Exam 1 Study Guide
Exam 1 Study Guide ACCT-23021-003
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This 6 page Study Guide was uploaded by Jerrod Douglas on Tuesday September 20, 2016. The Study Guide belongs to ACCT-23021-003 at Kent State University taught by John M. Rose in Fall 2016. Since its upload, it has received 106 views. For similar materials see Introduction to Managerial Accounting in Accounting at Kent State University.
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Date Created: 09/20/16
Introduction to Managerial Accounting [Acct- 23021] Exam 1 Study Guide Kent State University Fall 2016 Chapter 1 I. Managers’ Three Responsibilities a. Planning b. Directing c. Controlling d. (Followed by feedback) II. Financial and Managerial Accounting Differences a. FA: External users of information MA: Internal users of information b. FA: Purpose is for external lending/investing decisions MA: Purpose is for planning, directing, and controlling c. FA: Produce financial statements MA: Produce internal account reports d. FA: GAAP determines contents and format of reports MA: Management determines contents and format of reports e. FA: Historical transactions with external parties MA: Focuses on future; both external and internal transactions f. FA: Reliable and objective data MA: Relevant data g. FA: Reports are prepared annually and quarterly MA: Reports are prepared based on the managements needs h. FA: Reports are about the company as a whole MA: Reports are about products, customers, regions, etc. i. FA: CPAs audit information MA: No independent auditors; may have internal audits j. FA: SEC requires information MA: No one requires information k. FA: Not concerned with changing employee behavior when disclosing information, strictly trying give adequate information MA: Management considers how revealing information will change employees’ behaviors III. Regulatory and Business Trends a. Sarbanes-Oxley Act of 2002 (SOX) i. Restore trust in publicly traded corporations ii. Enhances internal control and financial requirements iii. Establishes new regulatory requirements for publicly traded companies and auditors b. International Financial Reporting Standards (IFRS) i. Consistent reporting standards needed worldwide c. Extensible Business Reporting Language (XBRL) i. Decreases retrieval time ii. Decreases conversion time iii. Facilitates comparison iv. Customizes information v. More consistent use of financial terminology Chapter 2 I. Types of Companies a. Service Companies i. Provide a service ii. NO inventory b. Merchandisers i. Resell products purchased from suppliers ii. ONE inventory account iii. Retailer vs. Wholesaler 1. Target vs. Walmart c. Manufacturers i. Use labor and other inputs to convert raw materials into finished products ii. THREE inventory accounts 1. Raw materials 2. Work in process 3. Finished goods II. Value Chain a. Activities that add value to products and services b. Value Chain Specifics (in this order) i. Research and development ii. Design iii. Production or purchases iv. Marketing v. Distribution vi. Customer service III. Direct and Indirect Costs a. Cost object i. Anything managers want a separate cost for ii. Direct Cost – Cost that can be traced directly to a cost object iii. Indirect Cost – Cost that cannot be traced directly to a cost object IV. Inventoriable Product Costs vs. Period Costs a. Product cost i. Total Costs – Used internally only ii. Inventoriable Product Cost (IPC) – Used for external reporting 1. Third aspect of value chain (Production or purchasing) 2. Costs stay on the balance sheet as inventory until sold 3. When sold, expensed on the income statement (costs of goods sold) iii. Period Costs 1. All other aspects of the value chain 2. R&D, Design, Marketing, Distribution, and Customer Service 3. Expense immediately on the income statement (SGA, operating expenses) b. IPC – Merchandisers i. Purchase price from suppliers ii. Cost to get ready for sale iii. Freight-in iv. Import tariffs c. IPC – Manufacturers i. Direct Costs 1. Direct materials 2. Direct labor ii. Indirect Costs 1. Manufacturing Overhead d. Manufacturing Overhead (MOH) i. Indirect costs related to manufacturing that are NOT direct materials or labor 1. Indirect materials 2. Indirect labor 3. Other indirect manufacturing costs ii. Does the cost relate to producing the product? 1. Yes a. Inventoriable product cost b. Classified as direct materials (DM), direct labor (DL), or MOH 2. No a. Period cost iii. Prime & Conversion Costs 1. Prime costs = Direct materials (DM) + Direct labor (DL) 2. Conversion costs = MOH + DL iv. Direct & Indirect Labor Costs Include 1. Salaries & wages 2. Fringe benefits 3. Payroll taxes V. Financial Statements a. Income Statement i. See formula sheet provided on BlackBoard (available during exam) Chapter 3 I. Job Costing vs. Process Costing a. Process Costing i. Mass production ii. Similar items iii. Total costs are averaged over all units b. Job Costing i. Unique, custom products or small batches ii. Total costs are accumulated by a job II. Flow of Production a. Flow of Inventory through a Manufacturer i. Raw materials ii. Work in process iii. Finished goods iv. Cost of goods sold III. Allocate MOH to Jobs a. Predetermined MOH Rate (PMOHR) Process i. On formula sheet IV. Misallocation of MOH a. PMOHR is an estimate b. At the end of the year, estimated MOH allocated to all jobs needs to be adjusted to the actual MOH c. Underallocated i. Not enough allocated to a job d. Overallocated i. Too much allocated to a job V. Job Costing at a Service Firm a. Similar to a manufacturer b. Main difference is that indirect period costs are allocated to each client rather than manufacturing costs c. Largest cost is labor Chapter 4 I. Departmental Overhead Rates a. Refining Cost Allocation Systems i. Why refine? 1. Matching the cost of overhead with products is not done well 2. Results in over-/underallocations b. Plantwide Overhead Rate (MOH discussed in Chapter 3) i. Uses one predetermined MOH rates for each department c. Departmental Overhead Rates i. Separate PMOHR for each department ii. When to use: 1. Departments incur different amounts/types of MOH 2. Different jobs/products use the department resources to a different extent II. Activity-Based Costing (ABC) a. What is it? i. Allocates indirect costs to production ii. Focuses on activities and their costs iii. Separate allocation rate for each activity b. Same process as all other allocation systems c. Cost Hierarchy (on formula sheet) III. Benefits and Limitations a. Activity-Based Management (ABM) i. Pricing and product mix ii. Cutting costs iii. Planning and control manufacturing b. Using ABC Outside of Manufacturing i. Merchandise and service 1. Find the most profitable product/service ii. Manufacturing 1. Allocate operating activities c. Cost Benefit Test i. Benefits are higher from companies in competitive markets ii. Benefits are higher when risk of cost distortion is high 1. Produces many different products 2. High indirect costs 3. Produces differing volumes of different products d. Costs of Adopting ABC i. Generally low with: 1. Accounting and information systems expertise to develop the system 2. Information technology ii. 89% of the companies that adopt it say it was worth it iii. Not a cure-all but helps managers understand costs better IV. Lean Operations a. Traditional Production Systems i. Keep large inventories on hand ii. Pay for storage iii. Quality is hidden b. Lean Thinking i. Solution to traditional production systems ii. Common characteristics on formula sheet iii. Drawbacks 1. Delivery delays 2. Personnel problems 3. Recalled products 4. Weather issues V. Cost of Quality Framework a. Total Quality Management (TQM) i. Goal is to provide customers with superior products and services ii. Continuous improvements iii. More investment at beginning of value chain 1. Generates more saving at the end b. Four Types of Quality Costs i. On formula sheet
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