1. Variable Cost
    • The total dolar amount varies directly proportional to the changes in activity
    • Variable costs remain constant when expressed on a per unit basis.
    • Generally talking about the activity base as being the total volume of good sand servies provided by the organization.
    • Ex. Raw Materials and Direct Labor
  2. Activity Base
    • Measuer of whatever causes the incurrence of variable cost
    • AKA cost driver
    • It is what it is varible with respect to
  3. True Variable Costs
    • The amount used during a period will vary in direct proportion to the level of productions activity
    • Ex. Direct Materials
    • Any amounts purchased but not used can be carried over
  4. Step-Variable Costs
    • Cost of a resource that is obtainable only in large chunks and that increases or decreases only in response to fairly wide changes in activity
    • Ex. is maintence workers
  5. Relevant Range
    • Range of activity within the assumptions made about cost behavior are reasonably valid.
    • Where the curve and straight line are the same
  6. Fixed Costs
    • Total fixed cost remains the same even when the activity level changes within the relevant range.
    • Fixed cost per unit goes down as activty level goes up
    • AKA capacity costs
  7. Commited Fixed Costs
    • Investments in facilities, equipment, and the basic organization that can't be significantly reduced even for short periods of time without making fudamental changes
    • Even if things cutback, these will remain the same.
    • Long term desicsion
    • Ex. Depreciation on buildings and equip., real estate taxes, insurance expenses, sallaries ot top dog
    • Do become locked into the decison
  8. Discretionaly Fixed Costs
    • Arise from annual diecisions by managment to spend on certain fixed cost items.
    • AKA managed fixed costs
    • Ex. Advertising, research, public relations, management develoment programs, internships for students
    • Short term around a year
    • Can be cut for short periods of time with minimal damage
    • Are not locked into decsions
  9. Mixed Costs
    • Contains both variable and fixed cost elements
    • AKA Semivariable costs
    • Fixed portion represents the minimum cost of having a service ready and abailabel for use.
    • Variable portion represents the cost incurred for actual consumpiton of the service
  10. Mixed Cost Equation
    • Y= a + bX
    • Y= total mixed cost
    • a = Total fixed cost
    • b = variable cost per unit of activity (slope)
    • X= Level of activity
    • The steeper the slope, the higher the variable cost
  11. Scatter Plot
    • Dependent variable: Cost (Y) since the amount of cost incurred during a period depends on the level of activity for the period
    • Independent: Activity (X) since it causes variations in the cost.
  12. High Low Method
    • Based on Rise over run formula
    • Variable cost= Change in cost/Change in activity
    • Fixed Cost element= Total cost-Variable cost element
  13. Least squares Regression Method
    • Uses all of the data to seperate a mixed cost into a fixed and variable components
    • Great because usues all data points and has the goodness of fit.
  14. Multiple regression
    An analytical method that is used when the dependent variable (i.e. cost) is caused by more than one factor.
  15. Taditional appraoch Income statement
    • Is organized in a functional format.
    • Emphasizes functions of production, administration and sales.
    • No attempt made to distinguish between fixed and variable costs
  16. Contribution Approach
    Seperates costs into fixed and variable.
  17. Contribution Margin
    Amount remaining from sales revenue after variable expenses have been deducted
  18. Budget
    Quantitative plan for acquiring a using resouces over a specifed time period
  19. Budgeting
    Act of Preparing the budget
  20. Budgetary control
    Use of budgets to control an organizations activity
  21. Master Budget
    • Summary of a compnay;s plans including spedific targetsfor sales, production, and finacnicng acitivities.
    • Lays out the financial aspects of managment's plans for the future and assits in monitoring actual expenditures relative to those plans.
  22. Planning
    Developing golas and preparing various budgets to achieve those goals.
  23. Control
    Steps taken by management to increase the liklihood that all parts of the organization are working together to achieve the ogoals set down at the planning stage.
  24. Advantages of budgeting
    • Define goal and objective
    • Communicate plans
    • Cordinate activites
    • Uncover potential bottle necks
    • Allocating resources
    • Planning future
  25. Responsibility Accounting
    A manager sould be held responsible for those items, and only those items, that the mangaer can actually control to a significan textent.
  26. Continuous or perpetual budget
    • 12-month buget that rolls forward one month or quarter as the current monthr is completed.
