Management Acc Week 1+2

57 flashcards · Other · by Daniel F.

1. Management accounting

   a set of methods, techniques, and tools used for the production of relevant and timely information helping managers make decisions and making managers accountable for the decisions they make to ensure the best possible use of resources within the organization

2. decision making process

   Directing attention, i.e., signalling opportunities and threats managers should address; Formulating problems, i.e., identifying stakes and formalizing both goals and constraints; Designing solutions, i.e., showing managers levers on which they can act to achieve their goals; Evaluating and selecting solutions, i.e., anticipating and assessing potential financial and non-financial consequences of alternative courses of action; Organizational learning, i.e., linking decisions made to their actua…

3. after the decision making process

   Success because people stick to the plan. Failure because people depart from the plan. Success because people depart from the plan. Failure because people stick to the plan

4. Financial acc vs Management acc

5. Roles of management accountants

   The scorekeeper collects and records financial information, prepares standardized reports, and sends them out periodically to internal recipients. The watchdog designs internal control mechanisms and analyzes budget variances as well as deviations from internal management accounting policies. In doing so, the watchdog directs attention of managers to these variances and deviations. The business partner pro-actively collects (from the finance function in the organization, but also from other fun…

6. cost accounting system or costing system

   set of rules, methods, and techniques used to estimate the resources consumed to produce an output or achieve a goal

7. cost object

   any output or goal for which resources were consumed and for which decision-makers desire a separate estimation of costs

8. purposes for estimating the consumption of resources

   Resource allocation; Process optimization; and Asset valuation

9. Product costing -> resources allocation

   deciding for which goals limited resources should be consumed Is a specific goal worth sacrificing the resources consumed for its achievement? Is there a better use for these resources? processes are best analyzed when fully optimized

10. Product costing -> process optimization

    processes can be more efficient by allocating more resources or by reallocating them to more-value creating tasks

11. Product costing -> asset valuation

    estimating the value, or monetary equivalent, of an asset (e.g., receivable, inventory, piece of equipment, etc.)

12. Costing Process

    1. Cost recognition and accumulation 2. Cost classification (inventoriability and traceability) 3. Computation of allocation rates 4. Cost assignment (tracing and allocating) 5. Asset valuation and reporting

13. cost in terms of financial accounting

    a event that changes the value of the assets of the company in the current period

14. conservatism in financial accounting

    you must record potential losses but you must not record potential gains

15. Different ways to determine values

    book value: value on the balance sheet historical cost: value at which item was purchased replacement cost: value of item in the current market economic value: net present value of the cash flows item will generate

16. Having two parallel accounting systems

    alternative ways to record cost can only be implemented paralell to financial accounting Gives more information issues: It implies additional administrative costs to maintain these systems. It leads to two different sets of numbers circulating in the company (one for external reporting, one for internal management), potentially causing confusions. It introduces a lot of subjectivity when determining replacement costs or economic values

17. Management account cares not about the origin of a resource, but the

    destination

18. source document

    an explicit evidence of a transaction, such as sales slips, purchase invoices, or employee time records

19. Manufacturing costs

    resources consumed to physically make products, are therefore assigned to these products, follow them first in the inventory and, when the products are sold, in the cost of goods sold

20. Period costs

    resources consumed for purposes other than physically make products, and which therefore cannot follow them in the inventory. They are expended in the accounting period in which the resource consumption happened and was recognized

21. Upstream period costs

    period costs incurred to prepare for production, for instance by designing products and production processes, or installing production lines

22. Downstream period costs (Selling, General and Administrative (SG&A) expenses)

    period costs incurred after or in parallel of the production process to advertise, sell, and deliver products, as well as general costs incurred to manage the company General and administrative costs: all costs associated with the general management of an organization, rather than with manufacturing or selling Selling costs: all costs incurred to secure customers’ orders and deliver products to them

23. negative externality in management accounting

    can sometimes be considered a cost Corporate Social Responsibility and true cost initiatives suggest that externalities (both positive and negative) should be taken into account in management accounting. That way, managers are more likely to consider all the consequences of their decisions, not only for the company, but also for society and the planet.

