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Chapter 1-4 Study Guide

by: Josh Manley

Chapter 1-4 Study Guide 212

Marketplace > University of Miami > Business > 212 > Chapter 1 4 Study Guide
Josh Manley
GPA 3.7
Managerial Accounting

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About this Document

This is a compilation note packet and study guide including important information from the online notes as well as additional teacher comments and practice problems gone over in class.
Managerial Accounting
Study Guide
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This 12 page Study Guide was uploaded by Josh Manley on Sunday February 8, 2015. The Study Guide belongs to 212 at University of Miami taught by Quintana in Spring2015. Since its upload, it has received 197 views. For similar materials see Managerial Accounting in Business at University of Miami.


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Date Created: 02/08/15
Managerial Accounting Chapter 1 Introduction 0 Financial vs Managerial 0 Financial External persons make decisions Historical Mandatory Objective 0 Managerial Managers use for planning Future orientated Emphasis on relevance Not mandatorybound by GAAP Detail oriented Flillnanoial and Managerial Accountlng Seven Key Differences Financial Mmun ng Managerial amounting 1 Users External persons who Managers who plan for make financial decisions and oontrol an organization 2 Time focus Illirsterimall perspes rire Fumre emphasis 3 Ueri ahil ity39 Emphasis on lEm phasis on versus relevance uiJIzlij Hurstimritglir and ueri ahilityr releuanee 4 Precision versus Emphasis on Emphasis on timeliness precision timeliness 5 Subject Primary forms is an Farms an sompangrwidle reports segment reports til Rules Must follow EMF IFRE Hothound hy lhAPHFRS and prescribed fonmats or any prescribed fonmat T Re ulrement Mandatoryquot for Hot external reports Mandatory o 0 Work of managements 0 Planning Establishing goals Specify how goals will be achieved Develop budgets o Controlling Gather feedback to make sure plans are being followed 0 Decision making 0 Six business management perspectives 0 Ethics Strategic management Enterprise risk management Corporate social responsibility Process management Leadership perspective OOOOO Chapter 2 Cost Concepts 0 Types of costs classi cations 0 Financial reporting 0 Prediction cost behavior 0 Assigning costs to cost objects Direct costs 0 Costs that can be easily traced to a unit of product 0 Material and labor Indirect costs 0 Costs that cannot easily be computed Includes common costs which cannot be traced to any individual object o Nails used in a chair indirect material 0 Time 0 Indirect labor 0 Overhead Classi cations of manufacturing costs 0 Direct materials 0 Raw materials that become an integral part of the nal product 0 Direct labor 0 Labor costs easily traced to individual units of production 0 Le wages paid to automobile assembly workers 0 Manufacturing overhead 0 Costs that cannot be easily traced directly to speci c units 0 Includes indirect materials Lubricants and cleaning supplies not directly involved 0 And indirect labor Wages paid to employees not directly involved in production work Janitors security guards etc Non manufacturing costs 0 Selling costs 0 Costs necessary to secure order and delivery 0 Administrative costs 0 Executive organizational and clerical costs Quantitative monetary vs qualitative Cost object 0 Activity or item for which a separate measurement of costs is desired 0 Activity product service 0 Project geographical region department Product Costs 0 Direct costs overhead labor costs manufacturing costs Inventorial costs an asset if not sold Period costs 0 Selling and administrative costs 0 Part of the income statement expenses 0 Sales commissiontaxes 0 Making business decisions Manufacturing Overhead or Burden Indirect material 0 Indirect labor 0 Other overhead costs Product Costs 0 Product costs are the costs associated with making the product available and ready to sell 0 Product cots are inventorial costs 0 Costs stay with the unit 0 Unit price 0 Direct labor 0 Direct materials 0 Cost Classi cations for Preparing Financial Statements Product costs 0 Inventory gt balance sheet COGS gt income statement Period costs Expenses gt income statement 0 Prime Costs and Conversion Cost Prime 0 Direct materials and direct labor Conversion 0 Direct labor and manufacturing overhead Prime Coats and Conversion Costa Manufacturing costs are often classified as follows lDireet Direct Manufacturing Material ILalber Overhead I Prime Conversion Cast Cost 0 Cost Classi cations for predicting Cost behavior How a cost will react to changes in the level of activity