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UG 2025ACCOUNTING & STATISTICS BSc MANAGEMENT ACCOUNTING ๏ Management accounting primarily is concerned with providing a. information to managers inside the organization as well as information to shareholders, creditors, and others outside the organization. b. information to shareholders, creditors, and others outside the organization. c. information to managers inside the organization. d. information to governmental regulatory agencies. ๏ Managers involved in the planning function typically a. avoid communicating their plans extensively throughout the organization in order to prevent competitors from learning of the plans. b. deal only with long-term issues (leaving short-term considerations to lower-level employees) and communicate their plans throughout the organization in order to ensure that all employees are working toward the company's objectives. c. deal both with short-term and long-term issues and communicate their plans throughout the organization in order to ensure that all employees are working toward the company's objectives. d. deal both with short-term and long-term issues but avoid communicating their plans throughout the organization in order to prevent competitors from learning of the plans. ๏ In decision making, managers use a. financial accounting information exclusively since it is more objective and precise due to well- established principles and conventions. b. information regarding the organization as a whole rather than segments of the organization in order to capture a broader perspective of the company's operations. c. non-monetary information most frequently since monetary information ignores the effects of inflation and changes in technology. d. whatever information is relevant to the decision even though the information does not conform to generally accepted accounting principles. ๏ The title of "controller" as applied to the manager in charge of the accounting department results from the fact that a. the controller has final authority over all expenditures made by the organization. b. the controller has line authority over the various managers of the organization. c. the controller exercises control through the reporting and interpreting of data needed in decision making. d. the controller must maintain strict "control" over the financial resources of the organization in order to avoid the occurrence of theft of these resources. ๏ Managerial accounting places considerable weight on
a. generally accepted accounting principles. b. the financial history of the entity. c. ensuring that all transactions are properly recorded. d. Non-monetary data that may be difficult to quantify. ๏ The concept of the European Community (EC) is that twelve European nations have abandoned most of the trade barriers that separated them for many centuries in order to a. enhance the strength of companies within the EC so they can compete more effectively against U. S. and Japanese firms. b. facilitate mergers between European firms and firms of other nations. c. enable EC firms to focus more on "niche" markets rather than on mass markets. d. facilitate the entry of U. S. firms into the European markets. ๏ The Standards of Ethical Conduct for Management Accountants developed by the Institute of Management Accountants contains a policy regarding confidentiality that requires that management accountants a. refrain from disclosing confidential information acquired in the course of their work except when authorized by management. b. refrain from disclosing confidential information acquired in the course of their work in all situations. c. refrain from disclosing confidential information acquired in the course of their work except when authorized by management, unless legally obligated to do so. d. refrain from disclosing confidential information acquired in the course of their work in all cases since the law requires them to do so. ๏ The Standards of Ethical Conduct for Management Accountants developed by the Institute of Management Accountants states that significant ethical issues should first be discussed with an immediate superior unless the superior is involved. If satisfactory resolution cannot be achieved when the problem is initially presented, then the issues should be. a. submitted to the next higher managerial level. b. submitted to the chief executive officer of the firm. c. submitted to the audit committee, executive committee, board of directors, or owners. d. submitted to outside legal counsel. ๏ When faced with an ethical dilemma, a manager should first a. confront the parties involved in the situation. b. identify the persons or organizations affected by the outcome of the dilemma. c. identify the ethical issues involved.
