Accounting 2102 Final Exam Comprehensive Study Guide
Accounting 2102 Final Exam Comprehensive Study Guide ACCT 2102
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This 14 page Study Guide was uploaded by Breana Carey on Saturday April 23, 2016. The Study Guide belongs to ACCT 2102 at Georgia State University taught by Kathleen S. Partridge (P) in Fall 2015. Since its upload, it has received 701 views. For similar materials see PRIN OF ACCT II in Accounting at Georgia State University.
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Date Created: 04/23/16
Accounting 2102: Comprehensive Final Exam Study Guide Tuesday, April 12, 2016 23:09 Chapter 1 1 Understand the benefits of managerial accounting. Managerial accounting is the general generation of relevant information to support managers strategic decision making. Objectives of Managerial Accounting: 1. Planning: longer term and often referred to as "strategic" planning establishes an organizations wants. Short term wise planning is "organizational" and translate long term planning into something that will be handled within the year. 2. Controlling and evaluating: after the plans have been established then managers move on to controlling and evaluating the project. One purpose of controlling activities is that you are to monitor the day to day operations to ensure that everything is running smoothly. Evaluating activities are when managers want to motivate employees to help organizations achieve and plan strategic moves and must assess how well the perform relative to expectations 3. Decision making: important in managerial accounting because every choice will affect the day to day activities. 2 Identify the tests of ethical business choices as suggested by the Institute of Business Ethics Ethical behavior is knowing right from wrong and conducting yourself accordingly so that your decisions are consistent with your own value system and the companies value system. Employees have a code of conduct to follow which is based on a set of core values that are meant to guide employees behavior. 1. Employment Practices 2. Employee Client and Vendor Information 3. Public information and communications 4. Conflicts of interest 5. Environmental Issues 6. Relationships w vendors 7. Ethical Management Practices 8. Political Involvement Chapter 2 1 Identify Variable, Fixed and Mixed Costs and Step Costs Fixed costs: don't change with the activity level Total cost remains fixed whether of changes with level of activity The cost per units varies intensively with change in activity level Mixed costs: both fixed and variable components Since mixed costs have fixed and variable costs the unit costs will vary with change in activity level. Variable Costs: any total costs that varies in a proportion to business activities The "activity" can be any repetitive event that serves as a measure of output or usage. Total cost varies in proportion to change with level of activity, cost per unit remains constant regardless of the level of activity Step Costs: fixed over a small range of activity Once that level has been reached and extended total cost will remain constant over the time of another short activity. With step costs total costs increases and remains constant over another small range of activity. 2 Given a problem calculate variable costs Change in cost / Change in activity Total variable costs are easy to determine if you know the cost per unit of activity. Chapter 3 1 Calculate breakeven point in units and dollars. A breakeven point is breakeven sale revenue exactly equal to total expenses and there's no profit or loss Selling Price(SPx) Various Cost(VCx) Fixed Costs(FC) = 0 We put everything into constant form – sales price per unit, variable cost per unit and total fixed expenses Breakeven in Units = Total Fixed Expenses / Contribution Margin Per Unit Breakeven in Sales = Total Fixed Expenses / Contribution Margin Ratio 1 Calculate markup percentage. Cost plus pricing adds an amount to the cost of the product or service to cover the company's operating costs and contribute to it's profit Cost + Markup = Sales price Sales Price Cost / Cost = Markup % Chapter 4 1 Reconcile Inventory Accounts When a company purchases 'raw' materials (fabric, thread) these are the things that are used in the production process cost of these materials are recorded in the raw materials inventory account To record the costs of in direct materials like elastic bands and cleaning supplies you would put them into the supplies inventory account Work in process inventory account records all products not completed but STARTED Direct labor, Manufacturing Overhead are included with the work in progress account Direct materials are those that can be traced directly back to the product (direct materials are variable costs) Direct labor are costs and wages that are paid to the workers who transform direct materials into a finished product (someone on the sewing machine) w/Direct Labor hands need to be on the product for the item to be counted. 