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ACCT 202 - Exam 1 Study Guide

by: Rachel_Anderson

ACCT 202 - Exam 1 Study Guide ACCT 202

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Into to Managerial ACCT, Cost Concepts, Cost-Volume-Profit, Job Order Costing
Managerial Accounting
Kyle Anderson
Study Guide
Accounting, managerial accounting
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This 12 page Study Guide was uploaded by Rachel_Anderson on Tuesday February 2, 2016. The Study Guide belongs to ACCT 202 at Clemson University taught by Kyle Anderson in Summer 2015. Since its upload, it has received 148 views. For similar materials see Managerial Accounting in Accounting at Clemson University.

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Date Created: 02/02/16
Exam 1 Study Guide Professor Anderson - ACCT 202, Spring 2016 **Formulas on Last Page Chapter 1 - Managerial Accounting, An Overview Make sure you can: 1. Recognize the difference between financial & managerial accounting. 2. Make Use of managerial activities to evaluate risks & learn leadership skills. 3. Explore management accounting certifications. 4. Evaluate ethical standards and models for ethical decision making. Planning ◦ If you're not planning while running a business you won't make it, you will run into trouble. ‣ Establish Goals ‣ Specify how goals will be achieved ‣ Develop budgets • start to track money, you will notice how much you save Controlling ◦ the control functions gathers feedback to ensure that plans are being followed. ◦ feedback in the form of performance reports that compare actual results with the budget Decision Making ◦ involved making a selection among competing alternatives ‣ "What should we be selling?" ‣ "Who should we be serving?" ‣ "How should we execute?" Work of Management ◦ Planning ‣ Marketing Majors • Ex, How much should we budget? ◦ TV ◦ Print ◦ Internet Advertising • Ex, How many sales people should we plan to hire to serve a new territory? ◦ Controlling ‣ Ex, Is the budgeted price cut increasing unit sales as expected? ‣ Ex, Are we accumulating too much inventory during the holiday shopping season? ◦ Decision Making ‣ Ex, Should we sell our services as one bundle or separately? ‣ Ex, Should we sell directly to consumers or distributors? both? Strategic Management Skills ◦ A strategy is a "game plan" that enables a company to attract customers by distinguishing itself from competitors. ◦ The focal point of a company strategy should be its target customers,. Customer Value Propositions ◦ Customer Intimacy Strategy ‣ understand and respond to individual customer needs ◦ Operational Excellence Strategy ‣ deliver products and services faster, more conveniently, and at lower prices. ◦ Product Leadership strategy ‣ Offer higher quality products Enterprise Risk Management ◦ A process used by a company to proactively identify and manage risk. Process Management Skills ◦ a business process is a series of steps that are followed in order to carry out some task in a business. Lean Production [Just-In-Time (JIT) Production] ◦ Number of units produced tends to equal the number of units sold. ◦ Typically results in fewer defects, less wasted effort & quicker customer response times than traditional production methods. ‣ Customer places and order • Create Production Order ◦ Generate Component requirements ‣ Components are ordered • Production begins as parts arrive ◦ Goods delivered when needed The Theory of Constraints (TOC) 1. Identify the weakest link (constraint in a system is determined by the step that has the smallest capacity) 2. Allow the weakest link to set the tempo. 3. Focus on improving the weakest link. 4. Recognize that the weakest link is stronger. Management Skills ◦ Complements an understanding of strategy, risks & business processes with data-driven analysis. ‣ Key to effective analysis: • to understand that the question you are addressing defines what you measure & how you analyze the data. ◦ The primary purpose of this course is to teach measurement skills that managers use to support planning, controlling, & decision making activities. Leadership Skills (6 skills of an Effective leader) 1. Technical competence 2. High integrity 3. Understand how to implement organizational change 4. Strong communication skills 5. Capable of motivating & mentoring other people 6. Effectively manage team-based decision processes Guidelines of Ethical Behavior ◦ Competence ◦ Confidentiality ◦ Integrity ◦ Credibility Why have Ethical Standards? ◦ Ethical standards in business are essential for a smooth functioning economy. ◦ Without ethical standards in business, the economy & all of us who depend on it for jobs, goods & services, would suffer. ◦ Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods & services at higher prices. ETHICS - Professional Certifications 1. Recognize that you have an ethical dilemma, is there a problem? A. (ONE PRICE CLOTHING, Anderson's boss) 2. Who will be harmed or benefited? 