ACCT 226 Exam 1 Study Guide
ACCT 226 Exam 1 Study Guide ACCT 226 - 002
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ACCT 226 - 002
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This 11 page Study Guide was uploaded by Rachel Whitbeck on Tuesday February 9, 2016. The Study Guide belongs to ACCT 226 - 002 at University of South Carolina taught by Debbie Huguley Brumbaugh in Spring 2016. Since its upload, it has received 233 views. For similar materials see Introduction to Managerial Accounting in Accounting at University of South Carolina.
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Date Created: 02/09/16
ACCT 226 Study Guide Thursday, January 14, 2016 3 pillars of management o Planning o Controlling Evaluate feedback to determine where you’re doing well and where you’re falling short Use performance reports o Decision making Over 80% of professional accountants in the US work in non- public accounting environments Certified Management Accountant (CMA)- has the qualifications and passes a rigorous professional exam Six business management perspectives o Ethical behavior Guidelines for ethical behavior: Competence, Confidentiality, Integrity; and Credibility Essential for a smooth running economy o Strategic management Customer intimacy strategy- fast, convenient, and lower costs Operational Excellence strategy Product Leadership strategy- higher quality products o Enterprise risk management Process used by a company to proactively identify and manage risks Avoid, accept, or reduce the risk by implementing specific controls o Corporate social responsibility Organizations consider the needs of all stakeholders when making decisions (customers, employees, suppliers, communities, stockholders, environmental and civil rights advocates) Extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations o Process management A business process is a series of steps that are followed in order to carry out some task in a business o Leadership perspective Organizational leaders unite the behavior of employees around two common themes—pursuing strategic goals and making optimal decisions. Factors that influence behavior Intrinsic motivations Extrinsic motivations Cognitive bias Tuesday, January 19, 2016 Managers want cost data o For external financial reports o To prepare planning documents and budgets o To make decisions Classifications of manufacturing costs o Direct materials Easy to trace Every product requires them o Direct labor Touch labors People who transform the product into a finished product Assembly line workers o Manufacturing OH (overhead) Not direct materials and not direct labor 3 categories Indirect labor o Maintenance people, etc o Shared/common cost Indirect materials o Not really traceable (glue, lubricant, etc) General o Taxes, depreciation, rent, etc Prime costs and conversion costs o Prime cost --> direct material and direct labor o Conversion cost --> direct labor and manufacturing overhead Classifications of non-manufacturing costs (SG&A) o Selling o General and administrative Cost of accounting and HR Executive, corporate, administrative Product vs. period costs o Product costs include direct materials, direct labor, and manufacturing overhead (inventoriable costs) Inventory goes on the balance sheet, and then once it’s sold, it goes under cost of goods sold on the income statement o Period costs include all selling costs and general and administrative costs (non-manufacturing costs) Expense as incurred Expenses go on the income statement Quick check- period or product cost? o Manufacturing equipment depreciation- product costs (overhead) o Property taxes on corporate headquarters- period costs o Direct material costs- product o Electrical costs to the light the production facility- product o Sales commissions- period Cost classifications for predicting cost behavior o Cost behavior- how a cost will react to changes in the level of activity Variable costs Vary in total as activity changes Unit cost does not change though Activity base (cost driver)- change in number of units that changes the total cost Fixed costs Stays constant in total Doesn’t change with activity level But average cost per unit varies inversely Ex: rent Relevant range: range within which the assumptions made about cost behavior are valid (graph of the cost is flat) o Fixed costs in total remain fixed within the relevant range Types of fixed costs o Committed Long term Cannot be significantly reduced in the short term Ex: depreciation on buildings and equipment and real estate taxes o Discretionary May be altered in the short-term by current managerial decisions Ex: advertising and research Mixed costs- attributes of both variable and fixed Ex: cell phone bill Quick check- variable or not with respect to products sold? o Cost of lighting to the store- doesn’t change, so not variable o Wages of the store manager- not related to number of products, so not variable o Cost of the product- variable! o Cost of napkins for customers- also variable Thursday, January 21, 2016 Exercise 2: direct labor, direct materials, manufacturing overhead, selling, or administrative cost? o Cost of a hard drive installed in a computer: direct materials o Cost of advertising: selling o Wages of employees who assemble computers from components: direct labor o Sales commission paid to the company’s salespeople: selling o Wages of the assembly shop’s supervisors: manufacturing overhead o Wages of