    • One month is added to the end of the buget as each month comes to a close
  27. Self-Imposed Budget or Participant
    Budgent that is prepared with the fulll cooperaton and participation of managers al all levels
  28. Advantages of Self-Imposed
    • More accurate
    • More motivation
    • no excuses
  29. Sales Budget
    • Everything depends on this
    • Determines how many units need to be produced
    • Sales in Units * Unit price = Total sales
  30. Production Budget
    • List # of units that must be produced to satisfy sales needs and to provide for desired ending inventory.
    • Budgeted unit sales + desired ending inventory = Need
    • Needed - Beginnign inventory = Production
    • *Beginning inventory is the previous months ending inventory
    • This is all done in the finished goods T accout
  31. Direct Materials Budget
    • Raw materials that must be purchased to fulfill the production budget and to provide for adequate inventoires
    • Ending from production * Pounds + EI =Need
    • Need - BI = RM to be purchesed
    • RM to be puchases * cost per pound
  32. Direct Labor Budget
    • Shows the direct labor-hours required to satisfy the procution budget.
    • # from production budget * hours per unit needed = Labor hours needed
    • Labor hours needed * rate per hour = Total diret labor costs
  33. Manufacturing O/H budget
    • List all costs of production other than direct materials and Labor.
    • Direct labor hours * OH rate per hour = Variable MOH
    • Take Variable MOH + Fixed= Total MOH
    • Total MOH - depreciation (noncash charge) = Cash disbursements for MOH
  34. Ending Finished Goods Inventory
    • This caculates the carrying cost of the unsold units.
    • Direct materials (pounded needed per unit * cost per unit)
    • Direct Labor (hours needed per product * labor rate per hour)
    • MOH (hours per unit times predetermined OHR)
    • Add these together to get the unit product cost
    • Then Ending finished inventory units times this cost is ending finished inventory in dollars
  35. Predetermined OHR
    Total MOH/ Total direct labor hours
  36. Selling and Administrative Budget
    • Units sold from beginning * Variable rate= Variable part
    • Add Fixed = total expenses selling..
    • Total - depreciation = Cash disbursement for selling and administrative expenses.
  37. Cash Budget
    • Detailed play showing how cash resources will be used.
    • Takes all cash disbursements for each month and finds how they move
  38. Quantity Standard
    Specify how much of an input should be used to make a product or provide a service
  39. Cost (price) standards
    Specify how much should be paid for each unit of input
  40. Managment by exception
    Deviations from standards deemed significant are brought to the attention of management
  41. Ideal Standard
    Attained only under best circumstances. 100%
  42. Practical Standards
    Tight but attainable
  43. Standard Pricer per unit
    For direct material should reflect the final, delivered cost of materials, net of an discounts taken.
  44. Variences
    Difference between standard and actual
  45. Standard Quantity/Hours allowed
    Means the amount of an input that should have been used to produce actual output of the period
  46. Model
    Image Upload 2
  47. Actual
    What is acutally used in production.
  48. Standard
    What was allowed for the period
  49. U
    • Unfavorable
    • More of product was used than standards allowed
  50. F
    • Favorable
    • Actual is less than standard Quantity
  51. Advantages of standard costs
    • Managment by exception
    • Promotes economy and efficiency
    • Simplified bookeeping
    • Enhances responsiblibliy accounting
  52. Problems with Standard Costs
    • Standard cost reports may not be times
    • Emphasis on negative
    • FAvorable variences my be misinterpreted
  53. Balanced scorecard
    Consits of integreated set of perfomances measures that are derived from and support the companies strategy throughout the organization
  54. Delivery Cycle time
    The amount of time from when a customer order is recieved to when the completed order is shipped
  55. Throughput time
    • The amount of time required to turn raw materials into completed products
    • AKA. Manufacturing cycle time
    • Made up of Pricess time, inspection time, move time and queue time
  56. Product time
    The amount of time work is actually done on the product
  57. Inspection time
    THe amount of itme spent ensuring that the product is not defective.
  58. Move time
    Time required to move materials or partially completed product form workstation to workstation
  59. Queue Time
    Amount of time a product spends waiting to be worked on, to be moved, to be inspected or to be shipped.
  60. Manufacturing Cycle efficiency (MCE)
    Value-added time(proccess time)/Throuput(manufacturing cycle) time
  61. Delivery cycle time
    Wait time + Throughput time
Card Set
Chaps 5,9,10,11