2 Understand the impact of transactions on inventory accounts Finished goods beginning balance + Costs Added During the Period + Costs removed during the period = Ending Balance (AKA Cost of Goods Manufactured) Raw materials increase when materials are purchased and decrease when materials are used As direct materials are used costs are incurred and it’s an increase in work in progress Finished goods inventory increase by cost of goods manufactured and decreases with the cost of goods sold Example: Raw Materials XXX Account Payable XXX Chapter 5 1 Calculate Budgeted Direct Labor Costs A budget is an operating plan that is expressed primarily in dollars and is a financial function The master budget is a collection of smaller budgets that lead to budgeted financial statements The direct labor budget calculates the number of direct labor hours needed to meet the level of production that was budgeted. STEPS: 1 Enter the budgeted amount from the production budget 12500 Pants need to be made in October 1 Calculate the number of direct labor hours needed to meet the production schedule by multiplying the number of units to be made during the period by the standard number of direct labor hours 3125 DLH are needed to make 12500 Pants so: 12500 x 0.25(9.60 per hour for a total cost of 30000) 1 Calculate the budgeted total direct labor payroll by multiplying the total required direct labor hours by the standard average wage rate for the period 30000 direct labor cost: 9.60 / DLH x 3125 direct labor hours needed 1 Calculate Projected Cash Collections A cash budget is what managers use to keep track of all their cash flows for the period Cash Available to Spend (Cash Disbursements) = Cash Excess or Cash Needed + Short Term Financing = Ending Cash Balance The cash receipts budget shows when and how much cash is needed to be collected from the sales of services and products To prepare the cash receipts you need to review the past collection history estimate bad debt percentage and see the collection pattern. Chapter 6 1 Calculate Direct Material Price Variance Material Price Variance means that part of the direct materials flexible budget variance that results when actual prices differ from standard prices. It's calculated using three amounts 1) the actual quantity direct materials purchased 2) the actual price paid for the direct materials and 3) the standard price for the direct materials AP = Actual Price Paid Per Unit of Material (Actual Price) SP = Standard Price allowed per unit of Material (Selling Price) ** 25000 Yards Purchased x (1.75 2.00) = 0.25 6250F NOTE: Remember things can be favorable (F) or unfavorable (U) which don't mean they're good or bad exactly but unfavorable means it’s a variance that decreases operating income relative to the budgeted amount and favorable means that it increases operating income relative to the budgeted amount 1 Calculate Standard Material Cost An estimated or predetermined cost of performing an operation or doing a good or service is a standard material cost Chapter 7 1 Calculate various activity based costing components Activity based costing is a costing technique that assigns costs to cost objects such as products or customers based on the activities those cost objects require REMEMBER: an activity is something that consumes resources You have different level of activities classifications and those are 1) unit level 2) batch level 3) product level 4) customer level 5) organization level Unit level: are performed for each individual unit of product Batch level: are performed all at once in "batches" Product level: are product sustaining and they are the ones that support the product and services that a company provides Customer level: are performed for certain customers (making sales call, processing an order) Organizational level: are required to provide a productive capacity and to keep the business activity these don’t provide To calculate activity based product costs you follow these steps Identify whether the activity is unit, batch or product and you need to determine how much time employees spend doing each activity Develop the activity cost pools, after the activities are finished they are combined in to the cost pools base on their drivers a. Once you got your activity cost pools you then get first stage allocation which means that costs are assigned to activity pools then assigned to cost objects Calculate activity cost pool rates 1 Allocate costs to products and services Allocated costs = activity rate x activity driver consumption 1 Calculate unit product costs and lastly divide total overhead by the total number of units Chapter 8 1 Calculate total relevant costs in decision making model. Information is relevant when it meets two criteria (1) it differs between the alternatives and (2) the differences will occur in the future Avoidable costs occur only with the implementation of a particular alternative and unavoidable costs are incurred under all alternatives: thus they're not needed Sunk costs are costs that has been incurred in the past so they are not needed thus irrelevant Relevant Not Relevant (avoidable) (unavoidable) Not Relevant Not Relevant (sunk) (sunk) Chapter 9 1 Know and understand components of time value of money problems. Present Value of 1$ A dollar received today is worth more than a dollar received anytime into the future because it can be invested today and earn additional money The process where you determine how much money to be received in the future is worth today is called discounting . The discounted amount is the present value of the future amount AKA Discount