Accounting 132- Every Chapter
Accounting 132- Every Chapter Accounting 132
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This 23 page Study Guide was uploaded by Leighton Browne on Sunday February 7, 2016. The Study Guide belongs to Accounting 132 at Illinois State University taught by Marie Dawson in Winter 2016. Since its upload, it has received 36 views. For similar materials see Managerial Accounting in Accounting at Illinois State University.
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Date Created: 02/07/16
0CHAPTER 1 Mangerial Accoungtin concerned with providing info to managers for use wihtin the organization 1planning(goals, and uses a budget) 2controlling(feedback uses a performance report) 3decision making(course of action for what the should bes are) emphasizes decisons affecting the future value chain, busine function that add value research ad relevance timeliness segment reports (cost revenure profit data) NOT follow GAAP or IFRS or Mandatory Strategic Management Perspective stratety or a game plan Enterprise Risk Management Perspective process used by a company to identify those risks and develop responses to them to meet goals Corporate Social Responsibility Perspective CSR is a concept whereby organiztions consider the needs of all stakeholders when making decisions Process Management Perspective chain of comman amongst departments business process is a sereis of steps that are followed in order to carry out some task in abusiness. Lean Production management approach that organizes resources around customer orders A Leadership Perspective Intrinsic Motivation Extrinsic Incentives Cognitie Bias CHAPTER 2COST OBJECT (cost data desired) Direct Costs easily traced(sales man salary to sales, paper to printing brocheurs vs. Indirect Costsnot easily traced (salary compared to sale of one type of producommon cost) Manufacturing Cost Categories Direct Materials raw materials, anything used in final product, (raw materials can be direct or indirect) Direct Labor touch labor (indirect is MO such as janitors, supervisors, night secuirty) Manufacturing Overhead indirect materials, indirect labor, maintenance repairs, heat light, taxes, depreciation, insurance on facilities, only cost woperating the factory Non manufacturing Costs Categories Selling Costs all cost incurred to secure customer orders and deliver finished product. ad, shipping, sales travel, commission, sales salaries, finished goods warehouse (direct or indirect) Administrative costs general management of an organization. exectuive compensation, general accounting, secretarial, public relations. (salaries of people who oversee these functions too) Financial Statements Product costs inventoriable, all costs involved in acquiring or making a product, all Manufacturing Cost (direct materials, direct labor and manufacturing overhead) rent on equipment, lubricants for machine, soap, supervisors salaries, heat water and power, worker comp, deprectiation on chairs, Period Costs expensed, all nonmanufactuing costs (selling and administrative costs) prime costs and conversion cost, sum of direct materials costs and labor costs, conversion is sum of direct labor and manufacturing overhead cost, deprecriatin on salespersons car, salaries of personnel working in finished good warehouse, advertise costs, wages of receptionist Predicting Cost Behavior Variable Costs proportional to activity base, cost of goods sold, direct materials, direct labor, manufacturing overhead such as indirect materials, supplies power, selling and admin cost such as shipping commission High Low Method rise over run Y2Y1 / X2X1 (ycost, xactivity) Fixed Cost constant in total, staight line deprection, insurance, property tax, rent, salaries, admin salaries, advertisi(committed fixed cost are multi year fiiscretionaryfixed cost arrise annually) Mixed cost variable and fixed elements Y= A + bX y total mixed bvariable cost xlevel of actiafixed Linearity Assumption and Releveant Range range of activity wihthin which the assumption that cost beahvior is strictly linear is vallid. holds fixed cost fixed and variable variable within the certain range. as business increase fixed cost per unit decreases and vice versa Least Squared Regression Method all data to seperate a mixed cost into fixed and variable components exact appose to eximating like the high low method (y= a + bX still Making Decisions Differential cost difference between any 2 alternatives is known as differential revenue. or an incremental cost (an increase in cost from one alternative to another, decremental is opposite) marginal cos marginal revenue, fixed or variable Sunk costs Ignored, already incurred cannot be changed. Opportunity cost foregone benefit of selecting one alernative over the other (drinking instead of working) Chapter 3 JOB ORDER COSTING 1.Bill of Materials : document that lists the type and quantity of each type of direct material needed to complete a unit of product 2.Production order: completed after agreement is reached with customer concerning quantities, prices and shipment date for an order. 