ACC 211 Test 1 Notes
ACC 211 Test 1 Notes 20450
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This 1 page Bundle was uploaded by Jake Fuemmeler on Friday March 18, 2016. The Bundle belongs to 20450 at Missouri State University taught by George Schmelzle in Spring 2016. Since its upload, it has received 31 views. For similar materials see Introduction to Managerial Accounting in Accounting at Missouri State University.
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Date Created: 03/18/16
Pre-Test Terms IMA: Institute of Management Accounts CMA: Certiﬁed Management Accountant (Test) AICPA: American Institute of Certiﬁed Public Accountants SOX: A law, after Enron made incorrect sales books More regulation CIA: Certiﬁed Internal Auditor Fraud is discovered usually by a fraud hotline XBRL: Extensible Business Reporting Language SEC 10k: Security Exchange Commission CPE: Continuing Professional Education JOA: Journal of Accountancy Chapter 1 I. Manager Responsibilities Works best with feedback. Planning Budgeting process, Production planning Setting goal with objective Examples Generate more sales with new stores Reduce labor costs by reducing store hours Budgets Directing/Motivating Performance Reviews Overseeing company’s day-to-day operations Examples Use weekly sales reports to adjust marketing strategies Using product cost reports to adjust raw material usage Controlling Evaluating results of operations against plans and making adjustments as needed Examples: Comparing budgeted sales with actual sales to take corrective actions Comparing budgeted product costs against actual product costs to take corrective actions II. Financial vs. Managerial Accounting Uses of Managerial Internal use, detailed Preparation, use of, formatting, and contents of report is chosen by management Provides focuses for future operations. Provides info for ex/internal transactions No auditing from authoritative or external entities Uses of Financial External use, brief Determined and formatted according to external, authoritative entities. Provides focus on past operations. Provides information for external investment. III. Organizational Structure Board of Directors -> CEO CEO controls COO & CFO CFO controls Treasurer and Controller Treasurer invests for company, holds money and issues stock Controller is head accountant. More accounting functions (tax, ﬁnancial, managerial accounting) Analysis of buying equipment, etc. COO controls Operation directors Audit Subsections Internal audit reports to CFO, CEO, and Audit committee Audit committee is a subsection of board of directors Works with management functions IV. Changing Roles of MGMT Accountants Impact of technology More eﬃcient, lower employment Ensuring accurate ﬁnancial records Authorization of (Usually associated with internal audit) Good for product pricing Planning, analyzing, and interpreting data More data available, helps make strategic moves in the business Provide decision support Gives data for decision making Required skills Skills with computer, communication, teamwork, analytical; Accounting and business knowledge V. Roles of Institute of Management Accounts (IMA) Professional association for MGMT accountants Often small company does not have MGMT accountants Functions Certiﬁcation: Certiﬁed Management Accountant (CMA) Forum for research Academic journals, conferences, etc. Practice development Education Knowledge sharing Ethical standards Public education Summary of ethical standards Maintain competence Know what you are doing Preserve conﬁdentiality Keep private info private Uphold integrity Do the job, don’t steal Perform with credibility Be trustworthy and perform to ability Ethical behavior Doing the right thing Things not to do Allowing reimbursement of false expense reports (illegal) Manipulating income Performing tasks not qualiﬁed to do Resolving ethics issues Company (and IMA) should have policies to report Chapter 2 I. Types of Companies Service Only provide a service No inventory Merchandise Resell product purchased from suppliers Merchandise inventory account Retail vs. Wholesale Retailers are ﬁnal sale Wholesale are middle man Manufacturing Use labor and inputs to convert raw materials into products Converting costs (Labor and overhead) Three inventory accounts Raw materials (RM) Works in Process (WIP) Finished Goods (FG) II. Value Chain Adds value to products and services that cost money R&D->Design->Production/Purchases->Marketing->Distribution->Customer Service III. Indirect and Direct Costs Cost Object: Anything managers want a separate measure of cost Direct Labor, Raw Materials/Wholesale bought products Looking at costs of a department, the department manager is a direct cost. CEO is indirect. Indirect Overhead costs Depreciation of warehouse Cost of shopping bags Salaries Based oﬀ department IV. Inventory and Period Costs Product Costs Total Costs: used internally only Inventorial product costs (IPC): used for external reporting Production or purchases ONLY Property tax on plant is IPC, property tax on HQ or a store is PC Inventory, and cost of goods sold In the manufacturing department Types of ﬁrms and their costs Merchandiser Costs Purchases