MGMT 201: Exam 1 Notes
MGMT 201: Exam 1 Notes MGMT 201
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This 6 page Study Guide was uploaded by Zach Weinkauf on Sunday February 7, 2016. The Study Guide belongs to MGMT 201 at Purdue University taught by David Scott in Spring 2016. Since its upload, it has received 160 views. For similar materials see Managerial accounting in Business, management at Purdue University.
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Date Created: 02/07/16
Exam 1: Review Chapter 1 – The Changing Role of Managerial Accounting in a Dynamic Business Environment 3 Total Questions – All Conceptual Managerial Accounting is the process of: ∆ Identifying ∆ Measuring ∆ Analyzing ∆ Interpreting ∆ Communicating Managerial Accounting is an integral part of the management process and managerial accountants are important strategic partners in an organization’s management team. Four day-to-day management activities: ∆ Planning Setting goals and objectives for the company and determine how to achieve them. ∆ Directing Overseeing the company’s day-to-day operations ∆ Controlling Evaluating the results of business operations against the business plan and making adjustments to keep the company pressing towards its goals. ∆ Decision Making Management is continually making decisions while it plans, directs, and controls operations. ∆ Internal Users ∆ Managerial Accounting is unregulated and not required. Chapter 2: Basic Cost Management Concepts 9 Total Questions – 7 Conceptual; 2 Computational Cost – A measure of resources given up to achieve a particular purpose Product costs are costs associated with goods for sale until the time period during which the products are sold, at which time costs become an expenses (COGS – Cost of Goods Sold) o A Service Provider would NOT be product cost Period costs are costs that are expensed during the time period in which they are incurred (the electric bill) Selling Expenses – Marketing, Sales Personnel Salaries, Sales Commissions Administrative Expenses – Office Supplies, Office Personal Salaries, Office Depreciation Income Statement – Product and Period Costs o Product Costs Cost of Goods Sold o Period Costs Operating Expenses Balance Sheet – Product costs only o Product Costs Inventories Raw Materials Work in Process Finished Goods Manufacturing Costs/Cost of Goods Sold Direct Material o Raw Materials added to the production process o Easily traced to the finished product Direct Labor o Salaries, wages and fringe benefits for personnel that work directly on the manufactured product Manufacturing Overhead o All other costs of manufacturing: Indirect Material Materials required for the production process that do not become part of the finished product o Ex. – drills, bits Materials that do become part of the finished product but are insignificant in cost o Ex. – glue, nails, screws Indirect Labor Cost of personnel that didn’t work directly on the product, but whose services are necessary for the manufacturing process (at production facility) o Ex. – factory maintenance workers and janitors Other Manufacturing Costs All other manufacturing-related costs that are not labor or material: o Depreciation on plant and equipment o Production facility property taxes, insurance, utilities o Overtime premiums and unavoidable idle time Cost Drivers – activities that cause costs to be incurred Variable Costs – changes in TOTAL in direct proportion to a change in the level of activity. Fixed Costs – does NOT change in TOTAL as the level of activity changes within the relevant range. Cost In Total Per Unit Variable cost per unit Total Variable cost changes Variable as activity level changes remains the same over wide ranges of activity Total fixed cost remains the Fixed cost per unit goes Fixed same even when the activity down as activity level level changes goes up Direct Costs can be traced directly to a particular cost or object Indirect Costs – cannot be traced to a particular cost object Controllable Cost – a cost that can be significantly influenced by a particular manager Opportunity Cost – the potential benefit given up when one alternative is selected over another Sunk Costs – all costs incurred in the past that cannot be changed by any decision made now or in the future Chapter 3: Product Costing and Cost Accumulation in a Batch Production Environment 10 Total Questions – 7 Conceptual; 3 Computational Product Costing Systems – accumulate the costs in a production process and assigns them to the final products o Needed For: Financial Accounting Managerial Accounting Cost Management Reporting to Interested Parties o Cash Flows and Transactions Product cost transferred when product is finished Debit: Finished Goods Inventory Credit: Work-in-Process Inventory (DM, DL, Overhead) Product cost transfer when product is sold Debit: Cost of Goods Sold Credit: Finished Goods Inventory Expense closed into Income Summary at end of period Debit: Income Summary Credit: Cost of Goods Sold Job Order Costing o Used for production of large, unique, high-cost items o Built to order rather than mass-produced o Many costs can be directly traced to each job Job Cost Record – used to accumulate the costs of direct material, direct labor, and manufacturing overhead costs for a particular job or batch. If Actual and Applied Manufacturing Overhead are not equal, a year-end adjusting entry is required. Under applied o Debit: Cost of Goods Sold Credit: Manufacturing Overhead Over applied o Debit: Manufacturing Overhead Credit: Cost of Goods Sold Chapter 5: Activity Based Costing and Management 8 Questions – 4 Conceptual; 4 Computational Traditional Volume-Based Product Costing Systems Uses a single plant-wide predetermined overhead rate (POHR) POHR = Budgeted Manufacturing Overhead/Budgeted Direct Labor Hours Known as a volume-based costing system Activity Cost Pools o Example of below Cost Pool – Cost Driver of the Cost Pool 4 Categories: o Unit Level – activity must be done on each unit produced Machine Related – Machine Hours o Batch Level – activity performed on each batch produced Setup – Production Runs Purchasing – Purchase Orders Material Handling – Production Runs Quality Assurance – Inspection Hours Packing/Shipping – Shipments o Product Sustaining Level – activities needed to support an entire product line Engineering Design – Engineering Hours o Facility Level – activity required in order for the production process to occur Facility – Machine Hours Should be considered when choosing proper cost-driver bases Cause and effect Relationship between activity and cost Cost-benefit trade-offs Behavioral Effects Formulas for Computational Questions Prime Costs = Direct Material + Direct Labor Conversion Costs = Direct Labor + Manufacturing Overhead Cost of Goods Manufactured = Transfer between Work in Process and Finished Goods POHR = Budgeted manufacturing overhead cost/Budgeted amount of cost driver Overhead Applied = POHR (based on estimates) * Actual Activity (actual amount of allocation) Direct Materials = Beginning Raw Material + Raw Material Purchased – Ending Raw Material Finding the Cost of Goods Manufactured Direct Materials + Direct Labor + Manufacturing Overhead Total Manufacturing Cost + Beginning Work in Process - Ending Work in Process Cost of Goods Manufactured Finding Raw Material Used Beginning Raw Material Inventory + Raw Material Purchased Available Raw Materials -Ending Raw Material Direct Material Used Finding Cost of Goods Sold Beginning Finished Goods + Cost of Goods Manufactured -Ending Finished Goods Cost of Goods Sold -Overapplied/+Underapplied (If applicable) Pool Rate = Activity Cost Pool/Cost Driver Quantity Activity Cost for Product Line = Pool Rate * Cost Driver Quantity for Product Line Product Line Production Volume – Given Activity Cost Per Unit of Product = Activity Cost for Product Line/Product Line Production Volume Target Price = Times Tradition or ABC Reported Product Cost * 1.3 Over costed = if ABC > Traditional Under costed = if ABC < Traditional Activity Cost for single product in cost pool – Shaping Activity Cost Activity Cost Pool /Cost Driver Quantity Pool Rate x Individual Product Cost Driver Individual Product Cost Pool /Product Line Production Volume Shaping Activity Cost Per Unit
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