / (Contribution margin ratio) Target sales – variable expenses – fixed expenses = (target income after tax)/(1-tax rate) BE = (FC + NI/(1-T)/CM  Profit-volume graph: visually portrays the relationship between profits and units sold  Cost-volume-profit graph: depicts the relationship among cost, volume, and profits by plotting the total revenue line and the total cost line on a graph Revenue = Price x Units Total cost = (units variable cost x units) + fixed cost  Direct fixed expenses: those fixed costs that can be traced to each segment and would be avoided if the segment did not exist  Common fixed expenses: fixed costs that are not traceable to the segments and would remain even if one of the segments was eliminated Mulching mower break- even units = fixed cost / (price - unit variable cost) Riding mower break-even units = fixed cost / (price – unit variable cost)  Sale mix: the relative combination of products being sold by a firm Margin of safety units: Actual sales in units – Break-even sales in units Margin of safety in dollars: Actual sales in $ - Break-even sales in $ Margin of safety % : Margin of safety in units / Actual unit sales MS = (sales – sales at BEP) / Sales  Operating leverage: the use of fixed costs to extract higher percentage changes in profits as sales activity changes Margin in safety units x Price = Margin of safety in sales revenue  Degree of operation leverage (DOL): can be measured for a given level of sales by taking the ratio of contribution margin to operating income Degree of operating leverage = Contribution margin / operating income Percentage change in operating income = DOL x percent change in sales  Indifference point: quantity at which two systems produce the same operating income equation of the two systems equal and solving for the number of unit Chapter 5  Process-costing system: unit costs are computed by dividing the process costs for the given period by the output of the period Process Costing Job-order Costing 1. homogeneousproducts 1. Wide variety of distinct products 2. Costs accumulated by process or 2. Costs accumuilated by the job department 3.unit costs computed by dividing total 3. Unit cost computed by dividing job costs by units produced on that job process costs of the priod by the units produced in the period  Job: one distinct unit or set of units  Job-order-costing system: where costs are assigned and accumulated by job  Actual Costing: requires the firm to use the actual cost of all direct materials, direct labour, and overhead used in production to determine unit cost  Normal costing: requires the firm to assign actually costs for direct materials and direct labour to units produced and to apply overhead to units based on a predetermined estimate  Actual cost system: only actually costs of direct materials, direct labour, and overhead are used to determine unit cost Cost Accumulationg Actual Normal Standard System Actual direct material Actual direct material Standard direct material Actual direct labour Actual direct labour Standard direct labour Job order Actual overhead Ovpredetermined rateng Ovpredetermined rateng  Normal cost system: determines unit cost by adding actually direct materials, actually direct labour, and estimated overhead  Predetermined overhead rate: calculated at the beginning of the year by dividing the total estimated annual overhead by the total estimated level of associated activity or cost driver  Applied overhead: found by multiplying the predetermined overhead rate by the actual use of the associated activity for the period  Underapplied overhead: variance when actual overhead is greater than applied over head  Overapplied overhead: variance when actual overhead is less than applied overhead  Plantwide overhead rate: a single overhead rate calculated by using all estimated overhead for a factory divided by the estimated activity level across the entire factory  Departmental overhead rate: simply estimated overhead for a department divided by the estimated activity level for that same department  Conversion o Low degree of conversion o Moderate degree of conversion o High degree of conversion  Job-order cost sheet: prepared for every job; it is a subsidiary to the Work in Process account and is the primary document for accumulating all costs related to a particular job  Materials requisition form: source document that assigns the cost direct materials to a job  Time tickets: used only for direct labourers (predetermined overhead rates)  Cost flow: describes the way costs are accounted for from the point at which they are incurred to the point at which they are recognized as an expense on the income statement  See exhibit 5 – 8, page 195  Normal cost of goods sold: the cost of goods sold before and adjustment for an overhead variance  Adjusted cost of goods sold: after the adjustment for the period’s overhead variance takes place  See exhibit 5 – 16, page 203  See exhibit 5 – 17, page 204 Appendix 5A Chapter 6  Sequential processing: requires that units pass through one process before they can be worked on in later processes  Parallel processing: is another processing pattern that requires two or more sequential processes to produce a finished good Production: Write Finished write heads and heads Assembling drive and drive Goods Circuit Circuit board board production testing  See exhibit 6-3 page 246  Transferred-in costs: are costs transferred from a prior process to a subsequent process  Production report: the document that summarizes the manufacturing activity that takes place in a process department for a given period of time o Unit information  Units to account for  Units accounted for o Cost information  Costs to account for  Costs accounted for  Equivalent units of output: are the complete units that could have been produced given the total amount of manufacturing effort expended for the period under consideration  Weighted average costing method: combines beginning inventory costs and work done with current-period costs and work to calculate this period’s unit cost  FIFO costing method: separates work and costs of equivalent units in beginning inventory from work and costs of the equivalent units produced during the current period  Product report steps o Physical flow analysis o Calculation of equivalent units o Computation of unit cost o Valuation of inventories (goods transferred out and EWIP) o Cost reconciliation  Physical flow schedule: provides and analysis of the physical flow of units  Cost reconciliation: checks to see if the costs to account for are exactly assigned to inventories Units started and completed = units completed – units BWIP Units started = units started and completed + units EWIP Chapter 6 Appendix  FIFO vs. Weighted: FIFO better for bigger changes in price each year Chapter 7  Unit-level activities: