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Cost Measurement
1. 2.

abnormal spoilage: expensed in current period absolute conformance: perfectly or ideally meets standards (robust quality) absorption approach of CVP analysis: no separation of fixed & variable costs

26.

critical factors of total quality management: 1) customer focus, 2) continuous improvement, 3) workforce involvement, 4) top management support, 5) objective measures, 6) timely recognition, 7) ongoing training

3.

27.

currently attainable standards: costs with employees appropriately trained but no extra effort direct costs: direct raw materials, direct labor DL efficiency variance: = standard rate * (actual hours standard hours allowed) DL rate variance: = actual hours worked * (actual rate standard rate) DM price variance: = actual Q purchased * ( actual price standard price) DM usage variance: = standard price * (actual Q used standard Q allowed) equivalent units: amount need to complete one unit of production (usually 1 - %complete) favorable variance: actual cost < standard cost FIFO cost per EU: = current costs / EU FIFO costs: costs incurred during the period are applied to EU FIFO EUs: = beginning units completed + units started & completed + units partially complete at end fixed costs: does't change if cost driver changes, varies per unit flexible budgets: 1) calculate budgeted per unit price (variable cost from master budget), 2) apply actual volume to budgeted per unit price & variable costs, 3) compare to actual volume at actual price & costs for variance analysis

4.

absorption approach to net incom: revenue - COGS = gross margin - operating expenses (SGA) = net income
28. 29.

5. 6. 7.

activity-based costing: activity cost object, any work performed authoritative standards: set by management only balanced scorecard: information on multiple dimensions of performance with "critical success factors" benchmarking: adopt best practices in industry to establish standards BEP in sales dollars: = unit price * BE units = total fixed costs / CM ratio break even point: production where sales = total costs = variable + fixed costs breakeven point in units: = total fixed costs / CM per unit by-product: incidentally from main product (has no allocation of joint costs) calculating economic value added: 1) required return = investment * cost of capital, 2) income after taxes - required return = EVA

30.

31.

8.

32.

9.

33.

10.

34. 35. 36. 37.

11. 12.

13.

38. 39.

14.

cause & effect (Fishbone) diagram: problems contributing to defects: machinery, method, materials, manpower coefficient of correlation (r): strength of linear relationship, ranges from -1 to +1 coefficient of determination (R2): how much the independent variable affects the dependent variables, ranges from 0 to 1

15.

16.

40. 41.

forecasting analysis: probability/risk analysis gap analysis: studying difference between industry best practices and organization's current practices goalpost conformance: compliance within an acceptable range (zero defects) high-low fixed costs: = total costs - variable costs high-low method: variable cost per unit = (highest total cost lowest total cost) / (highest volume - lowest volume) high-low variable costs: = variable cost per unit * low volume (or high volume) ideal standards: costs when perfect efficiency & effectiveness job order costing: DM + DL + MOH (IM + IL) -> WIP -> FG > COGS joint product: two or more products from a common input Kaizen improvement: continuous, cost reductions in manufacturing stage linear regression: relationship between 2 variables manufacturing: inventory, COGM, COGS margin of safety: excess of sales over BE sales margin of safety %: = margin of safety $ / total sales margin of safety in $: = total sales $ - BE sales $

17.

conformance costs: prevention (prevent production of defective units) & appraisal (discover & remove defective units before shipping)

42.

43. 44.

18.

contribution approach of CVP analysis: variable/direct costing for internal decision-making only contribution approach to net income: revenue - variable costs = contribution margin - fixed costs = net income contribution margin ratio: = CM / unit price control charts: results by batch/interval plotted on acceptable range, trending towards improved quality conformance or deteriorating

19.

45.

20. 21.

46. 47.

22.

controllable margin: = CM - controllable fixed costs = contribution by SBU controllable variance: variance can be prevented conversion costs: = DL + MOH cost determination: need selling price to determine allowable production costs

48. 49.

23. 24. 25.

50. 51. 52. 53. 54.