3.Materials Requisition : completed by productin departed, a document that spcifies the type and quanityt of material to be drawn from the storeroom and identifies the job that will be charged for the cost of materials controls the flow of materials into production. 4.Job Cost Sheet: after a production order issued, a job cost sheet is automoatically generated and records the materials, labor and manufacturing overhead costs charged to that job 1. estimate total amount of allocatin base required 2. estimate total fixed and variable manufacturing overhead cost per unit of allocation base 3. use cost formula to estimate total manufacturing overhead (Y=a + bX) Y=estim total manufacturing overhead cost a= estim total fixed manufactuirng overhead cost b=estim variable maufacuting overhead cost per unit of the allocation base X=estim total amount of the allocation base 4. calculate predetermined Overhead Rate Applying Manufactuing Overhead to a particular Job Total Manufacturing Cost = direct materials + direct labor + manufac overhead applied to partic job Unit Product Cost = total manufucating overhead cost / number of units in the job Cost Driver machie hours, computer time, flight hours, anything that the allocation base drives the overhead cost FLOW OF COSTs Manufacturing Overhead Costs: entered directlly into the manufat overhead account as incurred. manu fact over head debit accounts payable credit prepaid insurance credit accum depreciation credit applying Manufac Overhead predermined overhead rate X machine hours would be applied to work in process work in process debit manufacturing overhead credit Purchase and Issue of Materials Raw Materials debit account payable credit direct and Indirect materials Working in Process(direct) debit Manufact overhead(indirect) debit Raw Materials credit Labor Costs Work in Process(direct labor) debit Manufacturing Overhead(indirect labor) debit Salaries and Wages Payable credit Clearing an Account work in process debit manufact overhead credit Nonmanufacturing Costs Salaries Expense debit Salreis and Wages Payable credit Cost of Goods Manufactured Finished Goods debit Work in Process crdit Cost of Goods Sold Accounts Recievable debit Sales credit Costs of Goods Sold debit Finished Goods(unit of production formula for partial jobs) credit Cost of Goods Manufacture and Cost of Goods Sold CHAPTER 5 COST VOLUME PROFIT_______________________________ New Contribution Format Income Statement (each case independently, increas units, decrease units, or total) Steps for the next formulas 1. calculate the Unit CM 2. calculate the Break even units needed to be sold 3. graph fixed expense line 4. graph variable price plus fixed exp line 5. graph sales revenue line minus fixed (should cross at step 2 ) Break Even Analysis UNITS (dollars/sales/etc) Equation (for dollar sales.. Q= Sales, Unit CM=CMratio, profit=0) Formula Target Profit Analysis: we estimate what sales volume is needed to achieve a specific target profit. Margin of Safety : is the excess of budgeted or actual sales dollars over the breakeven volume of sales dollars. Break even sales uses sales price(not variable) Contribution Margin Ratio (CM Ratio) Changes in Variable Costs, Fixed Costs, Selling Prices (Increase Sales by 30,000 Increase fixed Ad by 10,000) (percentage sales difference, sale pricevarible = 40%) must add the increase to both sales and variable expense and then calculate the change Chapter 12: Differential Analysis: key to decision making Relevant Cost or Benefit: (differential cost and benefits) a cost or benefit that differs in total between the alternatives. any cost that does not differ betwen alternatives is irrelevant and can be ignored. Every decision involves choosing from among at least two alternatives **avoidable, differential, Incremental costs are relevant cost Avoidable cost: Relevant cost, that can be eliminated in whole or in part by choosing one alternative over another. Sunk Cost: Irrelevant cost, already incurred cannot be avoided regardless of managers decision (some Future cost are irrelevant to if they dont differ between alternatives) To make decisions: 1. Focus on identifying relevant costs and benefits 2. Ignore Sunk Cost and Future Cost(that dont differ between alternatives) ARENT relative in decisions Drop or Retain a Segment Approach 1: drop product line IF contribution margin is LESS than the fixed costs that can be avoided. Beware of Allocated Fixed Cost that are unavoidable Make or Buy Decision A decision concerning whether an item should be produced internally or purchased from an outside supplier. Opportunity Cost: potential benefit that is given up when selecting one decision over the other. if there is