activities that are performed each time a unit is produced Type of Cost Description of Cost Driver Example •Unit-level •Varies with ouput •Cost of indirect materials volume; tranditional labelling each bottle of variable costs Victoria's Secret perfume •Batch-level •Varies with the number •Cost of setting up laser of batches produced engraving equipemt for each batch of Epilog key chains •Cost of incentory •Product-sustaining •Varies with the number handling and warranty of product lines servicing of different brands carried by Best Buy electronics store •Facility-sustaining •Necessary to operate the plant facility but does not •Cost of Gernal Motors vary with units, batches, plant and manager salary or product lines  Non-unit-level activity drivers: factors that measure the consumption of non-unit-level activities by products and other cost objects  Unit-level activity drivers: measure the consumption of unit-level activities  Activity drivers: are factors that measure the consumption of activities by products and other cost objects and can be classified as either unit-level, or non-unit level  Product Diversity: means that products consumer overhead activities in systematically different proportions  Consumption ratio: the proportion of each activity consumer by a product  Activity-based costing (ABC): accumulates overhead costs for each of the organization’s activities and then assigns the costs of activities to products, services, or other cost objects that caused those activities o Identify and define activities using interviews and surveys o Assign cost to activities o Assign costs to products  Cost assigned to product = predetermined activity rate X actual usage of activity  Activity dictionary: a list of activities  Activity attributes: financial and nonfinancial information that describes the activities  ABC – does not conform to GAAP, requires a significant amount of time, support is needed throughout the firm to overcome barriers Activity Activity Name Description Cost Object(s) Activity Driver •Processing •Sorting, keying, •Credit cards •Numer of and transations transactions •Preparing veryfying statements •Reviewing, •Credit Cards •Numer of printing, stuffing statements and mailing •Answering •Answering, Questions logging, reviewing •Credit cards •Numer of calls database, and making call backs •Providing •Accessing •Credit cards, •Numer of teller automatictellers accounts, chequing and transactions withdrawing savings account funds  Value-added activity: increases the value of a product or service to a customer and is one for which the customer is willing to pay  Non-value-added activity (NVA): increase the time and/or cost spent on a product or service, but without increasing its worth  Resource drivers: factors that measure the consumption of resources by activities  Process-value analysis: focuses on cost reduction instead of cost assignment and emphasizes the maximization of systematic performance (fundamental to activity- based management) o Driver analysis o Activity analysis o Performance measurement  Activity inputs: are the resources consumed by the activity in producing its output  Activity output: the result or product of activity  Activity output measure: the number of times the activity is performed  Driver analysis: the effort expended to identify those factors that are the root causes of activity costs  Activity analysis: the process of identifying, describing, and evaluating the activities that the organization performs  Value-added activities: activities necessary to remain in business  Value-added costs: the costs to perform value-added activities with perfect efficiency  Non-value-added activities: all activities other than those that are absolutely essential to remain in business o Scheduing o Moving o Waiting o Inspecting o Storing  Non-value-added costs: costs that are caused either by non-value added activities or by the inefficient performance of value-added activities  Cost reduction o Activity elimination: focuses on non-value added activities o Activity selection: involves choosing amount different sets of activities that are caused by competing strategies o Activity reduction: decreases the time and resources required by and activity o Activity sharing: increases the efficiency of necessary activities by using economies of scale  Cycle time: the length of time that it takes to produce a unit of output from the time raw materials are received until the good is delivered to finished goods inventory  Velocity: the number of units of output that can be produced in a given period of time  Costs of quality: costs of performing quality activities  Control activities: performed by an organization to prevent or detect poor quality  Control costs: the costs of performing control activities  Prevention costs: incurred to prevent poor quality in the products or services being produced  Appraisal costs: incurred to determine whether products and services are conforming to their requirements or customer needs  Failure Activities: performed by an organization or its customers in response to poor quality  Failure costs: costs incurred by an organization because failure activities are performed  Internal failure costs: incurred when products and services do not conform to specifications or customer needs  External failure costs: incurred when products and services do not conform to specifications or customer needs after being delivered to customers  Just-in-time production system: an organization purchases materials and parts and produces components just when they are needed in the production process  Environmental costs: associated with environmentally related activities; control activities, failure activities o Environmental prevention costs: costs of activities carried out to prevent the production of contaminants and/or waste that could cause damage to the environment o Environmental detection costs: the costs of activities executed to determine if products, processes, and other activities within the firm are in compliance with appropriate environment standards o Environmental internal failure costs: costs of activities performed because contaminants and waste have been produced but not discharged into the environment o Environment external failure costs: costs of activities performed after discharging contaminants and waste into the environment o Realized external failure costs: those incurred and paid for by the firm o Unrealized external failure costs (societal costs): caused by the firm but are incurred and paid for by parties outside the firm Chapter 8  Absorption costing: assigns all manufacturing costs to the product (including Fixed overhead) o Production > Sale . . . Absorption > Variable  V
More Less

Related notes for COMM 112

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.