24. Cost recognition and accumulation

25. Cost classification

26. Classify costs based on inventoriability

    manufacturing costs period costs upstream downstream general and administrative costs selling costs

27. Absorption costing vs variable costing vs partial absorption costing (stock costing methods)

    Absorption costing required for external reporting, all manufacturing costs are included as inventoriable costs. Product cost thus reflects the full costs of manufacturing the product. respects matching principle When less products are made, the costs assigned to a unit of product are higher and this can accentuate fluctuations in demand Variable costing all variable manufacturing costs, and only variable manufacturing costs, are added to the inventory Capacity costs are excluded and treated as…

28. Capacity costs

    Fix costs

29. Costs of unused capacity

    resources consumed to provide in advance a capacity of production or delivery and not used in the period during which these resources were available

30. Full/total product costs

    sum of all the costs incurred to design, produce, sell, deliver, and eventually dispose a product cost management over the full product life cycle

31. Classify costs based on traceability

    direct cost indirect cost

32. direct costs

    can technically be traced to a specific cost object in an economically feasible way. a consumption of resource for a unique and well identified cost object which can therefore be uniquely, unequivocally, and directly assigned to this cost object dedicated, specialized

33. indirect cost

    a resource consumed by several cost objects cannot be uniquely, unequivocally, and directly assigned to specific cost objects because of either an economic (it is too costly) or a technical (is is impossible) reason shared, common

34. common cost

    resource consumed for several cost objects, which could technically be traced to each cost object, but not in an economically feasible way: the cost of tracing would exceed its benefit). result from decisions not to trace Materiality of the cost: is the cost big enough to warrant tracing Availability of information gathering or tracing technologies: is cost easy to trace with the given technology Design of internal processes: is production design in such a way to facilitate easy tracing

35. Cross-subsidization

    resources consumed for some cost objects are mistakenly assigned to other cost objects All costs are then distorted because some cost objects bear the cost of other cost objects. In other words some products are over-costed while other products are under-costed

36. Cost assignment

    attributing costs to the cost objects consuming resources, in proportion of the resources they consumed. cost tracing (assigning direct costs) cost allocation (assigning indirect costs).

37. Cost tracing

    assigning direct manufacturing costs to their respective cost objects

38. Cost allocation

    assigning indirect manufacturing costs to cost objects in proportion of their use of an allocation base

39. Computation of allocation rates

40. cost pool

    an account where some indirect manufacturing costs are gathered (pooled together) and where they wait for the allocation to cost objects

41. allocation base

    measure of activity used to allocate indirect manufacturing costs gathered in a cost pool to cost objects something that drives the cost of the cost pool reasonable approximation of the relative consumption of the resources accumulated in this cost pool by the cost objects

42. allocation rate

    the amount of cost which is allocated for a cost pool to a cost object for each unit of the allocation based that this cost object consumes

43. Why is one cost pool not enough

    results in cross-subsidization, not homogeneous, there is no fitting allocation base

44. Why is the maximal number of pool too much

    the cost off allocation becomes too large

45. When can we put indirect manufacturing costs in the same pool

    homogeneity causality

46. cost pool homogeneity

    each cost pool should be homogeneous, i.e., all the costs gathered in the same cost pool should be consumed in the same proportions by all cost objects

47. cost driver

    a measure of activity (or capacity) which triggers a consumption of resources. has a cause-and-effect relationship with these costs -> a change in cost driver causes a proportional change in the amount of resources consumed advantage of having cost pools clearly associated with their underlying cost drivers : tells managers how they can keep resource consumption under control or even reduce it

48. allocation based on causality

    that the cost driver of the costs gathered in a cost pool should be used as allocation base for this cost pool

49. criteria for allocation based on causality

    Theoretical causation - a plausible causal relationship exists between the various costs to be pooled together and a measure of activity, their plausible cost driver, which will be used as allocation base. Empirical correlation - observed co-variation of these costs among themselves and with their cost driver, co-variation suggesting they systematically vary together in the same proportions

50. single-rate cost allocation system (in full absorption costing)

    uses a unique allocation base and allocation rate for each cost pool and ignores differences between capacity and activity

51. dual-rate cost allocation system (in partial absorption)

    splits any cost pool into two sub-pools, one for capacity costs and one for variable costs, each sub-pool having a different allocation rate

52. Asset valuation and reporting

53. Inventory costing

    Weighted Average Cost (WAC): value of the initial inventory plus production costs divided by the volume in the initial inventory plus the volume of production. Last In First Out (FIFO): the initial inventory leaves the company first, so the remaining inventory is valued at the unit cost of production of the period. Last In First Out (LIFO): The latest production goes first, so the value of remaining inventory is more influenced by the value of the initial inventory.

54. Earnings management

    all methods used by managers to manipulate reported earnings Useful life of assets affecting the amount depreciated every period; Cut-off of the period affecting which costs are recognized and which ones are not; Classification based on inventoriability affecting which costs are expended right away or wait in the inventory; Classification based on traceability, definition of cost pools, and selection of allocation bases affecting together how manufacturing costs are distributed between products…

55. Allocating with the sequential method

    Delete self services Determine which basis to allocate first - Highest percentage first Allocate first pool Allocate next pool, don't forget to sum up with amount allocated from previous pool

56. Self service

    A part of a cost pool is assigned to itself

57. Reciprocal services

    Part of a cost pool is assigned to another cost pool