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Cost Measurement
55.

marginal cost: sum of costs required for a one-unit increase = variable costs + avoidable fixed costs market share variance: = (actual market share - budgeted market share) x actual industry units x budgeted unit CM market size variance: = (actual market size - expected market size) x budgeted market share x budgeted unit CM mechanics of master budgets: driven by sales budget -> production budget -> selling and & admin budget -> personnel budget -> pro forma income statement -> pro forma balance sheet -> pro forma cash budgets

81.

sales quantity variance: = (actual units sold - budgeted units) x budgeted mix ratio x budget unit CM for product sales volume variance: = (actual units sold - budgeted units) * standard CM per unit selling price variance: = (actual price/unit - budgeted price/unit) * actual units sold semi-variable (mixed) costs: has both fixed & variable aspects, graphically as step pattern sensitivity analysis: experimenting with different parameters and logging range of results separable costs: incurred after split-off point simple linear regression: one independent variable (y = A + Bx) split-off point: where joint products recognized as individuals standard cost per unit: targets for production standard costing systems: used for all manufacturing costs standard costs: aggregate, firm expects to incur standard direct costs: = standard price * standard quantity standard overhead costs: = predetermined application rate * standard quantity target cost: = market price - required profit three-way overhead variance: spending variance + efficiency variance + volume variance total productivity ratios: = quantity of output / costs of inputs transfer price: price charged by one division to another in same business/entity transfer pricing methods: 1) market price, 2) cost, 3) negotiated prices, 4) dual pricing two-way overhead variance: budget (controllable) variance + volume (uncontrollable) variance types of cost drivers: theoretical (executional/ST, structural/LT) & operational (volume-based, activity-based) types of responsibility segments (strategic business units): 1) cost SBU: control, 2) revenue SBU: generate, 3) profit SBU: target profit, 4) investment SUB: return on assets

56.

82.

57.

83.

58.

84.

85.

59.

methods of allocating joint costs: 1) unit-volume ratio, 2) NRV at split off point, 3) ultimate sales value at point of sale MOH applied: = overhead application rate * actual cost driver nonconformance costs: internal failure (cure defect discovered before shipping) & external failure (cure defect discovered after customer receives item)

86. 87.

60. 61.

88. 89. 90. 91. 92. 93.

62.

normal spoilage: included in standard cost (increases per unit costs overhead application rate: = budgeted MOH costs / budgeted cost driver overhead variance models: 1) net overheard variance (oneway), 2) two-way variance, 3) three-way variance

63.

64.

94. 95.

65.

Pareto diagrams: quality control issues from most to least frequent partial productivity ratios: = quantity of output / quantity of single input used participative standards: set by management & individuals held responsible

66.

96. 97.

67.

98.

68. 69. 70. 71.

period costs: selling, general & admin, interest expense positive EVA: performance is meeting standards prime costs: = DL + DM process costing: averages costs, used mostly for homogeneous items process improvement: activity-based management: use of ABC & ABM towards TQM product costs: direct materials, direct labor, manufacturing overhead
102. 103. 104. 100. 99.

72.

101.

73.

unfavorable variance: actual cost > standard cost unit contribution: unit sales price less unit variable costs units started & completed: = units transferred out less beginning inventory units variable costs: changes proportionately with cost driver, constant per unit weighted average cost per EU: = beginning costs + current costs / EU weighted average costs: costs of beginning inventory + current costs are applied to EU weighted average EUs: = units completed + EU of WIP at end of period

74.

production report for process costing: units accounted for = units charged to dept & costs accounted for = costs charged to dept

75. 76. 77.

profit after BEP: units after BEP sold * CM per unit quality audits: studying Strengths and Weaknesses relevant range: range where assumptions of cost drivers are valid required sales for target profit: = (fixed costs + target profit) / CM ratio required sales for target profit before taxes: = variable costs + fixed costs + (target profit after tax / (1 - tax rate)) sales mix variance: =(actual product mix ratio - budgeted ratio) x actual units sold x budgeted unit CM for products

105.

106.

78.

107.

79.

108.

80.

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Market Structure
1.

Describe a market structure that includes a few providers.: Oligopoly market. In an oligopoly market there are few providers of goods or services. In a monopoly there is only one provider; in perfect competition or monopolistic competition there are many providers.

11.

How are long-run profits determined for a firm in Monopolistic Competition?: There are no long-run profits possible in a monopolistic competition. If profits are made in the short-run, more firms will enter the market and lower the demand for each firm until each just breaks even.

2.

Describe the justification for natural monopolies.: A monopoly exists where there is a single provider of a commodity for which there are no close substitutes and where entry into the market is difficult. Natural monopolies exist where there is increasing return to scale of operations and is justified by a single entity being able to satisfy demand at a lower cost than two or more firms. Public utilities have been traditional examples of natural monopolies.

12.

How are long-run profits determined for a firm in perfect competition?: There are no long-run profits possible in a perfectly competitive market. If profits are made in the shortrun, more firms will enter the market and increase supply, thus decreasing market price until all firms just breakeven.

13.

In the long-run, how may a monopoly firm increase its profits?: A monopoly firm may increase its profits in two ways: 1) Reduce cost by changing the size if its operations; 2) Increase demand through advertising, promotion, etc.

3.