๏ What are conversion costs? Conversion Cost: overhead and direct labour - costs incurred to convert materials to finished products. ๏ Direct Materials Those materials that become an integral part of a finished product and can be conveniently traced to it. ๏ Cost structure The relative proportion of fixed, variable, and mixed costs found in an organization. ๏ Activity base A measure of whatever causes a variable cost to be incurred. For example, the total cost of direct materials in a bicycle manufacturing company will increase as the number of bicycles produced increases. Therefore, the number of bicycles produced is an activity base for explaining the total cost of direct materials. ๏ step variable cost A cost (such as the cost of a maintenance worker) that is obtainable only in large amounts and that increases and decreases only in response to wide changes in the activity level. ๏ committed fixed costs Fixed costs that are difficult to adjust in the short term and that relate to the investment in facilities, equipment, and the basic organizational structure of a firm. ๏ discretionary fixed costs Fixed costs arising from annual decisions by management to spend in certain areas, such as advertising and research. ๏ account analysis A method for analyzing cost behaviour in which each account under consideration is classified as either variable or fixed based on the analyst's prior knowledge of how the cost in the account behaves. ๏ engineering approach A detailed analysis of cost behaviour based on an industrial engineer's evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs. ๏ dependent variable A variable that responds to some causal factor; total cost is the dependent variable, as represented by the letter Y in the equation Y = a + bX ๏ independant variable A variable that acts as a causal factor; activity is the independent variable, as represented by the letter X in the equation Y = a + bX. ๏ high-low method A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low levels of activity.
๏ contribution format An income statement format where costs are separated into variable and fixed categories. ๏ contribution margin The amount remaining from sales revenues after all variable expenses have been deducted. ๏ Define cost-volume-profit (CVP) analysis. Cost-Volume-Profit (CVP) analysis examines the behavior of total revenues, total costs, and operating income as changes occur in the units sold, selling price, variable cost per unit, or fixed costs of a product. ๏ Describe the assumptions underlying CVP analysis. a. Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units sold. b. Total costs can be separated into a fixed component that does not vary with the units sold and a variable component that changes with respect to the units sold. c. When represented graphically, the behaviors of total revenues and total costs are linear (represented as a straight line) in relation to units sold within a relevant range and time period. d. The selling price, variable cost per unit, and fixed costs are known and constant. Distinguish between operating income and net income. *Operating Income = total revenues from operations for the accounting period minus COGS and operating costs (excluding income taxes) (OI =Total Revenues from Op's - COGS & Op Costs) *Net Income = operating income plus non-operating revenues (such as interest revenues) minus non-operating costs (such as interest cost) minus income taxes *Ch. 3 assumes non-operating revenues and non-operating costs are zero; thus Net income= op. income - income taxes ๏ Define Contribution Margin, Contribution Margin per unit, and Contribution margin percentage *Contribution Margin = difference between total revenues and total variable costs *Contribution Margin per unit = difference between selling price and variable cost per unit *Contribution Margin Percentage = the contribution margin per unit divided by the selling price ๏ Describe 3 methods that managers can use to express CVP relationships.
- The equation method
- The contribution Margin method
- The graph method
๏ Give an example of how a manager can increase variable costs while decreasing fixed costs. manufacturing = subcontracting a component to a supplier on a per-unit basis to avoid purchasing a machine with a high fixed depreciation cost *marketing = changing a sales compensation plan from a fixed salary to percent of sales dollars basis *customer service = hiring a subcontractor to do customer service on a per-visit basis rather than an annual retainer basis ๏ What is operating leverage? How is knowing the degree of operating leverage helpful to managers? *Operating Leverage = describes the effects that fixed costs have on changes in operating income as changes occur in units sold, and hence, in contribution margin. *Degree of operating leverage = CM/OI *Knowing the degree of operating leverage at a given level of sales