Most common classi cations Variable costs 0 O 0 Utilities Cost depends on usage Cost of unit changes Buying coke in bqu Bill dependent on of texts Fixed costs 0 O O Cost doesn t increase as of units increases Committed Long term depreciation real estate taxes Discretionary Altered in the short term adv and research Changes on a per unit basis Rent divided amongst people Relevant range The range of activity over which the graph of the cost is at Typically a curvilinear cost function cost on y axis activity on x axis Increase in a step fashion Behavior of Cost within the relevant r pl 0 Mixed o o o 0 Cost In Total Variable Total variable cost Increase Variable and decrease in proportion remain to changes in the activity level l l I I ll II costs Fixed cost plus an additional cost for extra usage Common with utility costs Calculated using Y a bX Y total mixed cost a total xed cost b variable cost per unit slope X level of activity Analysis of mixed costs Account analysis 0 Each account is classi ed as variable or xed Engineering approach Classi es costs based on engineer s evaluations of production methods Highlow method know 0 Variable cost per hour of maintenance is equal to the change in cost divided by the change in hours 0 Difference between high cost and low cost difference between high cost and low cost 0 First calculate total xed costs 0 Total xed costs total cost total variable cost 0 high value rate x of hours 0 Plug into equation Y a bX Total cost total xed cost total variable costs 0 Traditional and Contribution Formats Traditional Format used for external reporting 0 Sales COGS Gross margin expenses 0 net operating expense Contribution Format used for internal reporting 0 Sales variable expenses contribution margin 0 Contribution margin used by management 0 Variable costs easier to change than xed sales 0 Applicable in different situations 0 Contribution margin xed expenses 0 net operating income Separates into cost behavior 0 Preferred by management Chapter 3 JobOrder Costing Costing systems used when 0 Many different products 0 Manufacturing in order 0 Uniqe nature of each order requires tracing or allocating costs to each job 0 Requires transfers of costs and maintenance records 0 Package costs and allocate them based on management decisions 0 Examples of companies Boeing Disney JobOrder Costing An Example Di rect Costs llJiirect Materials Charge Job No 11 direct material and l lDireet Labor direct labor costs to each 39 Job No 3 job as work is performed Manufacturing Overhead is also allocated to each job 0 Why use an allocation base 0 Used to assign manufacturing overhead to individual jobs Impossible to trace overhead costs to particular jobs Consists of many different items Many types of manufacturing overhead costs are xed 0 Predetermined overhead rate POHR est total manufacturingest total units in the allocation base Allocation is a cost driver that causes overhead Evaluation done by managers 0 Why Use and Allocation Base 0 Direct labor hours direct labor dollars is used to assign manufacturing overhead to individual jobs 0 Used because It is impossible or dif cult to trace overhead costs to particular jobs MOH consists of many different items Many types of MOH costs are xed 0 The need for POHR 0 Used as estimates Won t know exact until end of period Total job cost is DM DL and MOH 0 Actual overhead costs can uctuate seasonally thus misleading decision makers Estimate an hourly cost Multiply rate by denominator POHR or whatever else Use actual of hours to estimate 0 Computing POHR POHR est total MOH for period est total units in the allocation base Estimate the total amount of the allocation base Estimate total xed manufacturing overhead cost for the coming pe od Use the following equation to est total amount of overhead Y a bX Y est total manufacturing cost a est total manufacturing overhead cost b est variable manufacturing rate X est total amount of allocation base Compute POHR Flow of Costs Key de nitions 0 Raw materials Include any materials that go into the nal product 0 Work in process Consists of units of production that are only partially complete and will require further work before they are ready for sale to customers 0 Finished goods Consist of completed units of product that have not been sold to customers 0 Cost of goods manufactured Include the manufacturing costs associated with the goods that were nished during the period 0 Flow of Costs Flow i Costs Conceptual vwiew elance Sheet 39quotE39T39E I Beets llnvien tariee Statement Expenses eet of f e an quotI C Bald Selling and Perilscl Beasts n Sellin39 and Administrative Administrative 0 Job order Costing The Flow of Costs 0 Use T accounts to account 