3. Whose rights or claims may be violated? 4. Which specific interests Corporate Social Responsibility (CSR) ◦ Organizations consider the needs of all stakeholders when making decisions rather than one person. ‣ Consumers, employees, suppliers, communities, stockholders, enviro & human rights etc Chapter 2 - Managerial Accounting & Cost Concepts Make sure you can: 1. Identify & Explain the three basic manufacturing cost categories. 2. Recognize the difference between product cost & period costs. 3. Distinguish cost behavior patterns: variable costs, fixed costs, & mixed costs. 4. Analyze mixed costs using a scatterplot & the high-low method. 5. Create income statements using the traditional & contribution margin formats. 6. Categorize & Explain direct and indirect costs. 7. Evaluate the cost classifications: differential costs, opportunity costs & sunk costs. • In this chapter you will be.... ◦ taking past data and using it to make decisions for the future Classifications of Manufacturing Costs ◦ Manufacturing costs are often classified as follows: ‣ Direct Materials: raw materials that become an integral part of the product and that can be conveniently traced directly to it. ‣ Direct Labor: Those labor costs that can be easily traced to individual units of product. ‣ Manufacturing Overhead: Is costs that cannot be easily traced directly to specific units produced. • Ex, Indirect materials & indirect labor Classification of Nonmanufacturing Costs ◦ Selling Costs ‣ Costs necessary to secure the order and deliver the product ◦ Administrative Costs ‣ All executive, organizational, and clerical costs Product Costs vs. Period Costs ◦ Product costs include direct materials, direct labor & manufacturing overhead. ◦ Period costs include all selling costs and administrative costs. Classifications of Costs ◦ Manufacturing costs are often classified as follows: ‣ Direct Material --> Prime Cost ‣ Direct Labor --> Prime Cost & Conversion Cost ‣ Manufacturing Overhead --> Conversion Cost Cost Classifications for Predicting Cost Behavior ◦ Cost behavior refers to how a cost will react to changes in the level of activity. ‣ The most common are: • Variable Costs • Fixed Costs • Mixed Costs Variable Cost ◦ A cost that varies, in total, in direct proportion to changes in the level of activity. ‣ Cell phones good/bad example - paying a fixed fee for the next month and the usage of that phone and you're also paying for last months overage ‣ Variable cost stays the same per unit, they just vary by usage. Variable Cost Per Unit ◦ Variable cost per unit is constant. The Activity Base (Cost Driver) ◦ A measure of what causes the incurrence of a variable cost ‣ Units produced ‣ Machine hours ‣ Miles driven ‣ Labor hours Fixed Costs ◦ Costs that remain constant, regardless of changes in the level of the activity. ‣ Rent ‣ Insurance ‣ Taxes Fixed Cost Per Unit ◦ If fixed cost is expressed on a per unit basis, the average fixed cost per unit varies inversely with changes in activity. Types of Fixed Costs ◦ Committed - long term, cannot be significantly reduced in the short term ‣ Ex, depreciation on buildings and equipment and real estate taxes ◦ Discretionary - may be altered in the short-term by current managerial decisions ‣ Ex, advertising and research and development Mixed Costs (aka semivariable costs) ◦ A mixed cost contains both variable and fixed elements. ◦ Consider the example of utility cost In-Class Exercises • Groceries - V • Utilities - M • Car payment - F • Insurance - F • Mortgage - F • Shopping - V • Pets (check ups, meds, switching food)- M • Class Textbooks - V The High-Low method: ◦ the variable cost per hour of maintenance is equal to the change in cost divided by the change in hours. Least-Squares Regression Method ◦ a method use to