Describe the least likely market structure in the U.S. economy.: Perfect Competition. A market or industry with all of the criteria of perfect competition is virtually nonexistent in the U.S. economy. Monopoly, monopolistic competition and oligopoly markets are common.
14.

In what ways do firms in an Oligopoly market compete?: Firms in an oligopoly market compete based on quality, service, distinctiveness, etc., but not on price, which might incite a "price war."

4.

Describe the nature of the market structure in the U.S. economy.: The U.S. economy is a mix of market structures with different commodities/industries operating in different market structures.

15.

In which form of market structure is a "price war" most likely to occur?: Oligopoly, because each firm in the industry is aware of the actions of other firms in the industry.

5.

Describe the point of short-run profit maximization for a firm in an oligopoly industry.: Short-run profit is maximized where marginal revenue is equal to rising marginal cost (provided price > average total cost).

16.

List examples of reasons why monopolies exist.: 1) Control of raw materials or processes; 2) Government granted franchise (i.e., exclusive right); 3) Increasing return to scale (i.e., natural monopolies).

6.

Describe the point of short-run profit maximization for a firm in monopolistic competition.: Short-run profit is maximized where marginal revenue is equal to rising marginal cost (provided price > average total cost).

17.

List the characteristics of a perfect monopoly.: 1) A single seller 2) A commodity for which there are no close substitutes; 3) Restricted entry into the market.

7.

Describe the point of short-run profit maximization for a firm in perfect competition.: Short-run profit is maximized where marginal revenue is equal to rising marginal cost; total revenue will exceed total costs by the greatest amount at that point.

18.

List the characteristics of an oligopoly.: 1) A few sellers 2) Firms sell either a homogeneous product (standardized oligopoly) or a differentiated product (differentiated oligopoly); 3) Restricted entry into the market.

19.

List the characteristics of monopolistic competition.: 1) A large number of sellers; 2) Firms sell a differentiated product or service (similar but not identical), for which there are close substitutes; 3) Firms can enter or leave the market easily.

8.

Describe the point of short-run profit maximization for a firm in perfect monopoly.: Short-run profit is maximized where marginal revenue is equal to rising marginal cost. The price charged at that quantity will depend on the level of the demand curve.

20.

List the characteristics of Perfect Competition: 1) A large number of independent buyers and sellers, each of which is too small to separately affect the price of a commodity; 2) All firms sell homogeneous products or services; 3) Firms can enter or leave the market easily; 4) Resources are completely mobile; 5) Buyers and sellers have perfect information; 6) Government does not set prices.

9.

Distinguish between Overt Collusion and Tacit Collusion.: 1) Overt Collusion = Firms conspire to set output, price or profit; illegal in the U.S.; 2) Tacit Collusion = Firms follow price charged by the price leader in the market; not illegal in the U.S.

10.

How are long-run profits determined for a firm in an Oligopoly Industry?: A firm in an oligopoly industry will make profits in the long-run if average total cost is less than market price, and can continue to do so because entry into the market is restricted.
21.

Under Monopolistic Competition, what determines whether a firm makes a profit or not?: The relationship between the price (P) that can be charged and the firm's average total cost (ATC). If ATC < P, the firm will make a profit. Otherwise, it will either breakeven (ATC = P) or have a loss (ATC > P).

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Market Structure
What are the four market structures normally considered in economic analysis?: 1) Perfect competition; 2) Perfect monopoly; 3) Monopolistic competition; 4) Oligopoly.
23.

22.

What is a "Price taker" Firm?: The assumption that a firm in a perfectly competitive market must accept ("take") the price set by the market and can sell any quantity of its commodity at that price. Thus, the demand curve faced by a single firm in perfect competition is a straight horizontal line at the market price.

24.

What is the shape of the demand curve for a Firm in Monopolistic Competition?: Downward sloping and highly elastic (because there are close substitutes for the good or service offered). What is the shape of the demand curve for a firm in Perfect Competition?: The demand curve faced by a single firm in a perfectly competitive market is a straight horizontal line originating at the price set by the market (of all firms). What is the shape of the demand curve for a Firm in Perfect Monopoly?: Downward sloping (and, since the firm is the only firm in the industry, it is also the industry demand curve).

25.

26.

