ACCT 5100 EXAM 1 questions and
answers
What is accounting?✔✔an information system that measures and reports information
(mostly quantitative) to further the goals of the organization
What is managerial accounting?✔✔Management accounting systems measure and
report information that helps managers in planning and making decisions to fulfill
organizational goals in an effective and efficient manner
- also provides info critical for controlling
Three aspects of managerial accounting✔✔planning, make decisions, controlling
financial vs. managerial accounting: purpose✔✔financial: measure and repost
financial position to meet external needs (SEC fillings, annual reposts to
shareholders etc)
managerial: measure report information for internal needs (planning, decision
making, & controlling)
financial vs. managerial accounting: time focus✔✔financial: past performance or fin
position
managerial: future performance or fin position
financial vs. managerial accounting: users✔✔financial: external
managerial: internal
financial vs. managerial accounting: rules of measurement✔✔financial: follows
GAAP
managerial: no rules but are generally based on 3 guidelines
What are the three key guidelines in developing and using management accounting
information?✔✔1) use a cost benefit approach
2) balance technical and behavioral considerations
3) use the "right" costs for the decision at hand, bc different costs are relevant for
different decision purposes (they slice& dice costs in diff ways in order to isolate the
costs that are relevant for diff decisions (variable/fixed, relevant/irrelevant))
If you see the name/any of the cost objective in the cost item name, can you
consider it a direct cost?✔✔yes
do direct costs have to physically relate to the cost item?✔✔no
Define cost object✔✔anything for which a measurement of costs is desired.
, For example, this can be a product, an assembly line, a product line, or a department
* not just products
define direct costs and give examples✔✔costs that are related to the cost object and
can be traced in a cost-effective manner
ex: material cost and manufacturing labor costs (DM&DL)
define indirect costs and give examples✔✔costs that are related to the cost object
but cannot be traces in a cost-effective manner. frequently referred to as overhead
(factory OH, MOH, admin OH)
ex: electricity, supplies, rent, etc.
T/F: The same cost may be direct with respect to one cost object and indirect with
respect to a different cost object.✔✔true
T/F: If a cost can be traced to the cost object, it should be.✔✔false, it is not always
practical to do so from a cost-benefit perspective
What is the general rule as to when it's appropriate to trace a cost directly to a cost
object?✔✔it is cost-effective to trace if the magnitude of the costs is large, and the
information technology to trace it is available
define variable costs and give examples✔✔costs that change, IN TOTAL, in
proportion to changes in total output (ie. the # of units of product or service produced
or sold) or total activity
ex: labors hours, machine hours, etc
define fixed costs✔✔costs that remain constant, in total, over wide ranges of total
output or activity for a specified period of time
What should be taken into consideration about fixed costs?✔✔they are only fixed for
a specific period of time period AND within a RELEVANT RANGE of output/activitiy
T/F: Variable/fixed notion is defines in terms of how the unit cost changes in relation
to changes in the volume of activity.✔✔false, the TOTAL cost changes
T/F: If you use unit costs to make pricing decisions, you should be aware that a
given or estimated unit fixed cost only applies to a particular level of output✔✔true
define inventoriable costs✔✔product-related costs that are capitalized as assets
(inventory) when INCURRED. these costs benefit future periods; they are transferred
to COGS only when the product is sold
answers
What is accounting?✔✔an information system that measures and reports information
(mostly quantitative) to further the goals of the organization
What is managerial accounting?✔✔Management accounting systems measure and
report information that helps managers in planning and making decisions to fulfill
organizational goals in an effective and efficient manner
- also provides info critical for controlling
Three aspects of managerial accounting✔✔planning, make decisions, controlling
financial vs. managerial accounting: purpose✔✔financial: measure and repost
financial position to meet external needs (SEC fillings, annual reposts to
shareholders etc)
managerial: measure report information for internal needs (planning, decision
making, & controlling)
financial vs. managerial accounting: time focus✔✔financial: past performance or fin
position
managerial: future performance or fin position
financial vs. managerial accounting: users✔✔financial: external
managerial: internal
financial vs. managerial accounting: rules of measurement✔✔financial: follows
GAAP
managerial: no rules but are generally based on 3 guidelines
What are the three key guidelines in developing and using management accounting
information?✔✔1) use a cost benefit approach
2) balance technical and behavioral considerations
3) use the "right" costs for the decision at hand, bc different costs are relevant for
different decision purposes (they slice& dice costs in diff ways in order to isolate the
costs that are relevant for diff decisions (variable/fixed, relevant/irrelevant))
If you see the name/any of the cost objective in the cost item name, can you
consider it a direct cost?✔✔yes
do direct costs have to physically relate to the cost item?✔✔no
Define cost object✔✔anything for which a measurement of costs is desired.
, For example, this can be a product, an assembly line, a product line, or a department
* not just products
define direct costs and give examples✔✔costs that are related to the cost object and
can be traced in a cost-effective manner
ex: material cost and manufacturing labor costs (DM&DL)
define indirect costs and give examples✔✔costs that are related to the cost object
but cannot be traces in a cost-effective manner. frequently referred to as overhead
(factory OH, MOH, admin OH)
ex: electricity, supplies, rent, etc.
T/F: The same cost may be direct with respect to one cost object and indirect with
respect to a different cost object.✔✔true
T/F: If a cost can be traced to the cost object, it should be.✔✔false, it is not always
practical to do so from a cost-benefit perspective
What is the general rule as to when it's appropriate to trace a cost directly to a cost
object?✔✔it is cost-effective to trace if the magnitude of the costs is large, and the
information technology to trace it is available
define variable costs and give examples✔✔costs that change, IN TOTAL, in
proportion to changes in total output (ie. the # of units of product or service produced
or sold) or total activity
ex: labors hours, machine hours, etc
define fixed costs✔✔costs that remain constant, in total, over wide ranges of total
output or activity for a specified period of time
What should be taken into consideration about fixed costs?✔✔they are only fixed for
a specific period of time period AND within a RELEVANT RANGE of output/activitiy
T/F: Variable/fixed notion is defines in terms of how the unit cost changes in relation
to changes in the volume of activity.✔✔false, the TOTAL cost changes
T/F: If you use unit costs to make pricing decisions, you should be aware that a
given or estimated unit fixed cost only applies to a particular level of output✔✔true
define inventoriable costs✔✔product-related costs that are capitalized as assets
(inventory) when INCURRED. these costs benefit future periods; they are transferred
to COGS only when the product is sold