analyze mixed costs if a scattergraph plot reveals an approximately linear relationship between the X and Y variables. Differential Cost & Revenue ◦ Costs and revenues that differ among alternatives Opportunity Cost ◦ the potential benefit that is given up when one alternative is selected over another Sunk Costs ◦ have already been incurred and cannot be changed now or in the future. ‣ These costs should be ignored when making decisions. Inventory Accounts - The Balance Sheet • Direct Materials/Inventory (get graphic)(print off, memorize) • Work-In-Process/Inventory • Finished Goods/Inventory • To the income statement Using Contribution format rather than the traditional for income statements. • traditional is used primarily by external reporting • contribution is used by managers Uses the Contribution Format 1. Cost-volume-profit analysis (ch 3) A. Fixed costs for a dance: 2. Budgeting (Ch 9) A. df 3. Segmented reporting of profit data (Ch 5) A. ljlj 4. Special decisions such as pricing and ... The Decision Process • things to factor in: ◦ desired outcome ◦ available resources ◦ short vs long-term ◦ quality • list pros & cons • list most important factors • make your decision Chapter 3 * One of the Most Important Chapters ◦ Cost-Volume-Profit Relationships Make sure you can: 1. Explain how changes in activity affect CM and net operating income 2. Make Use the CM & CMR to compute changes in sales volume 3. Determine the break-even point 4. Determine the level of sales needed to achieve a desired target profit 5. Compute the margin of safety and explain its significance 6. Compute the degree of operating leverage and explain how it can be used to predict changes in net operating income. Preparing the CVP (Cost Volume Profit) Graph 1. Break-Even in Units A. Sales - Variable Costs = Contribution Margin (CM) B. Contribution margin - Fixed Costs = 0 (Break Even) C. Contribution Margin = Fixed Costs D. Fixed Costs / CM per unit = Break Even in units Contribution Margin = the amount remaining from sales revenue after variable experiences have been deducted. Excel Template Vertical (Common Size) Computations • Vertical or common size, analysis focuses on important relationships within financial statements. • income statement --> Sales = 100% • Balance Sheet --> Total Assets = 100% Cost of sales ------------------------- x 100 Net Sales Revenue Horizontal (Trend) Computations • trend analyses are usually calculated in Older year - (look it up) ---------------------- Latest Year Comparing The Contribution Approach ◦ Sales, variable expenses, & CM can also be expressed on a per unit basis. ◦ We do not need to prepare an income statement to estimate profits at a particular sales volume. ‣ Just multiply the number of units sold above break-even by the CM per unit. CVP Relationships in Equation Form ◦ Profit = (Sales - Variable expenses) - Fixed expenses ◦ Unit CM = Selling price per unit - variable expenses per unit CMR (Contribution Margin Ratio) ◦ is calculated by dividing the total contribution margin by total sales Target Profit using CM ◦ We can compute the number of units that must be sold to attain a target profit using either: ‣ Equation method • Profit = Unit CM x Q - Fixed expenses ◦ or ‣ Profit = CM ratio x Sales - Fixed expenses ‣ Formula method • Unit sales to attain the target profit = (Target profit + Fixed expenses) / CM per unit Break-even Analysis ◦ the equation and formula methods can be used to determine the unit sales and dollar sales needed to achieve a target profit of zero. BE in Unit Sales Equation: ◦ Profits = Unit CM x Q - Fixed expenses Margin of Safety in Dollars • is the excess of budgeted (or actual) sales over the break-even volume of sales, ◦ margin of safety in dollars = Total sales - break even sales Operating Leverage ◦ a measure of how sensitive net operating income is to percentage changes in sales. It is a measure, at any given level of sales, of how a percentage change in sales volume will affect profits. ‣ Degree of OL = CM / NOI The Concept of Sales Mix • refers to the relative proportions in which a company's products are sold. Since different products have different selling pries, variable costs, and contribution margins, when a company sells more than one product, break-even analysis becomes more complex. ◦ dollar sales to break even = FE / CMR Key Assumptions of CVP Analysis 1. Selling price is