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What is the primary purpose of planning in management accounting?

  • To analyze historical performance for external reports
  • To assess compliance with regulatory standards
  • To focus solely on past financial results
  • To quantify and interpret the effects of future transactions (correct)

Which of the following is an objective of evaluation in management accounting?

  • To prepare external financial statements
  • To create financial reports for shareholders
  • To judge the implications of historical events in relation to the planned actions (correct)
  • To ensure compliance with tax regulations

What role does control play in management accounting?

  • To monitor performance and apply corrective actions if necessary (correct)
  • To prepare consolidated financial statements
  • To determine the government's tax liabilities
  • To design investment strategies for external stakeholders

Why is the calculation of cost important in management accounting?

<p>It helps in valuing inventories and controlling operations (D)</p> Signup and view all the answers

How does management accounting primarily differ from financial accounting?

<p>Management accounting is tailored for internal users like managers (A)</p> Signup and view all the answers

What is NOT a purpose of valuing inventories in management accounting?

<p>To provide data for regulatory compliance (B)</p> Signup and view all the answers

Which of the following users is NOT typically involved with management accounting?

<p>Shareholders (D)</p> Signup and view all the answers

What information does management accounting provide for internal decision-making?

<p>Cost data for product pricing and operational decisions (D)</p> Signup and view all the answers

What type of variable cost decreases as production increases and may behave in different proportional ways?

<p>Recurrent costs (A)</p> Signup and view all the answers

What distinguishes semifixes or variable jumps from other variable costs?

<p>They remain fixed until a specific production threshold is reached. (B)</p> Signup and view all the answers

Which of the following is NOT a characteristic of mixed or semi-variable costs?

<p>They are entirely variable. (A)</p> Signup and view all the answers

Which costs can be assigned directly to a specific cost object without subjective distribution?

<p>Direct costs (C)</p> Signup and view all the answers

What is the correct interpretation of degressive costs?

<p>Costs that decrease as production increases but not in fixed intervals. (D)</p> Signup and view all the answers

What is a defining feature of costs classified as indirect?

<p>Can be shared among multiple activities or products. (B)</p> Signup and view all the answers

What is an example of a mixed or semi-variable cost?

<p>Electricity bills with a fixed and variable component. (C)</p> Signup and view all the answers

How are recurrent costs characterized in relation to production volume?

<p>They decrease as production increases. (D)</p> Signup and view all the answers

What is the unit cost of producing 30 units if the fixed costs total €300 and the variable cost is €10 per unit?

<p>€20 per unit (A)</p> Signup and view all the answers

In the case of manufacturing 50 units, what will be the total cost incurred?

<p>€800 (B)</p> Signup and view all the answers

What is a key characteristic of the direct-cost model?

<p>It only incorporates some production costs. (D)</p> Signup and view all the answers

What factor can make the allocation of fixed costs subjective?

<p>The criterion used by the person in charge (B)</p> Signup and view all the answers

What formula is used to calculate the unit cost of production?

<p>Total Costs / Total Units Produced (A)</p> Signup and view all the answers

Which of the following selected costs often leads to disagreements in management accounting?

<p>Indirect costs attributed to ancillary services (C)</p> Signup and view all the answers

What is the unit cost when producing 50 units given the total cost of €800?

<p>€16 per unit (A)</p> Signup and view all the answers

What aspect does the full cost model fail to address effectively?

<p>Direct cost allocation to specific products (C)</p> Signup and view all the answers

What do historical inorganic models primarily focus on?

<p>Real magnitudes of costs (A)</p> Signup and view all the answers

Which characteristic distinguishes predetermined organic models from historical organic models?

<p>They utilize predicted magnitudes. (A)</p> Signup and view all the answers

What is a key advantage of predetermined organic models?

<p>They allow for deviations analysis. (B)</p> Signup and view all the answers

Which of the following models is considered the most complete?

<p>Predetermined organic models (A)</p> Signup and view all the answers

Which statement accurately describes the historical organic models?

<p>They provide insights into cost centers. (D)</p> Signup and view all the answers

How do predetermined inorganic models allow for cost analysis?

<p>By comparing predicted costs to actual costs. (C)</p> Signup and view all the answers

What limitation do historical inorganic models have?

<p>They fail to account for cost center effects. (A)</p> Signup and view all the answers

In the context of management accounting, what do deviations represent?

<p>The difference between predicted and real costs. (B)</p> Signup and view all the answers

What is the impact of excess capacity costs on a company's earnings?

<p>They decrease earnings due to idle resources. (C)</p> Signup and view all the answers

What does hysteresis of costs refer to?

<p>The irreversibility of certain costs when production fluctuates. (D)</p> Signup and view all the answers

Which of the following terms describes costs that behave as fixed after certain intervals in production?

