Managerial Accounting Exam
Managerial Accounting Exam ACCT
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This 9 page Study Guide was uploaded by Anna Notetaker on Thursday September 1, 2016. The Study Guide belongs to ACCT at Middle Tennessee State University taught by Monica Davis in Fall 2016. Since its upload, it has received 31 views.
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Date Created: 09/01/16
Financial accounting – the summarizing and recording of the financial transactions of a company o results in the creation of the Financial Statements o the f/s are used by Both External and Internal Decision Makers o the focus is on the Past Managerial accounting – the summarizing of various types of data for Managers to use o results in various Internal reports o these reports are used by Internal Decision Makers Only o the focus is on the Future Managers perform 3 vital activities: Planning, Controlling, and DecisionMaking. o Therefore, these are also the 3 Pillars of managerial accounting. o Planning – establishing Goals and specifying how to achieve them o Controlling gathering Feedback to ensure that the plan is being properly executed or Modified as circumstances change o DecisionMaking selecting a course of Action from competing alternatives Enterprise Risk Management – process used by a company to Identifies risks and develop Responses to them that enable the company to more likely meet its Goals Corporate Social Responsibility (CSR) – the concept that organizations should consider the needs of all Stakeholders when making decisions, not just the needs of stockholders o Other stakeholders: o Customers o Employees o Suppliers o Community o Environmental and Human Rights Advocates o Extends the responsibility of an organization beyond Legal compliance to include Voluntary actions, because a company’s Social performance can impact itsFinancial performance Value Chain – the major Functions/steps that add value to a company’s products or Services Manufacturing Costs – all of the Inventory costs of producing a Finishes product; 3 kinds: 1) Direct Materials cost of materials that become an Intergral part of the finished product example: small table : metal legs, laminate, and wood 2) Direct Labor – labor costs that can be easily and Physically Traced to units of the finished product example: Table: Table Assemblers 3) Factory (Manufacturing) Overhead – all of the Indirect costs of producing the company’s finished products indirect Materials costs of materials used in Processing the product or that become part of the finished product but aren’t Significant enough to count as direct materials examples: Table : Glue, nuts and bolts indirect Labor costs for labor that are necessary for making the product but can’t be Traced to particular products examples: plant managers, custodians, security, supervisors other indirect costs – costs for factory insurance, property taxes, depreciation, factory maintenance, repairs, utilities, etc. Nonmanufacturing costs – a company also incurs costs for advertising, utilities, property taxes, insurance, depreciation, etc., with its selling and administrative functions Product Costs v. period Costs – for GAAP, another way to say Manufacturing v. Nonmanufacturing costs because GAAP requires all manufacturing costs to be assigned to the product. o However, later we’ll look at 2 other costing methods that doesn’t assign all the manufacturing costs as product costs. Prime v. Conversion Cost Classification Prime cost – the direct materials plus the direct labor costs Conversion cost – the direct labor costs plus the manufacturing overhead costs Cost Behavior Classification Cost Behavior how costs respond in total to changes in the volume of a given ActivityBased. (In this text, assume the activity base is the company’s total number of goods or services sold) o Variable costs – Cost that change in total, proportionately and directly, with changes in the volume of an activity base. Example would be direct materials. o VC per unit – Remains constant regardless of changes in the volume of the activity base. Fixed costs – costs that remain constant in total regardless of changes in the volume of an activity base. Example would be rent expense. must define a time period for fixed costs FC per unit varies proportionately and indirectly with changes in the volume of the activity base. Committed fixed costs – multiyear costs that can’t be reduced in the short term, such as factories, equipment, property taxes, highsalary contracts Discretionary fixed costs – fixed costs that result from annual decisions by management, such as advertising, research, temporary employees Relevant range – the range of activity where the total fixed costs remain constant and the variable cost per unit remains constant Mixed costs – cost that have both fixed and variable components. Example would be utility bills. o In order to separate the fixed component from the variable component within a mixed cost, we will use the HighLow method: 1) Variable cost per unit = cost at highest activity level – cost at lowest activity