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Information Technology
1.

accounting information system ad hoc report application service providers backdoor backup files genealogy batch processing brute-force attack business 2 business perks business information system categories of risk centralized processing cold site

input (source document) -> journalize -> ledger -> trial balance -> financial statements can be created on demand using specific queries provide access to programs on rental basis

21. 22.

databases decentralized processing decision support systems demand reports denial-of-service attack e-business e-commerce electronic access controls electronic data interchange electronic funds transfer enterprise resource planning systems exception reports executive information systems extranets file librarian firewalls four main system risks

relational technology power, applications, & work spread over many locations where remote computer performs portion of processing combine management's subjective judgments and objective analytical data available on demand flood of information preventing users from accessing target computer more general, any IT used to perform business processes buying and selling electronically user IDs and PWs, security levels restrict access to programs & applications computer to computer exchange of electronic transaction documents third-party vendor/intermediary transfers electronic payments ERP = integrates and automates many business processes with data centrally located and accessible by various departments specific condition senior executives have access to internal and external information, assist in monitoring business conditions allow outside clients to access company's network store/protect programs & tapes prevent unauthorized users from access strategic risk (risk of choosing inappropriate technology), operating risk (risk of doing right things the wrong way), financial risk (having financial resources lost, wasted, or stolen), information risk (risk of loss of data integrity, incompleteness, or hackers) hardware technician -> network admin > software developers collect, process, store, transform, distribute translate one set of protocols to another central processing unit (primary storage), secondary storage (hard drives), peripherals (input & output devices)

2.

23.

3.

24.

4.

means to access that bypasses normal security recent: son, prior: father, oldest: grandfather groups of transactions processed periodically try every possible key/password until found

25.

5.

26.

6.

27. 28.

7.

29.

8.

speed, timing, personalization, security, reliability, computer system to record and summarize business transactions errors, intentional acts, disasters maintain data & process at central location a separate facility that does not have any computer equipment, but is a place where employees can move after a disaster common set of rules allowing network to communicate hardware, software, network, people, data & information schedule processing jobs, running & monitoring scheduled production jobs logged/scheduled input & output, maintained error & correction logs 20% of customers generate 80% of sales and 5-10 times more costly to bring new customer than to repeat business from existing customer sales automation & customer service with the objective of increasing customer satisfaction in order to increase revenue/profits bit -> byte -> field -> record -> file tool, separate program

30.

9.

31.

10.

11.

32.

12.

33.

13.

communication protocols components of BIS computer operator control clerk CRM general rules

34.

14.

35. 36. 37.

15.

16.

17.

38.

18.

customer relationship management data sizes database management system

functional system made of functions performed on data gateways/routers hardware components

39.

19. 20.

40. 41.

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Information Technology
42.

hot site

remote site that contains all equipment, supplies, and telecommunications a business needs and is ready immediately in the event of a disaster internet protocols & public communications

60.

push reporting RAM v. ROM security admins server steps of disaster recovery supply management systems system admins system analyst system programmer transaction tagging transmission media trojan horse types of controls types of databases types of disaster recovery types of firewalls value added networks virus wide area networks workstation worm

more automated, sent to PC temporary v. permanent primary storage assign initial passwords & maintain them, maintain operating security systems & security software accessible through software 1) assess the risks, 2) identify mission-critical applications & data, 3) develop a plan, 4) determine responsibilities, 5) test data recovery plan sales: what, when, where, and how much from customer to original supplier database admin, network admin, web admin design internally developed application system sataisfy end users' requirements installing, troubleshooting, monitoring, & maintaining OS follow transactions through client's system for audit purposes cables appears to be useful general controls, application controls, physical controls, segregation of duties operational, analytical, data warehouses, distributed, end-user outside disaster recovery service, internal disaster recovery, multiple data center backups packet filtering, circuit filtering gateways, application filtering privately owned 7 managed requires host program national & international communications used by end-users can run independently

61. 62.

43.

internetbased networks intranets IT segregation of duties

44.

geographically separate LANs within company system analyst v. computer programmers, computer operator v. computer programmers, security admin v. computer operators & programmers create empty database, database queries, database maintenance (tuning), application development provide managerial and end users with reports, assist in decision making measure of processing power

63. 64.

45.

65.

46.

major uses of DBMS management information systems millions of instructions per second (MIPS) modems

66.

47.

67.

48.

68.

69.

49.

allows communicate with others, device that converts between digital and analog representation of data an interface fitted inside a personal computer or network terminal which allows it to communicate with other machines over a network peer to peer or client/server system bus, ring, star, tree device connected to network separating data into logical tables comments, drawings, images

70.

50.

network interface card

71. 72.

73.

51. 52.

network OS network topologies node normalization objectoriented databases online real time processing (OLRT) periodic scheduled report phishing physical access controls

74.

53. 54. 55.

75.

76.

77. 56.

update master files as data is entered, random access storage only

78.

79.

57.

predefined format

80.

58.

phony messages to get sensitive information (spam) restricted access to computer rooms

59.

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