<p>Jump variables or semifixes. (D)</p> Signup and view all the answers

How can the distinction between costs of the activity and costs for excess capacity help businesses?

<p>It helps alleviate the problem of cost hysteresis. (C)</p> Signup and view all the answers

Which of the following does NOT accurately describe a characteristic of hysteresis in costs?

<p>Costs remain consistent regardless of production levels. (B)</p> Signup and view all the answers

What might lead to the emergence of hysteresis in production costs?

<p>Increased need for fixed infrastructure and management. (D)</p> Signup and view all the answers

Which of the following best describes the consequence of having idle superstructure in a company?

<p>A decrease in overall earnings. (C)</p> Signup and view all the answers

Why is it important for companies to understand the distinction between activity costs and excess capacity costs?

<p>To assess the true competitiveness of their products. (C)</p> Signup and view all the answers

What is meant by costs for excess capacity in a production context?

<p>Costs that arise from maintaining machines not fully utilized. (D)</p> Signup and view all the answers

Given a production volume of 100 uc or less, how is the cost of the second machine classified?

<p>As a cost for excess capacity. (D)</p> Signup and view all the answers

How do costs for excess capacity impact the financial results of a company?

<p>They do not impact the cost of the production process. (C)</p> Signup and view all the answers

Which statement correctly explains the relationship between activity costs and costs for excess capacity?

<p>Only activity costs are accounted for in product costing. (D)</p> Signup and view all the answers

What element is not accounted for as part of the cost of the production process?

<p>Costs incurred from machinery not in use. (D)</p> Signup and view all the answers

In the context of the example provided, what determines whether a cost is categorized as an activity cost or excess capacity?

<p>The amount of production achieved. (A)</p> Signup and view all the answers

How are excess capacity costs treated in relation to the total result of the company?

<p>They increase the overall expenses in financial statements. (A)</p> Signup and view all the answers

How should depreciation costs affect the activity cost classification when production exceeds capacities?

<p>They should be fully included in the activity costs. (C)</p> Signup and view all the answers

Flashcards

Planning in Management Accounting

The process of quantifying and interpreting the future financial impact of transactions and events on an organization.

Evaluation in Management Accounting

Evaluating past events against planned outcomes to help make informed decisions for the future.

Control in Management Accounting

Monitoring performance, measuring results, and taking corrective actions to ensure activities stay on track.

Cost Calculation in Management Accounting

Determining the cost of resources used in production, including raw materials, work in progress, and finished goods.

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Valuing Inventories

Using cost information to value inventory for internal reporting and financial statements.

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Controlling Operations with Cost Data

Using cost data to track activities in different departments, compare actual costs to planned costs, and improve efficiency.

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Determining Product Cost

Determining the total cost of producing a product for pricing decisions, manufacturing vs. purchasing, or product discontinuation analysis.

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Management Accounting Focus

Provides information for internal decision-making by employees and managers.

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Recurrent Costs

Costs that decrease as production increases. The cost per unit decreases as output rises.

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Semifixed Costs

Costs that remain fixed for specific production intervals and then experience a sudden jump, becoming fixed again at a new level.

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Mixed Costs

Costs that have both a fixed component and a variable component. The total cost increases with increasing output, but not proportionally.

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Direct Costs

Costs that can be directly and unequivocally traced to a specific cost object, such as a product.

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Indirect Costs

Costs that cannot be directly traced to a specific cost object. These need allocation methods.

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Cost Allocation

The process of assigning costs to cost objects, such as products, activities, or departments.

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Cost Objects

The activities, cost places, or products to which costs are assigned. Products are the most common cost object.

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Responsibility Centers

Responsibility centers within a company, often departments, where costs are incurred and managed.

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What are excess capacity costs?

Costs incurred for resources that are not currently being used in production, but are available if needed. For example, the depreciation cost of a machine that is not being used for production because demand is low.

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How are excess capacity costs reflected in accounting?

Excess capacity costs are only considered in the external accounting of a company because they do not affect the internal cost of a product. These costs only influence the overall financial result of the company.

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What are activity costs?

Costs related to resources actively used in the production process. Examples include raw materials, labor costs, and factory utilities.

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Do excess capacity costs affect the unit cost of a product?

Excess capacity costs do not impact the cost of the product. Only costs associated with the production process (activity costs) affect the unit cost of the product.

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How do excess capacity costs affect a company's profitability?

Excess capacity costs lower the overall profitability of a company. Since they aren't part of the product cost, they only impact the company's total financial result.

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Why might a company reduce production?

When demand decreases and a company has excess capacity, they might choose to reduce production to use only the necessary resources, minimizing excess capacity costs.

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What is the significance of excess capacity cost?

Excess capacity costs highlight the potential inefficiency of a company. This emphasizes the need for careful planning and resource management to avoid excessive costs associated with unused capacity.