Costs to prepare sale Freight In Import duties Manufacturing Costs Direct Materials Direct Labor Manufacturing Overhead Any indirect costs in manufacturing Period Costs (PC) What happens outside of production R/D, Design, Marketing, Distribution, Customer Service Operating expenses Prime Costs, Conversion Costs, Direct/Indirect Labor Costs Prime= DM + DL Conversion=MOH+ DaL Direct Labor: Salaries/Wages Indirect Labor: Fringe Beneﬁts V. Financial Statements of Service, Merchandising, and Manufacturing Firms Service Firms Income Statement Service Revenue - Operating Expenses = Operating Income Merchandiser Firms Income Statement Sales - COGS = Gross Proﬁt - Operating Expenses = Operating Income Cost of Goods Sold Beginning Inventory + Purchases + (Import Duties/Tariﬀs + Freight-In) = COGS Available - End Inventory = COGS Manufacturer Firms Direct/Raw Materials Used Beginning Raw Inventory + Purchases + (Import + Freight-in) = Materials Available - End Raw = Direct Materials Used Cost of Goods Manufactured Beg WIP Inventory + Direct Materials Used + Direct Labor + MOH = Manufacturing Costs - End WIP Inventory = COGM Cost of Goods Sold Beg Finished Inventory + COGM = COG Available for Sale - End Finished Inventory = COGS COGM is used similar to Merchandise purchases for a merchandise ﬁrm VI. Relevant and Irrelevant Costs Controllable Cost Management can inﬂuence or change cost Uncontrollable Cost Management cannot change or inﬂuence cost in short run Relevant Cost Diﬀerential costs, costs diﬀer between alternatives Irrelevant Cost Costs that do not diﬀer between alternatives or sunk costs Sunk cost: Costs incurred in the past that cannot be changed Fixed Cost Constant costs over range of activity levels Sometimes utilities vary, but are not classiﬁed as variable costs Variable Cost Change in total cost with direct proportion of activity level Varies with activity VII. Fixed/Variable Costs Total Variable Costs Change in proportion with activity levels (Example) Sales Commissions: For more sales, more commissions will be payed Total Fixed Costs Stay constant in total over wide range of activity levels Manipulation of Fixed and Variable Total Cost Fixed + Variable (Cost per unit x number of units) Average cost Total cost/number of units Marginal costs Cost of making one more unit Chapter 3 I. Order Costing & Overhead rate Job: A project of production. Can be multiple items. Job Costing: Used for heterogenous products Process Costing: Used for homogenous products II. Documents and ﬂow of costs Materials Requisition Form Created more WIP inventory, less materials for use When you are dealing with direct materials cost Debit WIP, Credit Raw Materials Inventory Direct Labor time ticket Time and wages of touch labor are determined as direct labor costs When you are dealing with direct labor entries Debit WIP, Credit S&W Payable Job Cost sheet Flow of Documents Sales Order -> Production Order -> Materials Req., Direct labor time ticket, predetermined OH rates-> Job Cost Sheet III. Manufacturing overhead predetermined rate The cost of a job consists of Actual direct material costs Actual direct labor costs Applied MOH using a predetermined rate. Actual overhead is not assigned to jobs Estimated data is used to avoid monthly/periodical ﬂuctuation Predetermined MOH = Estimated Overhead Cost/Estimated Total Cost of Allocation Base Allocation Bases Using direct labor hours: Estimated MOH/Hours = x Using direct labor costs: Estimated MOH/ Estimated Costs = % Using machine hours: Estimated MOH/Estimated machine hours = x IV. Journal Entries Debiting Work in Process: pay for direct materials, pay for direct labor, apply overhead If the expense occurs inside the factory, it’s overhead overhead is an “umbrella account”, holding many accounts If an expense occurs outside the factory, it is that speciﬁc expense Calculating the overhead rate is not a journal entry; overhead comes into play when the rate is being applied When there is a remaining debit balance, overhead is under-applied or under-allocated When there is a remaining credit balance, overhead is over-applied or over-allocated Cost of Goods Sold vs. Over/Under Allocated Overhead When MOH is over allocated subtract the amount When MOH is under allocated add the amount V.Determining Under/Over Applied Overhead Create T-Account using Actual on left, Estimated on right Left side will include multiple, actual overhead costs If actual exceeds estimated it will have an actual balance, vice versa if estimated Journal entries If overhead is under-applied it is added to cost of goods sold Cost of goods sold………X Overhead…………………X If overhead is over-applied it is subtracted to cost of goods sold Overhead………………....X Cost of Goods Sold……..X Chapter 4 I. Develop departmental overhead rates to allocate indirect costs Why reﬁne rates? Mismatching resources Cost distortion: Trouble price product, can end with loss of each sale Who reﬁne? Manufacturing operations Service companies and governmental agencies Plant wide overhead example Predetermined MOH = Estimate MOH/Estimate Allocation Base $1,000,000/62,500 DL Hours = $16 per DL hour Debit WIP, Credit Overhead Within two departments, you can have