excess capacity to produce more, opportunity is 0 if working at capacity, the alternative is the opportunity cost Special Order: a one time order that does not affect the company's normal sales or ongoing business. incremental revenue > incremental/avoidable cost of the order Constraints: anything that prevents you from getting more of what you want (profits) bottleneck : machine or workstation with not enough capacity to satisfy demand production constraint: demand exceeds capacity Managing Constraints: fixed cost usually unaffected by decision, so utilize the constrained resource to maximize contrib marg Contribution margin per unit of the constrained resource, these are the most profitable for constraints also a measure of opportunity cost (lost contrib marg for a job that would be lost if accepting an order) Elevating the Constraint : increasing the amount of the constrained resource can yield huge pay off working overtime on the bottleneck, buying another machine, subcontracting work, reduce defects Joint Products : multiple products produced from a single raw material input (logs, saw dust, wood) SplitoffPoint: point in manufact process which join products can be recognized as seperate products SellorProcess Further Decisions: decisions to whether a joint product should be sold at splitoff point OR processed further then sold JointCost: Cost incurred up to the splitoff point Irrelevant concerning processfurtherdecision cus regardless are incurred up to that point It is profitable to process past split off point IF incremental revenue> incremental processing costs . Chapter 14 Statement of Cash Flows : highlight the major activities that have provided and used cash during the period Cash: broad defined to include Cash and Cash Equivalents such as short term high liquid investments, treasury bills commercial paper, money market funds made to generate a return on idle funds Net Cash Flow = change in the cash account. (changes in all of noncash Balance Sheet accounts) (Assets: ex. Inventory Increase, your Cash Decreases) (Contraasset, Liability, and Equity: ex. Borrowing Money Results in more Cash on hand) Three Sections of the Statement of Cash Flows 1. Operating Activities: net income always affected by cash inflows and outflows Net income, collecting cash (inflow) changes in assets, buying inventory (outflow) paying bills, wages, salaries, taxes, interest, depreciation, amortization (outflow) 2. Investing Activities: NONcurrent Assets NOT included in Net Income buy/sell property plant and equipment (outflow/inflow) buy/sell stock and bonds as LT investments (outflow/inflow lending money to another entity (outflow) collecting principal on a loan to another entity (inflow) 3. Financing Activities: transactions that involve borrowing from creditors, involves owners of company borrowing money from a creditor(inflow) repaying principal on a debt (outflow) collect cash from CS sale (inflow) or buying back your own CS (outflow) paying a Dividend (outflow) Organizing the Statement of Cash Flows Operating Activities: ONLY the net changes in accounts are on the statement Net Result of cash inflows/outflows referred to as “ Net Cash Provided by Operating Activities” Financing&Investing Activities: reported in GROSS amounts on the statement ex. buys equip for 100, sells used equip for 50, BOTH amounts disclosed INDIRECT METHOD Net Cash provided by Operating Activities Start: Net Income & adjust it to a cash basis **Ending Equation (beg bal debit + credit=end) 1. Add: Depreciation 2. Analyze net changes in NONCASH balance sheet accounts (increase/decrease of asset and liab) 3. Adjust for gains/losses (gain on sale, loss on sale) Free Cash Flow: net cash provided by operating activities capital expenditures and dividends measures companies ability to fund capital expenditures and dividends from operating ca h flow Chapter 6 Segment Report Omission of Costs: only manufacturing costs are included in product costs under absorption costing which is used for external reports. to avoid two costing systems, companies use absorption costing for internal and extrnal, resulting in omitting from their profitability snaylis in the value chain. Inappropiriate methods for assigning traceable costs among segments 1. failure to trace costs directly if can be traced directly, should be an dhsould be charged directly to tht segment and not allocated amongst other segments. 