the company’s accountant: administrative o Depreciation on equipment: manufacturing overhead (general) o Rent on the facility: manufacturing overhead (but depending on square footage, could be administrative) Exercise 2: o Depreciation on salespersons’ cars: period cost Mixed costs- contain both variable and fixed elements o Example: utility costs o Mixed cost 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 the line) X= activity level o High-low method: the variable cost per hour of maintenance is equal to the change in cost divided by the change in hours Take the highest and lowest and find the slope Solves for b- the variable cost rate per unit. Plug it into the equation and then solve for the fixed cost o Total fixed cost = total cost – total variable cost Quick check o Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Use high low method to find fixed portion o 14,000= a + bX Least-Squares Regression Method o Used to analyze mixed costs if a scattergraph plot reveals an approximately linear relationship between the X and Y variables. o Uses all of the data points to estimate the fixed and variable cost components of a mixed cost. o Goal is to fit a straight line to the data that minimizes the sum of the squared errors o Software can be used to fit a regression line through the data points o The cost analysis objective is the same: Y= a + bX 2 o Also provides a statistic, called the R , which is a measure of the goodness of fit of the regression line to the data points Comparing results from the two methods o The answers are different o We like least-squares better because it’s more accurate The traditional and contribution formats of income statement— merchandising company o Traditional format is primarily used for external reporting o Contribution format is primarily used by management Sales is the same but include all variable expenses o Contribution margin vs gross margin: very important CM= sales – variable expenses GM= sales—cost of goods sold Differential cost and revenue- costs and revenues that differ among alternatives Opportunity costs- potential benefit that is given up when one alternative is selected over another Sunk cost- already been incurred and cannot be changed now or in the future. Should be ignored when making decisions Tuesday, January 26 , 2016 Job order costing- used by companies where many different products or services are produced each period o Capture costs associated with each individual job o Hospital example: patients are customers You want a system to track what services each patient receives in order to give them different bills. Example of overhead cost is utility bill. Not directly tied to a patient, but indirectly for the patients. o Absorption costing- apply all costs to the job o An example Charge direct material and direct labor costs to each job as work is performed Direct costs Direct materials--> job 1, job 2, job 3 Direct labor--> job 1, job 2, job 3 Indirect costs Manufacturing overhead--> job 1, job 2, job 3 o Job cost sheet 3 categories of direct materials, direct labor, and manufacturing overhead Measuring direct materials Includes job number and the specific product Measuring direct labor Includes time and employee name Manufacturing overhead (MOH)- computing predetermined overhead rates, like depreciation or supervisor salary Sales salaries are not included in manufacturing overhead!!! Predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins POHR= (estimated total manufacturing cost for the coming period) ÷ (estimated total units in the allocation base for the coming period) o Ideally, the allocation base is a cost driver that causes overhead o Four step process to compute POHR Estimate base for next period’s production level Estimate total FMOH and total VMOH/until for next period Estimate total MOH costs for next period using the Y = a + bX Compute POHR Why use an allocation base? th Thursday, January 28 , 2016 Review of last class o Total manufacturing costs o Tools used Materials requisition form Employee time ticket Applied MOH o POHR= estimated total MOH/estimated activity Flow of costs and journal entries and use of t-accounts o Review key terms from reading Raw materials Any materials that go into the final product. When used in production, costs are transferred to the Work in Process inventory account as direct materials Debit direct and indirect materials separately, then credit raw materials Work in process Units of product that are only partially complete and will require further work before they are ready for sale to the customer. Labor costs are added directly and don’t flow through raw materials Account that debits labor hours Direct labor= work in process Indirect labor= manufacturing overhead Finished goods Completed units of product that have not yet been sold to customers Cost of goods manufactured Includes the manufacturing costs associated with the goods that were finished during the period. Amount transferred from Work in Process to Finished Goods o Total manufacturing cost= direct materials + direct labor + manufacturing overhead Tuesday, February 2, 2016 Practice problem a) Raw materials were purchased to use in production, $200,000. Raw materials 200,000 Accounts payable 200,000 b) Raw materals were requisitioned for use in production (all direct materials), $185,000 Work in process 185,000 Raw materials 185,000 c) Utility bills were incurred, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities) Manufacturing