helps managers calculate the effect of fluctuations in sales on operating incomes. ๏ "There is no such thing as a fixed cost. All costs can be 'unfixed' given sufficient time." Do you agree? What is the implication of your answer for CVP analysis? *CVP analysis is always conducted for a specified time horizon *One extreme is a very short-term horizon; for example, some vacation cruises offer deep price discounts for people who offer to take any cruise on a day's notice. *One day prior to a cruise, most costs are fixed *The other extreme is several years hence, a much higher percentage of total costs typically is variable CVP itself is not made any less relevant when the time horizon lengthens What happens is that many items classified as fixed in the short run may become variable costs with a longer time horizon "In CVP analysis, gross margin is a less-useful concept than contribution margin." Do you agree? Explain briefly. *Yes, gross margin calculations emphasize the distinguish between manufacturing and non-manufacturing costs (gross margins are calculated after subtracting variable and fixed manufacturing costs) *contribution margin calculations emphasize the distinction between fixed and variable costs. Hence, contribution margin is a more useful concept than gross margin in CVP analysis. Traditional Income Statement *divided by cost function Revenues-COGS-COGS=GM-OE=OI
Contribution Margin Income Statement *divided by cost behavior Revenues-VC=CM-FC=OI-taxes=NI Contribution Margin Income Statement (in more detail) Revenues (SP x Q) ratio= Rx100%
- VC (VCU x Q) ratio = VCR x R =CM (CMU x Q) ratio = CMR x R
- FC (lump sum) =OI [NI/ (1-tax rate)]
- taxes (OI x tax rate) =NI [OI(1-tax rate)] Net income formula [OI - (OI x tax rate)] or [OI x (1-tax rate)] Variable Cost Ratio and Contribution Margin Ratio VCR= VC/Rev CMR = CM/Rev Revenues [CMR + VCR] or [CM + VC] Contribution Margin Formula CM = [CMU x Q] or [R-VC] or [(SPxQ) - (VCUxQ)] or [Q(SP-VCU)] or [Q(CMU)] Contribution Margin per Unit formula CMU = (SP-VCU) or (CM/Q) or [(R-VC)/Q]
minutes which will increase your cost to between $50 and $100.Kendra Corporation's total utility costs during the past year were $1,200 during its highest month and $600 during its lowest month. These costs corresponded with 10,000 units of production during the high month and 2,000 units during the low month. What are the fixed and variable components of its utility costs using the high-low method? ($0.075 variable and $450 fixed.) Variable is $0.075 [($1,200 โ $600) รท (10,000 โ 2,000)] and fixed is $450 [($1,200 โ ($0.075 ร 10,000)]. ๏ Which of the following is not involved in CVP analysis? - (Fixed costs per unit.) Total fixed costs, not fixed costs per unit, are involved in CVP analysis. ๏ผ When comparing a traditional income statement to a CVP income statement: (net income will always be identical on both.) net income will always be identical on both a traditional income statement and a CVP income statement. ๏ Contribution margin: is revenue remaining after deducting variable costs. AND may be expressed as unit contribution margin. ๏ Contribution margin is revenue remaining after deducting variable costs and it may be expressed on a per unit basis. Cournot Company sells 100,000 wrenches for $12 a unit. Fixed costs are $300,000, and net income is $200,000. ๏ What should be reported as variable expenses in the CVP income statement? โโ($700,000.) ๏ Contribution margin is equal to fixed costs plus net income ($300,000 + $200,000 = $500,000). Since variable expenses are the difference between total sales ($1,200,000) and contribution margin ($500,000), $700,000 must be the amount of variable expenses in the CVP income statement.Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%. If Gossen will break even at this level of sales, what are the fixed costs? โโ($200,000.) Unit contribution margin is $1 ($4 ร 25%). Fixed costs รท Unit contribution margin = Break-even point in units. Solving for fixed costs, 200,000 units ร $1 per unit = $200,000Brownstone Company's contribution margin ratio is 30%. If Brownstone's sales revenue is $100 greater than its break-even sales in dollars, its net income: โโ(will be $30.) If Brownstone's sales revenue is $100 greater than its break-even sales in dollars, its net income will be $30 or ($100 ร 30%),The mathematical equation for computing required sales to obtain target net income is Sales = โโThe correct equation is Sales = Variable costs + Fixed costs + Target net income.Margin of safety is computed as: โโMargin of safety is computed as Actual sales โ Break-even sales.Marshall Company had actual sales of $600,000 when break-even sales were $420,000. What is the margin of safety ratio? โโThe margin of safety ratio is computed by dividing the margin of safety in dollars of $180,000 ($600,000 โ $420,000) by actual sales of $600,000. The result is 30%
