Accounting Cost Concepts Quiz

Comparing actual performance with budgeted estimates to identify areas for improvement and excellence.

Actual performance exceeded the budgeted estimate, leading to better results than expected.

Actual performance fell short of the budgeted estimate, resulting in less favorable outcomes.

The difference between actual profit and the budgeted or standard profit.

Incorrect estimates in the CVP model, specifically in demand, price or costs.

The impact on profit due to incorrect estimates of demand, affecting both revenue and variable costs.

The difference between actual selling price and the budgeted selling price, affecting revenue.

Difference between actual fixed costs and budgeted fixed costs.

The difference between actual variable costs and budgeted variable costs, based on actual volume.

Difference between actual revenue and the flexible budget revenue, accounting for actual volume.

Costs that change directly with the level of activity. As activity increases, total variable costs increase, and vice versa. The variable cost per unit remains constant.

Costs that remain constant regardless of the level of activity. The total fixed cost stays the same, but the fixed cost per unit decreases as activity increases.

Costs that have both a fixed and a variable component. The total mixed cost changes with activity levels, but the cost per unit decreases as activity increases.

To determine if a cost is purely variable or mixed, use the formula y = mx + b, where y is the total cost, m is the variable cost per unit, x is the activity level, and b is the fixed cost. If b is zero, the cost is purely variable. If b is nonzero, the cost is mixed.

The range of activity levels over which the assumptions of fixed and variable costs hold true. Outside of this range, costs may behave differently than expected, and the assumptions may no longer be valid.

The fundamental equation in accounting that represents the relationship between assets, liabilities, and equity. It states: Assets = Liabilities + Equity.

A formal record of a financial transaction in a chronological order, using a debit/credit format. It captures the details of the transaction and its impact on accounts.

A visual representation of an individual account, summarizing all the transactions related to that account. It helps to determine the account balance, either a debit or credit balance.

A list of all the accounts in the general ledger with their balances. It ensures that the total debits equal the total credits, confirming the accounting equation is balanced.

Entries made at the end of an accounting period to ensure that revenues and expenses are recognized in the correct period and that assets and liabilities are reported accurately.

This principle ensures that expenses are recorded in the same period as the revenue they helped generate. It means costs related to current revenue are recognized as expenses in the same period.

The process of recording an expense in the accounting records. It involves identifying the cost incurred and assigning it to the appropriate accounting period.

An asset representing a payment made for a future expense, like rent or insurance. It's an advance payment for goods or services to be used in the future.

This system records every financial transaction with two entries: a debit and a credit. Debits and credits must always balance to keep the accounting equation in harmony.

Any event that has a financial impact on a company and can be reliably recorded. It can be a sale, purchase, payment, or any other activity that changes the company's financial position.

Depreciation expense for equipment not directly involved in production is recorded as a regular expense in the income statement. It's not part of the cost of goods sold.

Depreciation expense for equipment used in production is initially a liability on the balance sheet. It's later transferred to the income statement as part of the cost of goods sold.

Costs associated with manufacturing operations that cannot be directly traced to specific products. They're incurred to support the production process.

The total amount of indirect manufacturing costs that need to be allocated to different products or activities.

A measurable factor that directly influences the amount of indirect costs incurred. Helps allocate costs fairly.

The difference between a company's current assets (cash, receivables, inventory) and current liabilities (short-term debt).

The time it takes for a company to convert its investments in inventory and receivables into cash. Measures efficiency of cash flow.

How frequently a company sells its inventory during a period. Higher turnover is generally better.

The average number of days it takes a company to produce and sell its inventory. Lower days are desirable.

How many times accounts receivable (money owed by customers) are collected during a period. Measures collection efficiency.

Return on Assets (ROA) measures how efficiently a company uses its assets to generate profits. It calculates the profit earned for every dollar invested in assets.

ROA is calculated by dividing Net Income by Average Total Assets. This can also be broken down into Profit Margin (Net Income/Revenue) multiplied by Asset Turnover (Revenue/Average Total Assets).

Profit Margin shows the percentage of profit earned for every dollar of revenue. It indicates how efficiently a company manages its expenses to generate profit.

Asset Turnover measures how effectively a company uses its assets to generate revenue. It shows how much revenue is generated for every dollar invested in assets.

Return on Equity (ROE) measures the profitability of a company from the perspective of its shareholders. It shows how much profit is generated for every dollar invested in the company's equity.

ROE can be calculated by dividing Net Income by Average Shareholders' Equity. It can also be broken down into ROA (Net Income/Average Total Assets) multiplied by Financial Leverage (Average Total Assets/Average Shareholders' Equity).

Financial Leverage measures how much debt a company uses to finance its assets. It shows how many dollars of assets are managed for every dollar invested by the owners.

Operating Leverage measures the extent to which fixed costs affect a company's profits. It shows how much a change in revenue impacts the change in net income.

A high Operating Leverage means that a small change in revenue leads to a significant change in net income. This can result in higher profits, but also a higher risk during downturns.

Financial Leverage measures how a company finances its assets using debt versus equity. It emphasizes the risk associated with using debt, as it can magnify both profits and losses.