under/over when labor is not intensive in some departments Departmental rates lead to more accuracy Some departments take more/less use of allocation bases (time, costs, machine hours) Can use diﬀerent allocation bases when creating separate rates When to use: Departments incur diﬀerent amounts and types of MOH Diﬀerent jobs or products use the department resources to a diﬀerent extent Used for multiple products Plant wide rate is better for only producing one product II. Activity Based Costing (ABC) Allocates indirect costs to production Focuses on activities and cost of Separate allocation rate for each activity Can be volume based Journal Entry: Applying multiple overheads Debit WIP, Credit All MOH combined Overcosted-Undercosted When estimates used to budget MOH are too little the overhead is considered under-costed When estimates used to budget MOH are too much the overhead is considered over-costed Steps to Activity Based Costing Identify and estimate indirect costs Select an allocation base for each activity Compute allocation base rate for each activity Allocate some overhead for each activity to individual jobs that use said activities Cost Hierarchy Facility-level Costs that eﬀect the factory itself Product-level Costs that associated with the product manufacturing, regardless of batch and unit volume Batch-level Costs dealing with batches, such as order processing Example: Machine set up when new product order starts Unit-level Costs associated with each unit. Include direct materials and labor. III. Beneﬁts and Limitations of ABC and ABM Activity Based Management Pricing and product mix Changes the prices for products after identifying the diﬀerent total costs Product mix and selections Decide to market the high proﬁtability product Shift products away from less proﬁtable products Cost cutting Analyze costs in value chain Value-added activities The more value added activities the greater the product’s worth Non value-added activities Reduce these activities to create more worth of the product Planning and controlling costs Use cost of activities to create budgets Compare with actual activity to see if goals are being met ABM outside of manufacturing Merch/Service: Used to ﬁnd most proﬁtable product Manufacturing: Allocate operating expenses Cost-Beneﬁt Test Do beneﬁts of adopting ABC/ABM exceed the costs? Use when there are multiple products and multiple resources Beneﬁts are higher for competitive markets Accurate product cost information is essential ABM can pinpoint cost savings opportunities Beneﬁts are higher when risk of cost distortion is high Many diﬀerent products, diﬀerent types of resources High indirect costs High/low volume products Cost of Adopting ABC Set up costs of creating accounts in the ledger Generally lower with Accounting and info system expertise to develop the system Information technology; accounting software Are companies glad they adopted ABC Most companies say it is worth the cost Signs of cost distortion Cost system needs repair when Managers don’t understand costs and proﬁts Bids are losses unexpectedly and vice versa Competition prices are drastically diﬀerent IV. Lean Operations Traditional Production Systems Keep large inventories on hand Issues Storage costs Hide quality Bottlenecks in production and obsolete products Lean thinking Philosophy and a business strategy Primary goal: Eliminate waste and costs Just in time Production: includes raw material purchases Delivery: Saves freight costs Characteristics Broad employee roles Pull System Reduce setup Shorter man. cycles Small batches Emphasis on quality Supply-chain management Drawbacks Vulnerable when problems strike suppliers/distributors Examples Delays in delivery Shortage of parts due to recall of products Sustainability Seek to reduce waste Lean focus on internal Green focus on external “Lean and green" V. Cost of Quality Total Quality Management (TQM) Goal: Provide customers with superior products and services Helps to reduce quality costs later on Continuous improvement More investment up front to generate savings in back end of value chain Types of Quality Costs Prevention Costs: Avoid poor quality goods or services; Value added Employee training Improved materials Preventive maintenance Appraisal Costs: Detect poor quality goods or services; Non-value added Inspection throughout production Inspection of ﬁnal product Product testing Internal Failure Costs: Avoid poor quality goods or services before delivery to customers Production loss caused by downtime Rejected product units External Failure Costs: Incurred after defective product is delivered Lost proﬁts from lost customers Warranty costs Services costs at customer sites Sales returns due to quality problems Non-Manufacturing Costs of Quality Service/Merch ﬁrms incur quality costs Prevention Professional training Standardized service checklists Appraisal Costs Review work continuously Inspect before releasing Cost of Quality Report Identify, categorize, quantify all costs with quality Calculate the percentage of total costs of quality that are incurred in each cost category Use as a framework for decisions
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