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How can companies use financial data to manage excess capacity?

Companies can use financial data to evaluate and adjust their capacity based on market demand, ensuring they have the right resources to meet customer needs while optimizing profitability.

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Uniform Unit Price

Cost per unit remains constant regardless of production volume.

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Fixed Costs (FC)

Costs that stay the same no matter how much you produce. Example: Rent.

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Variable Costs (VC)

Costs that change directly with the number of units produced. Example: Raw materials.

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Total Cost (TC)

The total cost of production, calculated as Fixed Costs + Variable Costs.

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Unit Cost

Total Cost divided by the number of units produced.

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Direct Costing

A cost accounting method that only includes direct costs in the calculation of product costs, leaving out fixed costs.

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Relativism of Fixed Cost Allocation

The subjective nature of allocating fixed costs across products, which can lead to variations in unit cost.

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Excess Capacity Costs

Costs that are not passed on to the product and do not change with increased production, even though they contribute to the overall cost of running the business.

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Cost Hysteresis

The difference in costs between increasing and decreasing production levels, where costs increase when production rises but don't always decrease proportionally when production falls.

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Semifixed or Jump Variables

Costs that are fixed up to a certain point of production and then jump up in steps when production exceeds that point.

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Costs of the Activity

Costs that are directly related to the production process, increasing as production increases and decreasing as production decreases.

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Irreversibility of Costs

A cost that reflects the irreversibility of certain expenses, meaning they are not fully recoverable when production decreases.

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Cost of Idle Superstructure

These costs represent the difference between the actual production costs and the costs that would be incurred if the company was operating at full production capacity.

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Accuracy in Cost Analysis

The ability to assess and understand the impact of various factors on production costs and product competitiveness.

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Cost Comparability

The process of comparing costs of different products, including those with similar characteristics, but potentially manufactured with different technologies or efficiency levels.

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What is the purpose of management accounting?

Management accounting focuses on providing information for internal decision-making by employees and managers, helping them make informed choices about production, pricing, and resource allocation.

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What are historical organic models?

These models capture the real cost generation process within a company by tracking the cost of production factors at various stages, but only use actual data.

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What are predetermined inorganic models?

These cost models predict expected values and compare them to the actual results, allowing for control and performance analysis, but don't consider the impact of cost places. They use predicted values.

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What are predetermined organic models?

These models aim to improve on the historical organic models by incorporating predicted values alongside actual data. This provides more comprehensive information and allows for better control.

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What are historical inorganic models?

These models calculate actual costs for each production order or work order, but they don't analyze how costs are distributed across different parts of the company.

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What are historical organic models?

These models are designed to capture the impact of costs in specific places within a company and how these contribute to the final cost of goods. They utilize actual costs to track the flow of resources.

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What are predetermined inorganic models?

They ignore cost places and rely solely on predictions to compare expenses with actual results, offering limited insight into the cost generation process.

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What are predetermined organic models?

They incorporate the most comprehensive approach by using predicted values and tracing them back to the actual costs, providing a thorough understanding of the cost generation process.

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Study Notes

Management Accounting: Basic Concepts

  • This document introduces Management Accounting, a discipline within the framework of economics and business administration.
  • It focuses on the economic-technical cycle of a company, as a system with interconnected subsystems: Financing, Investment, Production, and Disinvestment.

Circulation of Values in a Company

  • The "Scheme of the circulation of values" in a company, developed by Professor Schneider, is a useful tool for understanding how resources flow through the different stages.
  • This scheme involves six series of accounts: Capital, Money, Purchases, Manufacture, Store, and Sales. Each represents a subsystem of transactions within the company.

Definition of Management Accounting

  • Management Accounting, or Cost Accounting, is a subset of Management Accounting.
  • It's focused on providing information for internal decision-making within an organization.
  • It's distinct from Financial Accounting, which focuses on providing information to external stakeholders.

Objectives of Management Accounting

  • Planning: Quantify and interpret the effects of transactions in the future.
  • Evaluation: Assess historical events to guide future actions.
  • Control: Monitor and measure performance, correcting deviations from the planned course.

Concept of Cost

  • Cost is defined as the monetary value of goods and services used in a production process.
  • Costs can be categorized as fixed or variable, depending on their relationship to production volume.
  • Costs can also be categorized as direct or indirect, based on whether their association with a specific cost object (product or service) is direct or requires allocation.
  • Subactivity costs are associated with the excess capacity; they are unrelated to current production.

Models for Allocating Costs

  • Full Cost Models: Allocate all costs (variable and fixed), including those tied to inventories.
  • Direct Cost Models: Allocate only variable costs, disregarding fixed.
  • Production Costs: Categorizes costs by the production and sales cycles.

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