2. inappropriate allocatin base: should only allocate costs to segments for internal decision making and when the base actually drive the cost being allocated (10% in sales correlates with 10% increase in sell admin cost) 3. arbitrary dividing common costs among segments: assigning nontraceabole costs to segments. example some comapnies allocate common costs of the corporation to multi builiding product companies. Income Statements E xternal Reporting Perspective abosrpiton costing is required for external reports according to GAAP absorption costing is tradition, attractive and believe i better matches costs with revenues than the contribution approach. they argue fixed costs are just as essential as variable (variable coosting argues other way saying fixed are gonna happen even if nothing is produced and cant be traced toa product) Chapter 8 MASTER BUDGET Budget: detailed plan for the acquisition and use of financial and other resources over a specified time period 1. Master Budget consists of a series of separate but interdependent budgets that formally lay out the companys sales, prodcution, financial goals and that culminates in a cash budget, budgeted income statement and budgeted balance sheet Planning: involves developing objectives and preparing budgets to achieve thse objectives Controling: invovles the steps taken by management to increase the likliehood that all parts of the organizaitn are working together to achieve the goals set down at the planning stage Benefits: a. budget communicates managements plans throuhgout the entire organiation b. budgeting process forces mangers to think ahead and formalize their planning efforts c. process provides a means of allocating resources to those parts of the organiaiton where they can be used more effectively d. budgeting uncovers potetial bottlenecks before they occur e. coordinates the activites of the entire organziation by integrating the plans and objectives of the various parts f. budget provides goals and objective that serve as benchmarkes for evaluting subsequent performance Responsibility Accounting performance should be judged by how ell each manger manages those items under their control. Budget Preparation is a complex task requiring the cooperative effort of many mangers 1. operating budgets ordinarly cover a one year period divided into quarters and months 2. self imposed budget/ participative budget: rather than impose a budget on a manger, the manger should be involved in setting his or her own budget. allows for better insight from that manager and more willing tofollow budget they impose 1. Sales Budget: begining point in the process, details expected sales in unit and dollars, accompanied by a Schedule of Expected Cash Collections 2. Production Budget: shows what must be producted to meet sales forecasts and levels of inventory(desired ending inventor for the year is the desired ending inventory for the 4th quarter. and begining inventory for the year is the beginning invnetory for the 1st quarter) 3. Direct Material Budget (merchandsing budget for merch companies): details amount of reaw materials that must be acquired to support production and to provide for adequate inventories. usually accompanied by schedule of expected cash disbursements 4. Direct Labor Budget: hours required to satisfy the production budget, erratic labor policies lead to insecurity low morale and inefficiency 5. Manufacturing Overhead Budget: costs other than direct materials and direct labor 6. Ending Finished Good INventory Budget; cost of unsold units, valeus ending inventory and helps determine cost of goods sold on the budgeted income statement. 7. Seling and Administrative Expense budget: areas other than manufacturing, usually compoes of several smaller budgets from each manager, also divided up like manufacturing overhead into variable an fixedcost 8. Cash Budget: summaries cash inflows and cash outflows. most important, allows for financing before a crisis develops . Budgeted Income Statement: shows the companies planned profit and seves as a benchmark. Budgeted Balance Sheet Chapter 9 Flexible Budgets cycle begins with the preparation so performanc reprots, highlight variances, differences between actual results management by exception: approach that compares actual results to a budget so that significant deviations can be flagged as exceptin and investigated further sales budget, production budgets, and cash budgets = planning/s tatic budgets= represent costs at asingle level of actity the original budgeted level of activity. cant be used to asses how well cost were controlled after period ends. if activity is higher than expected than variable costs are higher too A flexible budget : is geared to range of activity, rather than to a single level. generates what ree and cost SHOULD have been given an actual level of activity for the period. 1. dynamic and can be used to develop a budget for any level of activity within a relevant range. varible costs use a cost formula and are maniupalted by multiplyin gthe cost per unit by activity level. fixed cost reamin unchagned within the relevant range. 