ACC406 Tip Sheet. 1) Planning: It is the process of creating a set of plans that a company intends to achieve a particular goal.

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Edgar Malone
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ACC406 Tip Sheet Chapter 1 Managerial Accounting: It is simply the process of reporting accounting information for a company s internal users such as managers, sales staff and etc.

1 ACC406 Tip Sheet Chapter 1 Managerial Accounting: It is simply the process of reporting accounting information for a company s internal users such as managers, sales staff and etc. for decision making. On the contrary, financial accounting is the process of producing information for external users such as investors, current as well as potential shareholders, government agencies and etc. Decision Making Steps 1) Planning: It is the process of creating a set of plans that a company intends to achieve a particular goal. 2) Controlling: It is the process of monitoring a plan, its implementation and taking actions to improve any discrepancies. 3) Decision Making: It is the process of choosing the best option among competing offers. Activity Based Costing (ABC): Aims to attain cost accuracy by putting into consideration of several activities that are collectively conducted to produce a certain good or a service. Total quality management: The product manufactures aim to produce goods without any defects. Lean accounting: It is a method through which costs are organized according to value change and the main idea is to eliminate any unnecessary costs. Line positions: These are the core positions of a company which are directly responsible for achieving core objectives of an organization. Staff Positions: These positions are in charge of supporting line staff positions. Triple Bottom Line: These are thresholds set in place by certain companies and these measures include environmental, social and financial. Value Chain: The process set in place to produce, design, develop, produce and deliver it to final consumers. Chapter 2 Cost of Goods Sold: It is the sum of total product costs of goods sold during a certain fiscal period. Total Product Costs: It is the sum of direct material, direct labor, and manufacturing overhead costs that were conducted in order to produce one unit or total units produced in a fiscal period. Direct Costs: It is a type of cost that can be easily allocated to a certain object. Fixed Cost: Type of cost that does not change regardless of output increase or decrease

2 Conversion cost: It is total of direct labor cost and overheard cost. Costs of Goods Manufactured: It is cumulative product costs of goods completed during a certain fiscal period. Cost: The amount of money spent for a good or service that will bring a benefit to an organization. Administrative Costs: Cumulative costs with regards to research, development that cannot be easily allocated to any particular account. Direct Labor: Labor that is directly attributable to the goods and service that are being produced by a firm. Direct Labor Cost: It refers to the cost of workers who worked to produce those certain goods. Direct Material: It is the type of material that is used to produce a certain good or service. Direct Materials Cost: It refers to materials which were used to finish a particular good. Gross Margin: It is basically Sales Cost of goods sold. Indirect labor: It refers to the cost that cannot be attributed to a certain cost and are therefore attributed to manufacturing overhead. Indirect Materials: It refers to materials that are used in production of goods but cannot be easily attributed to a product and are attributed to manufacturing overhead. Factory Overhead: It refers to costs that incurred in the manufacturing process, not including direct materials and direct labor Manufacturing costs: It equates to total costs which includes cost incurred in the current period such as direct materials, labor and factory overhead. Period Costs: It refers to the costs that are expensed in the period in which the company incurs them. Prime cost: It is the total of direct material cost and direct labor cost. Product Cost: Costs that are accumulated in producing certain goods such as direct materials, direct labor, and overhead. Variable Cost: Costs that are prone to fluctuation with regards to output. Chapter 3 Discretionary fixed costs: Type of costs that can be easily managed in terms of changing, increasing or decreasing depending on the management. Mixed Cost: Costs that have both variables included such as fixed as well as variable costs.

3 Committed Fixed Costs: Fixed costs that can t be easily changed. High - low method: Process through which fixed costs and variable costs are filtered by using the high and low data points. Cost Formula: Total Cost= Total Fixed Cost + (Variable rate x units of output) Total Variable Cost: Variable rate x Units of output High Low Method Step 1) Variable Rate: High Point Cost Low Point Cost / High Point Output Low Point Output Step 2) Fixed Cost = Total Cost at High Point (Variable Rate x Output at High Point) Chapter 4 Break Event Point: When total sales revenue equals total cost, there is no profit or loss at this point Common Fixed Expenses: Fixed expenses that cannot be easily allocated Cost Structure: The mixture of Fixed Costs and Variable Costs that are firm uses. Margin of Safety: Units expected to be sold about breakeven point. Sales Mix: The combination of multiple goods that a firm sell in its year of operation. Sales Revenue: Price x number of units sold Operating Income: (Price x number of units sold) (Unit Variable Cost x number of units sold) Fixed Cost B/E in units: FC/ (P-UVC) Contribution Margin Ratio: Total Contribution Margin/ Sales Variable Cost Ratio: Total Variable Cost/ Sales B/E in Sales: FC/ CMR Margin of Safety: Sales - Breakeven Sales