constant 2. Costs are linear and can be accurately divided into variable (constant per unit) & fixed (constant in total) elements 3. In multiproduct companies, the sales mis is constant 4. in manufacturing companies, inventories do not change (units produced - units sold) Chapter 4 - Job-Order Costing Every job has: ◦ inputs & materials ◦ overhead costs When Producing Products ◦ must come up with how they're made ** Every Job Always Has: ◦ materials ◦ labor ◦ overhead Manufacturing Overhead Application ◦ Predetermined Overhead Rate (POHR) ‣ Formula: • POHR = Est. Total MO cost for the coming period / Est. total units in the allocation base for coming period ◦ allocation base is a cost driver that causes overhead Cost Pools & Cost Drivers ◦ In the production of creating snow skis: ‣ Cost Pools: • materials • labor • design • complexity • machines • shipping • quality control (test ‣ Cost Drivers: • units/lbs, size • hrs/time in design (quantity) • number of people Multiple Predetermined Overhead Rates • don't want to create too many cost pools/drivers. ◦ keep it simple when it comes to a company Print out COGS Manufactured & COGS Slide • MEMORIZE IT Overapplied overhead: ◦ is excess amount of overhead applied during a production period over the actual overhead incurred during the period. In other words, it's the amount that the estimated overhead exceeds the actual overhead incurred for a production period. Underapplied Overhead: ◦ A situation in which the overhead applied to a work in progress (WIP) product is less than the overhead that the WIP actually incurs. This results in the manufacturing overhead having a debit balance. ◦ Underapplied overhead is reported on the balance sheet as a prepaid expense. • DL x MOH = TMO • TC = TMO + DL + DM Predetermined Overhead Rate ◦ Use expected activity or capacity ‣ using estimated or budgeted ◦ Actual Volume - Capacity = Cost of Idle Capacity ◦ Manufacturing overhead incurred & Manufacturing overhead All Exam 1 Formulas • Total Sales = $ Per Unit * Units • $ Per Unit = Total Sales / Units • Cost of Goods Sold = Beginning Merchandise Inventory + Purchases - Ending Merchandise Inventory • Manufacturing Costs= Direct Materials + Direct Labor + Manufacturing Overhead • Non-Manufacturing Costs= Selling and Administrative Costs • High-Low Method:   ◦ Variable Cost= (Cost at the high activity level - Cost at the low activity level) / (High activity level - Low activity level) ◦ Fixed Cost= Total Cost - (Variable cost * total days)   • Average Product Cost= (Direct + Indirect Costs) / Total # of Product • Regression Line Equation: Y=a+bX   ◦ Y= total mixed cost, a= total fixed cost(vertical intercept of the line), b= variable cost per unit of activity(slope of line), X= level of activity • Break-Even in Units ◦ Sales - Variable Costs = Contribution Margin (CM) ◦ Contribution Margin - Fixed Costs = 0 ◦ Contribution Margin = Fixed Costs ◦ Fixed Costs / CM per unit = Break-even in Units • Break-Even using CM Ratio ◦ CM $ / Sales $ = CM Ratio ◦ Fixed Costs / CM Ratio = Break-even in Sales • Target Profit Using CM ◦ ( Fixed Costs + Target Profit) / CM per unit = Required Units ◦ (Fixed Costs + Target Profit) / CM Ratio = Required Sales • Equation Method: Profit = Unit CM * X - Fixed Expenses • Formula Method: Dollar Sales to Attain Target Profit = (Target Profit + Fixed Expenses) / CM Ratio • Degree of Operating Leverage = Contribution Margin / Net Operating Income • Margin of Safety in Dollars = Total Sales - Break-even Sales • Margin of Safety Percentage = (Total Sales - Break-even Sales) / Total Sales • Variable Expense Ratio = Variable Expenses / Sales • CM Ratio: (All of these are CM Ratio, not steps) ◦  CM / Sales ◦ (Sales - Variable Expenses) / Sales ◦ 1 - Variable Expense Ratio  • Predetermined Overhead Rate (POHR) = (Estimated total manufacturing overhead cost for the coming period) / (Estimated total units in the allocation base for the coming period) • Overhead applied to a particular job = Predetermined overhead rate * Amount of the allocation base incurred by the job • Cost of Goods Manufactured = Total manufacturing cost charged to jobs + Beginning work in process inventory - Ending work in process inventory  • Cost of Goods Sold = Beginning finished goods inventory + Cost of goods manufactured - Ending finished goods inventory


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