2. Activity base is based on 3 criterion 2.1. variable costs change inproprtion to changes in the activity base, activity base should drive variable cost 2.2. activity base should not be expressed in dollars (dont use DL costs, wage rate can dscrew up actual activity) 2.3. activity base should be simple and easy to understand 3. Flexible budget performance report can be constructed to evaluate how well costs were controlled a. compute amount for each variable cost in the flexible budget by multiplying its cost per unit by the actual level of activity for the period b. if the actual activity is within the relevant range, the fixed costs amounts can be copied from the static budget since they should not change c. Variances a re computed for each of the costs. i. Revenue= Actual > Flexible than F ii. Spending/Expenses= Actual > Flexible then U d. fixed costs can have variances becasue actual fixed costs can differ from budgeted fixed costs i. cost is fixed if it does not depend on level of activity. can change or be conrolled however ii. seasonal factors effect heating, and lights depend on consciousness of off and on. iii. fixed costs easier to control than variable Errors: most common is assuming that all costs are fixed or assume that all costs are variable. static assume all fixed and dont plan for actual level of activity assuming all variable inflates costs (10% increase doesnt effect rent increase) Chapter 10 Analysis standard = a benchmark for measuring performance labor time standards to complete a task exacting standards for price and quantity served quantity and acquisition price of inputs used in manufacturing goods or providing services ideal standards: attained by best employees working top efficiency 100%, no machine breakdown Practical standards: allow for normal lsot of time, they are tight but attainable (less frustertaing) Direct Material Standards standard quantity per unit : amount of direct materials that should be used for each unit of finished product (includes allowance for normal inefficiencies such as waste scrap and spoilage) standared price per unit: the price that should be paid for each unit of direct materials, (should reflect final delivered cost of those materials, cash discounts allowed, freight handling, delivery to get ready for use) Direct Labor Standards standard direct labor hours per unit: amount of direct labor hours taht should be used to produce one unit of finished goods (allowances for rest breaks, pesonal needs, clean ups, and machine down time) standard direct labor rate per hour: defines the companys expected direct labor wage rate per hour, (including employment taxes and fringe benefits, wages, other labor related costs) Variable Manufacturing Overhead Standards usually expresssed in standard hours per unit, and measures the amount of allocation base from a companies predetermined overhead rate that is required to produce one unit of finished goods the standard rate per unit, equals the variable portion of the predetermined overhead rate. quantity standars is expressed in terms of whatever basis is usedf or applying variable overhead to proccuts usually DLH standard cost card: shows the standard quantity(or hours) and standard price(or rate) of the inputs required to produce a unit of a specific prodcut Standard cost per unit : for all three variable manufaturing cost is computed the same way. the standard quantity per unit is multipled by the standard price per unit to obtain this Once you obtain this info you can computed the direct materials, labor and variable manufacturing overhead variances. (this comes up with your budgeted output vs. you actual output aka variances) Standard Cost Variance Analysis Breakdown between price variance: the difference between the ACTUAL amount paid for an input and the STANDARD amount that should have been paid, multiplied by the actual amount of the input purchased quantity variance: difference betwen how much of an input was actually used and how much should have been used and is stated in dollar terms using the standard price of the input Price and Quantity Variance can be computed for each of the three variable cost elements direct materials, labor, and variable manufacturing overhead. materials price variance= direct materials = materials quantity variance labor rate variance= direct labor = labor efficiency variance variable overhead rate variance= variable manufacturing overhead = variable overhead efficiency Standard Quantity Allowed refers to amount of an input that should have been used to manufacture the actual output of finished goods produced during the period. Spending variance is computed by taking the total cost in column1 and subtracting the total cost in column3. Price variance is computed by taking total cost in column1 total cost in column2 Quantity Variance is compute dby taking total cost in colum2 total cost in column3. positive number is labeled Unfavorable variance, and negative is labeled as Favora 10A Predetermined Overhead Rates Standard Cost Systems Predetermined is : TOTAL budgeted manufacuring overhead / denominator activity Broken in to two parts (fixed and variable) then combined