AFM 102 FINAL EXAM REVIEW QUESTIONS & ANSWERS 2023/2024
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Course
AFM 102
Institution
AFM 102
AFM 102 FINAL EXAM REVIEW QUESTIONS & ANSWERS 2023/2024
Financial accountants - ANSWER-for producing quarterly and yearly financial summary reports for external users such as banks, tax authorities, regulators, shareholders/investors, and bondholders. The main role of financial accountants is ...
AFM 102 FINAL EXAM REVIEW
QUESTIONS & ANSWERS 2023/2024
Financial accountants - ANSWER-for producing quarterly and yearly financial summary reports for
external users such as banks, tax authorities, regulators, shareholders/investors, and bondholders. The
main role of financial accountants is to prepare financial statements that external users can use to
understand the company's past performance compared to a prior period.
Managerial accountants are responsible for the following areas: - ANSWER-Financial Planning—
budgeting, forecasting, and strategic/long-term planning
Performance Management—ensuring actual performance meets budgeted targets
Decision Support—providing analysis necessary to assist management decision-making
Financial planning involves working with - ANSWER-all functional areas within an organization to build an
estimate of a company's future financial performance, referred to as a budget.
How often are budgets prepared - ANSWER-prepared once every year before the fiscal year begins and
remain static, or in other words do not change.
An important part of financial planning is identifying risks and opportunities within a company's plan. For
all major risks identified, companies need to think through an action or mitigation plan that the company
would put in place to minimize negative financial impacts if the risk occurs. We will be discussing risks
and opportunities in more detail when we learn about the budgeting process.
When do companies build forecasts - ANSWER-Companies build forecasts if there are significant events
that occur during the year that change the budget in a meaningful way.
Performance management involves - ANSWER-s producing reports that assist management to
understand monthly company performance compared to budget. Managerial accountants lead this
process by producing reports that compare monthly actual financial results with budgeted targets. When
,companies are performing below budgeted targets, managerial accountants need to understand the
underlying root causes and assist management teams to make decisions to improve performance. On
the flip side, when companies are performing better than budgeted targets, managerial accountants
analyze the results to ensure favourable performance continues in the future.
Why is monthly performance management important?
Click to reveal/hide answer - ANSWER-Understanding how the company is performing compared to
budget is an important monthly analysis to understand what the company is doing well and what
decisions need to be made to improve performance in future months to meet targets. Monthly
performance management provides finance and operational leaders an understanding of business
performance and challenges them to figure out the root causes that are driving under- or over-
performance.
Operating decisions - ANSWER-day-to-day decisions that maximize profitability by increasing revenue
and decreasing costs.
Capital budgeting decisions - ANSWER-relate to making cash investments to continue to grow the
company in the future.
Governance structure - ANSWER-refers to the way a company organizes itself to make and execute
decisions. In a public company, the shareholders elect the board of directors, who then select top
management.
board of directors - ANSWER-a group of individuals that have the highest authority within a company.
They approve strategic decision-making, approve strategic and financial plans, act as advisors, and
protect shareholders' interests. They ensure top management is leading the company to achieve growth
and improvement and making decisions that will benefit the company's shareholders or investors.
Top management - ANSWER-consists of the Chief Executive Officer (CEO), who is the most senior
corporate executive leading a company; the Chief Financial Officer (CFO), who leads Finance and
Accounting; and the Chief Operating Officer (COO), who leads business operations and execution of a
company's budgeted plan. In many companies, there are other Chief Executive positions depending on
the company's strategy and structure.
Product vs. period costs - ANSWER-Total operating costs == Product costs ++ Period costs
,Prepare gross margin income statement for internal and external reporting purposes
Prepare contribution margin income statements for internal reporting purposes
Direct vs. indirect costs - ANSWER-Total operating costs == Variable costs ++ Fixed costs
Prepare contribution margin income statements for internal reporting purposes
operating costs - ANSWER-interest and income tax costs
gross margin income statement - ANSWER-Total revenue
− Product costs
=Gross margin
− Period costs
=Operating income
Product costs include - ANSWER-all costs involved in the purchase or manufacture of products. For
manufactured products, these costs include direct materials, direct labour, and manufacturing overhead.
At time of sale, product costs are - ANSWER-transferred out of the inventory accounts on the balance
sheet and recognized as cost of goods sold in the income statement.
Direct materials - ANSWER-materials that become an integral part of a finished product and can be
conveniently traced to it
For a company that produces cars, direct materials would include all car parts purchased such as the
engine, wheels, and windows.
Direct labour - ANSWER-factory labour costs that can be traced easily to individual products
, Direct labour includes wages of all front-line workers that operate equipment and assemble the cars.
Manufacturing overhead - ANSWER-all indirect costs associated with the manufacturing process
including indirect materials and indirect labour
Manufacturing overhead costs include indirect material costs, indirect labour costs, and other indirect
costs such as heat, light, property taxes, and insurance of the manufacturing plant.
Indirect material and indirect labour costs include t - ANSWER-those costs that cannot be easily traced to
producing a car. Examples of indirect materials are costs of glue and nails. Indirect labour would include
labour costs of janitors and plant supervisors.
Period costs are - ANSWER-non-manufacturing costs such as marketing, selling, and administrative costs
that are expensed directly in the company's income statement when they are incurred (i.e., they are
never recorded in the balance sheet).
what are the 3 accounts on the balance sheet - ANSWER-raw materials inventory
work in process inventory
finished goods inventory
what happens when raw materials purchases - ANSWER-goes into raw materials inventory
-direct materials used in production
work in process inventory
- add when direct labour
- add manufacturing overhead
- add raw materials
goods completed
- transferred to finished goods inventory
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