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Final Exam Review

1. Identify managers’ three primary responsibilities.
a. Planning
b. Directing
c. Controlling

2. The three most common types of companies and their inventories
a. Service
i. No inventory
b. Merchandising
i. Retailers
ii. Wholesalers
iii. Merchandising inventory
c. Manufacturing
i. Raw materials
ii. Work in process
iii. Finished goods
3. Cost Objects
a. Direct Costs
b. Indirect Costs
4. Costs for internal decision making and external reporting
a. Total costs for internal decision making
b. Inventoriable product costs for external reporting
i. GAAP- specified inventoriable costs
ii. Period costs (operating expenses) – other costs in the value chain
5. Inventoriable Product Costs for Manufacturing Companies
a. Direct Materials (including freight in)
b. Direct Labor
c. Manufacturing Overhead
i. Indirect materials
ii. Indirect labor
iii. Other indirect manufacturing costs
d. Prime and Conversion costs
6. Other Cost Terms

Controllable versus uncontrollable costs
Relevant and irrelevant costs
Fixed and variable costs
Calculating total and average costs

7. Calculating pre-determined overhead rate (POHR) and allocating overhead costs
8. Steps used in ABC costing system
9. Traced costs and Allocated costs

Frees top management’s time ii. Calculate Breakeven Point and Target Operating Income 14. Motivate segment managers 18. 13. Clearly communicate expectations ii. 15. Process costing and job costing 11. Providing benchmarks iii. Improves customer relations iv. Four Types of Responsibility Centers (Exhibit 10-1) i. Evaluation of investment centers a. How operating leverage affects operating income. Sales margin ii. Responsibility center performance reports i. Unfavorable variance iii. Management by exception 19. target costing. Indicators of risk a. Disadvantages of decentralization i. Advantages of decentralization i. Discuss responsibility accounting d. Performance evaluation systems i. Operating leverage = the relative amount of fixed and variable costs that make up total costs c. Potential duplication of costs ii. Residual Income (RI) c. price takers. Comparing ROI and RI . Master Budget – Operational Budgets (Cost of goods budget will not be tested) From point 18 onwards – the testing will be more in depth. Cost ii. Explain decentralized operations a. Capital turnover b. Favorable variance ii. Profit iv. In sales dollars iii. Return on Investment (ROI) i.10. Investment e. Potential problems achieving goal congruence c. Improves motivation and retention b. Contribution Margin and Contribution Margin Income Statement. Margin of safety = excess of actual or expected sales over breakeven sales i. cost plus pricing 16. Goal congruence iv. Prices setters. In percentage b. Encourages use of expert knowledge iii. Provides training v. In units ii. Revenue iii. From points 1 -18 only high level concepts will be tested. Behavior of variable and fixed cost (per unit and in total) 12. 17.

Using standard costs to develop the flexible budget b. Flexible budget variance iii. Standard cost of direct materials (DM) ii. Standard cost of direct labor (DL) iii. Advantages of using standard costs and variances i. Outdated or inaccurate standards ii. Fixed overhead volume variance iii. Lean thinking v. DL rate variance ii. Benchmark b. Price variance ii. DM variances when quantity of DM purchased differs from quantity of DM used c. Exhibit 11-4 DM Variances if DM Purchased Equals DM Used iv. Master budget variance i. Evaluating DM Variances v. Unintended behavioral consequences 23. Disadvantages of using standard costs and variances i. Types of standards c. Quantity variance iii. Fixed overhead budget (or spending) variance ii. Exhibit 11-10 Calculation of Variable Overhead Variances b. Flexible budget versus master budget b. Practical (or attainable) standards d. Variable MOH variances i. Developing and updating standards i. Direct labor variances i. Computing standard costs i. Motivation e. Flexible budget performance reports a. Standard cost of manufacturing overhead (MOH) iv. Direct material variances i. Lack of timeliness iii. Ideal (or perfection) standards ii. Discuss how managers use standard costs to compute MOH variances a. Increase in automation and decrease in DL vi. Exhibit 11-11 Calculation of Fixed Overhead Variances . Usefulness in budgeting iii. Standard cost of one unit 22. Volume variance ii.20. Variable overhead efficiency variance iii. Define and explain standard costs a. Focus on operational performance measures and visual management iv. DL efficiency variance d. Cost benchmarks ii. Underlying causes of the variances 21. Fixed MOH variances i. Discuss how managers use standard costs to compute DM and DL variances a. Variable overhead rate (or spending) variance ii.

Net present value (NPV) k. Define capital budgeting a. Payback period ii. Future values and present values i. Internal rate of return (IRR) – just definition 30. NPV with equal annual net cash inflows (annuity) l. NPV with unequal annual net cash inflows 29. Payback period d. Payback with unequal net cash inflows f. Payback with equal annual net cash inflows e. Calculating future values of single sums and annuities iii. Criticism of payback period method 26. Single lump sum 2. Four methods of capital budgeting analysis i. Discuss the time value of money i. Exhibit 12-16 Capital Budgeting Methods That Ignore the Time Value of Money n. Factors ii. Compare and contrast the four capital budgeting methods m. Accounting rate of return (ARR) iii. Investments with equal annual net cash inflows h. Interest rate j. Accounting rate of return (ARR) g.iv. Annuity ii. Exhibit 12-17 Capital Budgeting Methods That Incorporate the Time Value of Money . Number of periods iii. Principal amount 1. Net present value (NPV) iv. Exhibit 11-12 Favorable Fixed Overhead Volume Variance Exhibit 11-13 Unfavorable Fixed Overhead Volume Variance 24. Exhibit 12-1 Capital Budgeting Process 25. Calculating present values of single sums and annuities 28. Factors i. v. Internal rate of return (IRR) b. Focus on cash flows c. Investments with unequal net cash inflows 27.