together for Predetermined overhead rate: Fixed: budgeted fixed overhead / total budgeted machine hours(depends on denom activity) Variable: budgeted variable overhead / constant (doestn depend on denom activity) total = variable overhead cost per direct labor hour x denominator level of activity *Total predetmined overhead rate x the standard hours allowed for actual output =overhead applied 1. Variable Overhead Rate Variance: AH(ARSR) Efficiency Variance: Standard Rate x (Actual Hours Standard Hours) 2. Fixed Overhead: Budget Variance: Volume Variance: (measure of the utilization of facilities, FIXED not TOTAL) Standard Machine Hours Allowed for Actual Production : hours per unit(actual hrs / units prod) x units produced denominator activity level of activity used to compute the predetermined overhead rate(DLH or MH) fixed component of the predetermined overhead rate: budgeted FIXED overhead / denominator activity *if standard hours allowed for actual output > denominator hours= Efficient or F* Graphic Analysis of Fixed Overhead Varainces offers insigts into the fixed overhead budget and colume variances Cautions: a volume varaince for fixed overhead arises becasue when applying costs to work in process, we act as if the fixed costs are variable STANDARD cost system VS. a NORMAL cost system: Actual Overhead Costs incurred / (standard hours allowed for actual output x predetermined overhead rate) *Normal uses ACTUAL HOURS instead of standard hours in the denominator activity* 10B Journal Entries to Record Variances Direct materials Variances (U is a debit, F is credit) Direct Labor Variances Standard Costs Direct MATERIALS Variances Materials Price Variance (quanitty of materials purchased) measures the difference between an inputs actual price and its standard price, multiplied by the actual quantity purchased = Actual Quantity of materials PURCHASED x (actual price per standard price per) =AQ x (AP SP) Materials Quantity Variance (quantity of materials used) measures the difference between the actual quantity of materials used in production and the standard quantity of materials allows for the actual output, multiplied by the standard price per unit of materials. = Standard Price of materials per whatever x (Actual Quantity USED Standard Quantity budgeted) =SP x (AQSQ) Using Formulas, a Negative Number represents FAVORABLE, and Positive Number reps UNfavorable* SUBTELTPrice Variance is based on the Quantity PURCHASED Quantity Variance is based on the Quantity USED in production avoid delay in a less timely variance report. and to simply bookkeeping by the inventory accounts reflecting prices at standard cost. Mangerial Implications Avatae: 1. supotth mngmetbyexepio ppoah ocse n egtie,rspnsbiit ppoah 2. sipl ookepig 3. prviea enhmrktatemloee anus t jdg her wnpefrmnc 4. standards costs are a key element. if costs conform to the standards, managers can focus on other issues. if costs are significantly outside the standards, manager are alerted that problems need attention DsAvatge: . oudae ifomaio,soe omane rpot at diy owfo vranes . ca mtvae mpoye t mkepordeison i a ffrttogeeat fvoabevaiace . an te filtoadqatlyemraeth mndetofcntnuusprcssofimroeen . a favorable varaince can be worse than an unfavorable, mcdonalds has a favorable variance than the meat is being shorted inhamburgers caus ng dissatisifed customers 5. if labor is fixed, only way to avoid unfaborable labor efficiency variance is to keep workers always working resulting in a build up Standard Costs DIRECT LABOR Variances LaboRat Vari:measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the actual number of hours worked. =Actual Total Hours worked X (actual rate per hour standard rate per hour) =AH x (ARSR) LaboEffici Variameasures the difference between the actual hours used and the standard hours allowed for the actual output, multiplied by the standard hourly rate =Standard Rate per hour x (Actual total hours worked Standard total hours budgeted) =SR x (AHSH) casues of unfavorable labor efficiency include poorly trained workers, poorly motivated, poor materials, require more labor time, faulty equipment, inaccurate standards, mangaers in charge of production are responsible. however the purchasin manager could be responsible for poorquality materials which result in excessive labor. insufficeint demand of the companys product Standard Costs VARIABLE MANUFACTURING overhead variances variable overhead rate variance: measures the difference between the actual variable overhead cost incurred and the standard cost that should have been incurred based on the actual activity = Actual Total hours x ( actual rate per standard rate per ) =AH x (ARSR) variable overhead efficiency variance: measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate = Standard Rate Per x (actual total hours standard total hours ) =SR x (AHSH)
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