Exam 1: Cost Accounting: Information for Decision Making

An Enterprise Resource Planning (ERP) System can best be described as:

Budgeting is primarily used to determine year-end bonuses based on managerial and organizational performance.

Explain the difference between a value chain, a supply chain, and a distribution chain.

Lean manufacturing techniques are used only in the production process.

The owner of a small retail business asks, "Why do I need cost accountants? My CPA produces financial statements, which are sufficient for me to discover my costs. Look at my Income Statement. I expect sales to increase by 10% next year, so I am planning on a 10% increase in profits. I don't need a cost accountant to tell me that." Income Statement for the Year Ending December 31 Sales Revenue \ 457,234 Cost of Goods Sold 296,348 Gross Margin 160,886 Selling Costs 76,234 Administrative Costs 62,350 Profit before Taxes \2 2,302 Use your knowledge of the concept of differential costs and explain why a cost accountant would question the conclusion that a 10% increase in sales would yield a 10% increase in profit.

Financial accounting:

The field of accounting that focuses on the criterion of relevant information rather than comparability of firms is:

Place the four components in the order they appear along the value chain: A = Customer service; B = Design; C = Distribution; and D = Production.

The IMA Code of Ethics describes three basic steps a cost accountant should take when faced with an ethical conflict: Discuss, clarify, and consult. Describe each of these three steps.

Old-Fashion Flavors is a local ice cream shop. The company currently is showing an operating loss, as evidenced by the income statement below: Sales \ 75,000 Costs: Food supplies 20,000 Labor 16,000 Utilities 4,000 Rent 12,000 Other 4,000 Marnager's salary Total Costs Operating Profits (Losses) The President of the company is considering adding sandwiches to the menu. Sales will be expected to increase by $60,000. The cost of sandwich supplies would be $30,000. Labor costs would increase 40% and other costs 10%. The current manager will continue to manage the operation. a. Prepare a quantitative analysis of the decision to add sandwiches to the menu. b. What qualitative considerations should the company consider in this decision?

In 2020, the Allen Company had consulting revenues of $1,000,000, while operating costs were $750,000. In 2021, Allen will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in operating costs. -Assuming no changes are expected for the other services, the differential operating costs for 2021 will be:

Compare financial accounting and cost accounting using the following concepts: users of the information; important criteria; who establishes or defines the system; and how to determine an accounting treatment.

Activity-based costing (ABC) is a management tool that focuses on the continuous improvement of all dimensions of a business.

The cost accounting system that minimizes wasteful or unnecessary transaction processes is:

Costs that differ among or between two or more alternative courses of action are:

Managerial decisions using cost accounting are more appropriate for which types of costs?

A cost driver is a factor that causes costs.

In 2020, the Allen Company had consulting revenues of $1,000,000 while operating costs were $750,000. In 2021, Allen will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in operating costs. -Assuming no changes are expected for the other services, the differential revenue for 2021 will be:

CraftMaster Corporation purchased a machine 7 years ago for $339,000 when it launched product X05K. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 360 machine costing $353,000 or by a new model 280 machine costing $332,000. Management has decided to buy the model 280 machine. It has less capacity than the model 360 machine, but its capacity is sufficient to continue making product X05K. Management also considered, but rejected, the alternative of dropping product X05K and not replacing the old machine. If that were done, the $332,000 invested in the new machine could instead have been invested in a project that would have returned a total of $426,000. In making the decision to buy the model 280 machine rather than the model 360 machine, the differential cost was:

If a poor facility layout exists and work-in-process inventory must be moved during the production process, the company is likely to be performing value-added activities.