4 Degree of Operating Leverage: Total Contribution Margin/ Operating Income Unit Product Cost: Total Product Cost/ Number of Units Total Product Cost: Total Direct Materials + Total Direct Labor + Applied Overhead Overhead Variance: Applied Overhead - Actual Overhead Predetermined Overhead Rate: Estimated Departmental Overhead/ Estimated Departmental Activity Level Chapter 5 Key Concepts Common Costs: Costs that are common between multiple products or services Normal Costs of Goods Sold: COGS prior to any overhead variance adjustments Job order costing system: Implemented systems in which costs are allocated to production units for each task/job Over-applied overhead: The amount applied over head exceeds actual overhead Predetermined overhead rate: Rate which is a result of computed data Unit Product Cost: Total Product Cost/ Number of Units Total Product Cost: Total Direct Materials + Total Direct Labour + Applied Overhead Overhead Variance: Applied Overhead - Actual Overhead Predetermined Overhead Rate: Estimated Departmental Overhead/ Estimated Departmental Activity Level

5 Chapter 6 Unit Cost: Total Cost/ Equivalent units or Total Cost/ Number of services provided or Total Costs for the period/ Total output of the period Total Manufacturing Costs: BWIP + Costs added in period Cost of units started and completed: Unit Cost x Units started and completed Cost of finishing units in BWIP: Prior period costs + (Unit cost x Equivalent units to complete) Cost Reconciliation: Comparison of costs to the account which it was allocated for to avoid discrepancies. Transferred in Costs: Transfer of costs from one process to the next. Weighted Average Costing Method: It combines beginning inventory with period costs acquired to calculate unit costs. FIFO Costing: A methodology implemented which excludes units in beginning inventory from units produced in the current period. Chapter 7 Activity Drivers: It refers to factors which measure the activity consumption by various products and other costs. Appraisal Costs: It refers to costs that are implemented to insure whether products and services are up to the expected standards and meet the minimal criterion. Consumption Ratio: The amount of an overhead action which is consumed by a good. Cycle time: The amount of time required to produce on unit of a product. Failure Costs: The costs acquired by an organization due to failure in certain activities. Value-added activities: Set of activities that are vital for a business to attain certain corporate objectives and remain competitive. Failure Activities: Measures taken by an organization as a response to poor effort/ quality.

6 Chapter 8 Absorption Costing: It is a costing method through which manufacturing costs are associated to units of production. Carrying Costs: It the cost which is incurred for holding an inventory. Common Fixed Expense: It refers to the type of fixed expenses that are not easily associated to individual portions of operations and elimination of process does not allow change in costs. Ordering Costs: It refers to the costs of placing and receiving an order. Stockout costs: The costs which are incurred due to insufficient inventory. Variable Costing: Implementing costing method which allocates only variable manufacturing costs to productions of goods. Absorption Costing Product Cost: Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Overhead Inventory related costs: Order costing + carrying cost Ordering Cost: Number of orders per year x Cost of placing one order Carrying cost: Average number of units in inventory x Cost of carrying Safety Stock: (Maximum daily usage average daily usage) x Lead time Chapter 9 Cash Budget: A plan that displays sources as well as uses of cash Direct Materials Purchases Budget: A type of budget that shows usage and purchases of direct materials needed for the upcoming fiscal period Myopic Behavior: Type of behavior which proves to be efficient in the short run however brings long term harm Production Budget: A budget which displays the number of units that must be produced in order to meet the forecasted sales need and satisfy ending inventory requirements.

7 Chapter 10 Labor Efficiency Variance (LEV): The variance between the actual direct labor hours and budgeted direct labor hours permissible times by standard hourly wage rate. Labor Rate Variance (LRV): The variance between the actual hourly salary disbursed and the budgeted hourly disbursements times by the actual hours that happened. Materials Price Variance (MPV): The variance between the price which was paid per units in terms of materials and the standard price per unit times the actual quantity of materials purchased. Materials Usage Variance (MUV): The variance between direct materials that were actually used in the fiscal period and the direct materials that the company budgeted for actual output times the standard price. Unfavorable Variances: It refers to variances that were produced whenever the actual inventory used is greater than the budgeted allowance. MPV = (AP SP) AQ MUV = (AQ SQ) SP LRV= (AR SR) AH LEV= (AH SH) SR Chapter 11 Flexible budget: A type of budget that ordains to cost only for a certain set of activity. Static budget: A type of budget that only limits to a certain activity level. Variable budget: A type of budget that is similar to static budget, it specifies cost for a certain range of activity. Variable Overhead Spending Variance: (AVOR x AH) (SVOR x AH) Variable Overhead Efficiency Variance: (AH SH) SVOR Standard Fixed Overhead Rate: Budgeted Fixed Overhead Costs / Quantity Produced Applied Fixed Overhead: Standards Fixed Overhead Rate x Standard Labour Hours

ACC406 Tip Sheet. Direct Labour (DL): labour that is directly attributable to the goods and service that are being produced by a firm.

ACC406 Tip Sheet. Direct Labour (DL): labour that is directly attributable to the goods and service that are being produced by a firm. ACC406 Tip Sheet Definitions Direct Cost: a cost that can be easily allocated to a certain object. Variable Cost (VC): a cost that changes in direct relation to output (output increases VC increases) Fixed