Rate The discount rate will change with the period that you decide Interest can be discounted daily, annually, semiannually and quarterly. The discount rate at present value The relationship between the discount rate is inversely related when the discount rate increases then the present value will decrease 2 Be able to identify relevant cash flows. A cash flow is relevant when it is incremental relevant when analyzing capital budgeting amounts. **Incremental amounts are those that differ between choices and nonincremental are not useful and aren't used in the capital budgeting process** 3 Calculate accounting rate of return. Accounting rate of return means that the return generated by an investment based on its net operating income. NOTE: this method doesn’t go by cash flows Accounting rate of return is calculated by calculating all of the additional revenues generated by the investment and then subtracting all additional operating expenses NOTE: If the project doesn’t have a stable operating income then you would do average annual net operating income/the total life of the project 1 Calculate present value of an ordinary annuity and of a lump sum Calculating present value and annuity You need to know 3 things: (1) the future amount to be received (2) the interest rate an (3) when the future amount will be received Present value means you calculate by multiplying the number by the PVF PVF = Future Value x Present Value When the interest from year one is compounded or built into the principal balance the interest is called compound interest An annuity is a stream of equal cash flows received at set time intervals. Just as you can calculate the present value of a single amount you can calculate the present value of an annuity You add up all the years associated with that annuity, if you've a 7 year annuity you add all the present value factors from the table that correspond to that year (the PV from years 17) 1 Calculate payback period. The payback period is the time it takes in years for a investment to return back to the original amount invested in capital Projects with even cash flows payback period is calculated by Projects with uneven cash flows are calculated by adding up all the annual cash flows until the cumulative total cash flows equal net investment 1 Understand the differences between cash budgeting and capital budgeting. Capital Budgeting is the process of evaluating a organizations investment in the long run w/capital budgeting we look more into the future, usually 510 years Cash Budgeting is the estimation of cash inflows and outflows for a business or individual for a specific time period and are used to see whether the entity has enough cash to fulfill their operations and obligations 2 Identify cash inflows and outflows. Statement of cash flows presents the inflows and outflows of cash in the different activities of the business the net increases or net decrease in cash and the resulting cash balance at the end of the period Cash inflows are referred to as receipts of cash while cash outflows to payments or disbursements 3 Calculate net present value. The net present value approach (NPV) requires that you calculate the present value of each cash flow then you add or 'net' those present values to arrive at projects next capital value Steps: Identify and get the amount of each cash flows Determine the appropriate discount rate The appropriate discount rate will change from company to company The discount rate is the average of the company's interest rate on borrowed funds Two other factors that affect discount rate are (1) the finance theory states that risks and rate of return are positively related meaning that if risks # then the rate of return will # as well (2) a discount rate should increase if inflation is expected to happen over the life of the project Calculate the present value of each cash flow You need to multiply the present value and multiply the right value factor Calculate the net present value Once you've the calculated the present value then you add them together to get a net value of the project. 2 Understand return on investment and return of investment Return Of Investment: means recouping the original investment getting your money back Return on Investment: means that you'll get over and above what you put into the investment. (i.e You spend 60$ on a investment and you yet back 80$ you've earned a 20$ return on investment) Chapter 10 1 Calculate division and company return on investment. Return on Investment measures a rate of return generated by a investment on assets ROI = operating income ( or segment margin) / average operating assets ASC280 'segment margin' provides generally accepted accounting principle that require companies to escort selected information about operating segments Return on Investment is still widely used today to evaluate a large range of investment options from manufacturing plants to corporate training programs Return on investment measures the rate of return generated by an investment in assets ROI = operating income (segment margin) / average operating assets Some unit managers use the segment margin because it represents revenues and expenses that are directly traceable to the operating unit and controllable by the manager. Average Operating Asset = beginning asset balance + ending asset balance / 2 The assets to include with this operation are those that were actually used in operations among them are cash, account receivable, inventory, property and plant. The DuPont model of the expanded formula for ROI is usually called the DuPont model and it helps identify the actions needed to increase the ROI. ROI (DuPont) = Margin operating income(or segment margin) / sale revenue x asset turnover sale revenue / average operating asset ROI can be improved by any combination of the three separate actions (1) increase sale revenue (2) decreasing assets (3) decreasing expenses 1 Calculate residual income. Residual income is income that is earned above a specified minimum level of return Residual income = operating income (or segment margin) (average assets x required minimum rate of return) Because residual income is an absolute measure that is stated with absolute dollars using it to compare divisions of different sizes is not ideal Residual income is better for measuring evaluation while ROI is more acceptable to compare divisions 1 Calculate economic value added. (EVA) Economic Value Added (EVA) was developed by a global consulting firm as a variation of residual income that measures economic profit. EVA = Net Operating Profit [invested capital x weighted average cost per capital] Steps: 1) Calculating Net Profit: you need to get net operating profit by subtracting income taxes from operating income 2) Calculating investing capital: the amount of invested capital is its total assets minus current liabilities 3) Calculate the WACC: (weighted average cost per capital) means the combined rate of return required by all capital investors 4) Lastly you calculate the EVA which is: EVA = Net Operating Profit [invested capital x weighted average cost per capital] 1 Calculate division segment margin. Segment Evaluation A segment of a organization is any part of the organization that management will want to evaluate. A segment margin income statement will include expenses that are variable and that are fixed and only will include traceable fixed costs Revenue in Sales (Variable Expenses) (Cost of Good Sold) = Contribution Margin (Traceable fixed costs) (Selling and Administrative) = Segment Margin (Common Fixed Expenses) =Net Operating Income 1 Understand advantages of various organizational structures in business. Centralized vs Decentralized Centralization is when the organizational structure in which decision making authority for the whole organization rests on the hands of one single person or a small group of people. Decentralization is which decision making authority is dispersed throughout the organizational structure. Advantages: Disadvantages: Managers at the operational level have Communicating strategies from top a good view of the organization and it's day to day management down to the organization can lead to operations duplication of evaluations within management. Managers can groom the next When decision making is spread to lower generation of managers by giving lower level level managers with no experience managers will decline managers a chance to develop their skills the project Responsibility accounting is when managers are evaluated on on the things that they can control A cost center is a organizational unit whose manager is only responsible for the costs incurred with a single unit Service departments and production departments which don't generate revenue are called "cost centers" A profit center is when a manager is in charge of all costs and revenues incurred while operating a project. A investment center manager is expected to invests assets that generate a profit 1 Identify segment reporting requirements under GAAP. Segment reporting is the reporting of the operating segments of a company in the disclosures accompanying it financial statements Under GAPP a operating segment engages in business activities from which it may earn revenue or create expenses and the results are reviewed by the chief decision maker for performance assessment and resource allocation decisions Revenues, interest expense, income tax expense or income, depreciation or amortization are some things that are included with segment reporting 2 Calculate asset turnover. To calculate the asset turnover ratio you'd divide net sales or revenue by the average total assets Chapter 12 1 Calculate trend percentage of various accounts. Horizontal analysis is to look at changes in account balances over time Common size analysis (vertical analysis) are to examine the changes in the relative size of account balances within single statement and the formula is Trend analysis means that each years account balance is expressed as a percentage of the base year (earliest years) price and account balance 1 Calculate return on common stockholders’ equity. Return on common stockholders ratio measures the success of a company in generating income for the benefit of common stockholders The numerator consists of net income available for common stockholders which is equal to net income dividend or preferred stock The denominator has average total stockholder's equity average preferred stockholders equity If the preferred stock isn't present the net income is just divided by the average common stockholders equity
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