overhead 63,000 Utilities expense 7,000 Accounts payable 70,000 d) Salary and wage costs were incurred: direct labor (975 hours)- $230,000, Indirect labor- $90,000, Selling and administrative salaries- $110,000 Work in process 230,000 Manufacturing overhead 90,000 Salaries expense 110,000 Salaries and wages payable 430,000 e) Maintenance costs were incurred in the factory. $54,000 Manufacturing overhead 54,000 Accounts payable 54,000 f) Advertising costs were incurred, $ 136,000 Advertising expense 136,000 Accounts payable 136,000 g) Depreciation was recorded for the year, $95,000 (80% related to factory equipment, and the remainder related to selling and administrative facilities) Manufacturing overhead 76,000 Depreciation expense 19,000 Accumulated depreciation 95,000 h) Rental cost incurred on buildings, $120,000 (85% related to factory operations, and the remainder related to selling and administrative facilities) Manufacturing overhead i) , j) Cost of goods manufactured is $770,000. Finished goods 770,000 Work in process 770,000 k) Accounts receivable 1,200,000 Sales 1,200,000 Cost of goods sold 800,000 Finished goods 800,000 What causes manufacturing overhead to be debited? Finished goods get debited for items moved from work in process Credit cost of goods sold Thursday, February 4, 2016 Chapter 4 Both job-order costing and process costing: o Assign material, labor, and overhead costs to products and provide a mechanism for computing unit product costs o Use the same manufacturing accounts, including manufacturing overhead, raw materials, work in process, and finished goods o Use the same flow of costs through the manufacturing accounts Just process costing: o Used when a single product is produced on a continuing basis or for a long period of time o Systems accumulate costs by department o Systems compute unit costs by department o Processing departments- any unit in an organization where materials, labor, or overhead are added to the product Performed uniformly on all units of production Output must be homogeneous Flows in a sequence from one department from another Costs are traced an applied to departments in a process costs system Flow of raw materials in journal entry form o Debit work in process department A and B, then credit raw materials Flow of labor costs o Debit work in process (for the direct labor in departments A and B), and credit salaries and wages payable Flow of manufacturing overhead costs o When you apply overhead, you debit work in process and credit overhead o Debit side is always actual, and credit side is always applied Transfers from Department A to B o Debit department B and credit Department A Transfer to finished goods o Debit finished goods and credit work in process-department B Transfers from finished goods to COGS when you finally make the sale o Debit COGS and credit finished goods Equivalent units of production- multiply the number of partially completed units by the percentage completion of those units o These partially completed units complicate the determination of a department’s output for a given period and the unit cost that should be assigned o Two half-completed units equal one completed unit o Can be calculated in two ways: FIFO method Weighted average method Makes no distinction between work done in prior or current periods Blends together units and costs from prior periods Determines equivalent units of productions for a department by adding together the number of units transferred out plus the equivalent units in ending work in process inventory Labor and MOH are applied more evenly later in the process Direct labor and MOH may be combined into one classification of product called conversion cost Equivalent units of production always equals: units completed and transferred + equivalent units remaining in work in process Cost per equivalent unit = (cost of beginning work in process inventory + cost added during the period) ÷ equivalent units of production Tuesday, February 9, 2016- Condensed little review Management Responsibilities o Planning o Controlling o Decision making Expenses can go up but that doesn’t mean it’s a negative thing! Future studies o CVP Analysis o Budgeting Weighted average o Equivalent units of production always equal units completed and transferred + equivalent units remaining in work in process o So add the finished units to the number of units still being made multiplied by the percentage that they’re completed Compute and apply cost o To get the cost per equivalent unit, divide the total cost by the number of units Reconciliation costs o Add up all the costs and make sure to assign that exact number of costs to the number of units transferred out, or retain it in inventory o Total costs to be accounted for = costs of beginning work in process inventory + costs added to production during the period o Total costs accounted for = cost of ending work in process inventory + cost of units transferred out Prime costs: just add direct materials and direct labor Period costs: advertising, sales, rent, anything that’s not direct and not MOH MOH: factory items, like depreciation, indirect maintenance, supervisor salary Product costs: everything besides period. Direct materials + direct labor + MOH Fixed costs stay the same in total, while variable costs stay the same per unit but change based on number of units produced
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