level highest activity level – lowest activity level 2) Total Fixed cost = total cost @ highest activity – (vari. cost per unit x highest activity) o Differential cost – the difference in costs between any two Alternative; also referred to as an Incremental cost o Opportunity cost – the potential Benefit that is given up when one alternative is selected over another o Sunk cost – a cost that has already been Incurred and cannot be changed by any decision made now or in the future; therefore, it shouldn’t be considered in the current decision between alternatives. Traditional Format Income Statement v. Contribution Format Income Statement o Traditional format income statement – divides expenses into 2 classifications: Cost of Goods Sold and Operating expenses Example on page 44 Good format for External reporting purposes o Contribution format income statement – divides expenses into these two classifications: Variable expenses and Fixed expenses Example on page 44 Good format for internal Planning and DecisionMaking purposes Contribution margin – sales minus variable expenses; the amount that “contributes” to covering fixed expenses and then provides a profit (NI) for the period Product Costing how products and services are costed; vital because it can have a substantial impact on reported profits (NI) Most countries require a company to use Absorption Costing, which assigns all manufacturing costs, both the Fixed and Variable costs, to units of product or services for external reporting purposes Job Order Costing – accumulates product costs for manufacturing a batch of product, or a “job” o used in situations where many different products are produced each period o costs are traced and allocated to jobs, and then the costs of the job are divided by the number of units in the job to arrive at product cost per unit o examples: automobiles, pairs of jeans, advertising agencies o read page 83 intro story Job Cost Sheet a form created for each job that lists each of the 3 Manufacturing costs the job accumulates (pg87) o Direct materials – posted to the job cost sheet using a Material Requisition form (pg86) o Direct labor – posted to the job cost sheet using time ticket. A time ticket lists the number of direct labor hours and the labor rate per hour to reach total direct labor cost for a job to post on its job cost sheet. (pg88) o Manufacturing Overhead factory overhead is not like direct materials and direct labor: it’s not specific to any one job; so we allocate/apply factory overhead to each job using an allocation base Allocation base an activity used to assign overhead costs to products and services; most common activities used are direct labor hours (DLH), direct labor cost, machine hours (MH), and units of products (used when a co. makes only a single product) A Predetermined Overhead Rate is calculated and used to apply factory overhead to each job. Calculating a predetermined OH rate: select an allocation base Estimate total factory overhead for the period Estimate the total units of the allocation base for the period predetermined factory OH rate = total estimated factory OH costs estimated activity base Why estimated amounts? Timeliness A manufacturer has three inventory accounts: 1) (Raw) Materials inventory – account that consists of the costs of both direct and indirect raw materials Each time materials are purchased, the materials inventory account is increase (debited). Each time materials are requisitioned and posted on a job cost sheet, the materials inventory account is decreased (credited) and the workinprocess inventory account is increased (debited). 2) WorkinProcess inventory – the inventory account that consists of the product costs of goods that are in the manufacturing process but are not yet completed The WIP inventory is increased (debited) each time directed materials are placed in process and posted on a job cost sheet, each time direct labor is posted to the job cost sheet, and each time factory overhead is applied to a job cost sheet. The WIP inventory is decreased (credited) and the finished goods inventory is increased (debited) each time goods are completed. All of the actual indirect product costs are accumulated in a manufacturing overhead account 3) Finished Goods inventory – account that consists of the product costs of completed goods Each time goods are completed, their costs are credited to the WIP inventory and debited to Finished Goods inventory. Each time goods are sold the finished goods inventory is Decreased ( credited) and CGS is Increased (debited). It is not unusual for this to be the case: either OH is overapplied or underapplied. underapplied: less OH was applied than was actually incurred overapplied: more OH was applied than was actually incurred At YE, the amount of overapplied or underapplied factory OH is zeroed out: The factory OH account is decreased and the CGS account is increased for the underapplied factory OH. The factory OH account is increased and the CGS account is Decreased for the overapplied factory OH.
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