0 Raw materials D material purchases C direct materials C indirect materials 0 Extra on debit side is recorded on balance sheet as inventory 0 Mfg Overhead D Indirect Materials D Indirect Labor D Other Overhead C Overhead applied to work in process 0 Work in Process D Direct materials D Direct Labor D Overhead applied C Cost of goods manufactured 0 Extra on debit side is recorded on balance sheet as inventory 0 Finished Goods D Cost of goods Manufactured C COGS 0 Applying Manufacturing Overhead Applying Manufacturing Overhea a l ri W ark in Piraaaaa Wagaa Payable Jab Carat Sheat minimal iract Labar Materials lndlir aat nim t L h r Labar llllllfgl Daarhaatil Warhead Aatual aired AP P39W lntlilraat I 1 a a g I lli39 actualland appalled Ewing5 quotmarl lead manufacturinli warhead I IITI EIWEEI Applied quotin a a Lab r w k ariaInlataqualf a yearanal j W 39 n acljlwaltmantlia raqiuliraxdm 39 39tlh er Fracaaa O Ovanhaad 0 Overhead Applied During the Period Applied Overhead POHR x actual Direct Labor Hours 0 MOH account DActua C Applied Accounting for nonmanufacturing costs 0 Nonmanufacturing costs are not assigned to individual jobs rather they are recorded as expenses in the period incurred 0 Include salary expenses and advertising expenses 0 Recorded like nancial accounting Underapplied and Overapplied Overhead o Overapplied Too much overhead applied to jobs during the period using the predetermined overhead rate Greater than actual overhead Debit MOH Credit COGS o Underapplied Amount of overhead applied to jobs during the period using the predetermined overhead rate is less than the total amount of overhead actually incurred during the period Must increase COGS Debit COGS Credit MOH 0 Make t account Actual vs applied Applied POHR x Actual Direct Labor Hours Chapter 4 Process Costing Process costing basics 0 Used by businesses such as glass container manufacturing food processing oil and gas re ning For products that are similar and produced continuously 0 Differences between job order and process costing Used when a single product is produced on a continual basis Systems accumulate costs by department while job order costing accumulates cost by individual jobs Systems compute unit costs by department while job order costing compute unit costs by job on the job cost sheet 0 Similarities between job order and process costing Both systems assign material labor and overhead costs Both use the same manufacturing costs Flow of costs is basically the same 0 Processing departments Any unit in an org where materials labor or overhead are added to a product Departments must perform all activities uniformly 0 Flow of materials Direct materials direct labor and MOH go to works in process Become COGS Process Cost Flows Transfers from Finished Goods to COGS in T acoount form Work in Process Department 3 Finished Goods 39Dlill39E39Ft Cost of Cost of eet of MaTEEfl lIS Goods Goods Goods 39DlrE Ct Manufactured Manufactured Sold Labor Applied Overhead 39l39ransferred from Dept A cost of Goods Sold Cost of 39 Goods Sold o T account and journal entries Raw materials 0 D work in process Dept A o D work in process Dept B o C Raw materials Work in process Dept A o D DM DL applied overhead 0 C Transferred to Dept B Work in process Dept B o D DL DM applied overhead 0 D Transferred from Dept A o C cost of goods manufactured Transfers from nished goods to COGS o D COGS C Finished goods 0 Equivalent units of production Equivalent units are the product of the number of partially completed units and the percentage completion of those units These partially completed units complicate the determination of a department s output for a given period and the unit cost that should be assigned to that output Look at completed units 0 Add inventory 0 Multiply by percentage complete Methods for calculation 0 FIFO 0 Don t worry about it Weighted average method 0 O 0 Identify the units completed and transferred out of assembly Identify the equivalent units of production in ending work in process with respect to materials Identify equivalent units of production in ending work in process with respect to conversion for the month and adding the total from step 1 Equivalent units completed and transferred ending inventory X complete Separate computations for conversion and materials Computing the cost of units transferred out Materials x cost per equivalent unit Conversion X cost per equivalent unit Add both to get total Reconciling costs 0 Costs to be accounted for Cost of beginning work in process inventory Costs added to production during the penod tota Cost of ending work in process inventory cost of units transferred out tota


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