Surrey of Accounting Study Guide
Surrey of Accounting Study Guide Acctg 2600
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This 9 page Study Guide was uploaded by Taryn Connely on Friday February 19, 2016. The Study Guide belongs to Acctg 2600 at University of Utah taught by Marci L Butterfield in Winter 2016. Since its upload, it has received 151 views. For similar materials see Survey of Accounting in Business at University of Utah.
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Date Created: 02/19/16
Midterm Review Notes Managerial Chapters 15 Know the differences between financial and managerial accounting. o Financial: Uses information from the past External for people outside the company who want to look at you financials Overview of the whole company Uses set guidelines Purely financial o Managerial: Projects the future Internal for people within the company to look at Departmentalized not an overview of whole company No rules Financial and nonfinancial Know about the ethical components of managerial accounting. o Code of conduct for a company Many include integrity, compliance with the law, performance of ones duties and respect and responsibility to each other, partners, customers etc. o Standards of ethical conduct for managerial accountants American Institute of Certified Public Accountants (AICPA) and the Institute of Management Accountants (IMA) have ethical standards for accountants such as competence, confidentiality, integrity, and credibility. There is a “Statement of Ethical Professional Practice” set in place by the IMA that managerial accountants are expected to follow. Some of the expectations include honesty, fairness, objectivity and responsibility. If individuals do not comply there can be consequences Know about direct materials, direct labor, and manufacturing overhead o Direct materials: Raw materials used in production o Direct labor: Physical/touch labor used in production o Manufacturing overhead: Rent Utilities Power Indirect Labor Managers pay Janitorial costs Etc. Know period costs vs. products costs o Period Costs (aka Selling & Administrative Costs): Outside of the factory CEO Salary Delivery costs Advertising Etc. o Product Costs: Incurred by manufacturing or producing a good/service Direct materials Direct labor Manufacturing overhead Know discretionary vs. committed fixed costs o Discretionary Costs: Easily changed Advertising Scholarships Work parties Etc. o Committed Costs: Not easily changed Long term contracts Purchase of land, equipment, buildings… Etc. Know how to use Taccounts o Method shown under ‘inventory cost flow’ below Know prime costs vs. conversion costs o Prime Costs: Direct materials Direct Labor o Conversion Costs: Direct Labor Manufacturing Overhead Know how to calculate Cost of Goods Manufacturing, Cost of Goods Sold o Cost of Goods Manufacturing Total product cost of goods completed during the current period and transferred to finished goods inventory. DM+DL+MO+WIP BBWIP EB=COGM o Cost of Goods Sold 3 categories: production, selling, administrative Cost of goods that were sold during the period and transferred from finished goods inventory on the balance sheet to cost of goods sold on the income statement. COGM + FG BB FG EB = COGS Be able to do the inventory cost flow (asset account) o Raw Materials Account Beginning Balance +Purchase of RM–Ending Balance=Materials Used Materials used are transferred to Work in Process account as “direct materials” o Work in Process Account BB + (DM + DL + MO) – EB = Cost of Goods Manufactured Cost of Goods Manufactured are transferred to Finished Goods account o Finished Goods Account BB + COGM – EB = Cost of Goods Sold COGS is then transferred from the balance sheet to the income statement Know the HighLow method (used to separate variable and fixed costs). Be able to use the formula to calculate variable cost, total cost, fixed cost, cost at a new level of activity, etc o 5 Steps 1. Find the high and low points in a given data set High point is the point with the highest activity or output level Low point is the point with the lowest activity or output level Identified by looking at activity level NOT costs 2. Calculate variable rate (slope) Change in Total Cost / Change in Output o (High Cost – Low Cost / High Output – Low Output) 3. Calculate fixed costs Total Cost at High Point – (Variable Rate x Output at High Point) Or use the low points 4. Find the cost formula Total Cost = Fixed Cost + (Variable Rate x Activity Level) Y = a + b(x) 5. Total Cost Find ‘Y’ by using the above formula Can then use the values/formula to plug in a new activity level as ‘x’ Understand fixed cost, variable costs, mixed costs and how they react o Fixed Costs: Constant whether output changes or not o Variable Costs: Constant per unit but change with the level of output o Mixed Costs: Both variable and fixed E.g. Earning a salary plus commission Found by using the HighLow Method Know and understand contribution margin format Income Statement o The contribution margin income statement is the income statement format that is based on separating costs into fixed and variable. o The contribution margin is the money left over after covering variable expenses that can be used towards fixed expenses. Sales Variable Expenses = Contribution Margin Contribution Margin Fixed Expenses = Operating income Know BreakEven analysis and how to calculate this in both units and sales dollars o At the break even point operating income is zero. o Break even in units Shows exactly how many units need to be sold in order to cover all costs (anything above this will be profit). Total Fixed Cost / (PriceVariable cost per unit) o Break even in sales dollars Shows how close a company is to breaking even using only sales revenue data. Total Fixed Cost / Contribution Margin Ratio Contribution Margin Ratio = CM per unit / Price CM per unit = Price – Variable Cost per unit NOTE: Variable cost ratio = 1 CM ratio Know how to figure out target profit o Target profit in units (Target Income + Total Fixed Cost) / (Price – Variable Cost per unit) o Target profit in sales dollars (Target Income + Total Fixed Cost) / Contribution Margin Ratio Understand what happens if there are changes in fixed costs, variable costs, sales price, etc o Changes in fixed costs An increase in fixed costs means a higher break even point Vice Versa o Changes in variable costs An increase in unit variable cost means a lower CM and higher break even point Vice Versa o Changes in sales price An increase in price means a higher CM and a lower break even point Vice Versa Know the Normal Costing Method o In a normal costing scenario actual DM and DL are used but MO is estimated and applied. o 3 step method Know how to calculate predetermined overhead rate (Step 1) o This rate is calculated at the beginning of the year and it helps companies maintain a constant application of overhead during the whole year; it is an estimate. o Estimated Annual Overhead / Estimated Annual Activity Level Know how to apply overhead in the normal costing method (Step 2) o Once the predetermined overhead rate is calculated the company can use that rate and apply it to production. o Applied Overhead = Predetermined Overhead Rate x Actual Activity Level Know how to determine under or overapplied overhead o At the end of the year a company is able to see their ACTUAL overhead. o This is then compared to the APPLIED overhead that was computed at the beginning of the year. The difference (overhead variance) must be computed so that the actual value can be recorded on the COGS account. o Overhead Variance = Actual Overhead – Applied Overhead o If actual is greater than applied then the variance is UNDERAPPLIED overhead o If actual is less than applied then the variance is OVERAPPLIED overhead Know how to adjust COGS o Adjusted COGS = Unadjusted COGS + or – Overhead Variance Underapplied overhead is added to COGS Overapplied overhead is subtracted from COGS
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