Study Guide Exam 1
Study Guide Exam 1 BUS ADM 302
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This 8 page Study Guide was uploaded by Evan Thoms on Monday September 28, 2015. The Study Guide belongs to BUS ADM 302 at University of Wisconsin - Milwaukee taught by Dr. Sheila Viel in Fall 2015. Since its upload, it has received 412 views. For similar materials see Managerial Accounting in Business Administration at University of Wisconsin - Milwaukee.
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Date Created: 09/28/15
BUS ADM 302 STUDY GUIDE Ch1 Managerial Accounting focuses on nancial info for and o Does NOT require an auditor Reviewed internally does NOT follow GAAP o Special purposes for decision making Manufacturing Costs o Direct Materials materials used that are seen directly in the product manufactured ie Wood for furniture or steel frames for automobiles o Direct Labor labor of factory employees that can be physically and directly associated with converting raw materials into nished goods Ex Bottlers at CocaCola bakers for a bread company o Manufacturing Overhead Mfg OH costs that are indirectly associated with the manufacture of the nished product Also include manufacturing costs that cannot be determined as Direct Labor or Direct Materials Costs are an integral part recorded in inventory account in Balance Sheet Assets NOT an expense Cost of Goods Sold COGS until Goods are sold Ex Factory depreciation indirect labor indirect materials Product Costs NOT inventoriable NEVER an asset o Expensed as incurred o Nonmfg cost o Selling amp administrative costs Ex Salespeople salaries Accountants salaries Business Ethics o All employees are expected to act ethically o Follow code of ethical standards SarbanesOxley Act 0 Clari es management responsibilities Requires certi cation by CEO and CFO Certi es that company applies good internal control 0 Enron was a past nancial fraud Process vs Job order Costing Process Costing 0 Common with companies that mass produce the same item 0 Costs are accumulated by a time period 0 Ex GM uses a process system when accounting for normal cars ie Malibu Impala Sierra etc JobOrder Costing 0 Common for special order companies 0 Costs are assigned to each jobbatch 0 Objective is cost perjob 0 Ex A special order for a limousine for the president in GM Mfg OH costs 0 Everything related to factory except Direct Labor and Direct Materials 0 Costs unrelated to mfg process are expensed as period costs 0 Costs related to mfg process are accumulated in account called Manufacturing Overhead Mfg OH 0 When costs are incurred Debit Work in Process Inventory WIP Credit Raw Materials Inventory or Direct Labor 0 Raw Materials Costs 0 When company receives Raw Materials it has purchased it debits the cost of the materials to Raw Materials Inventory 0 Makes no effort at this point to associate the cost of materials to speci c jobs or orders 0 Example Wallace Company purchases 2000 Lithium batteries at 5 per unit 10000 and 800 electronic modules at 40 per unit 32000 for a total cost of 42000 10000 32000 Journal Entry Raw Materials Inventory 42000 Accounts Payable 42000 0 Factory Labor 0 Companies debit labor costs to Factory Labor as they incur these costs 0 Example Wallace incurs 32000 of factory labor costs Of that amount 27000 relates to wages payable and 5000 relates to payroll taxes payable in Feb Journal Entry Factory Labor 32000 Factory Wages Payable 27000 Employer Payroll Taxes Payable 5000 o How to determine and use the predetermined overhead rate 0 Overhead relates to production operations as a whole Cannot be assigned to speci c jobs on the basis of actual cost incurred Companies assign mfg OH to work in process and speci c jobs on an estimated basis through the use of a predetermined overhead rate Predetermined OH rate is based on the relationship between estimated annual overhead costs and expected annual operating activity 0 Expressed in terms of a common activity base usually direct labor hourscost or direct materials cost Predetrmined OH rate Estimated Annual OH costs Expected Annual Operating Activity Example Wallace company uses direct labor cost as the activity base Assuming that the company expects annual overhead costs to be 280000 and direct labor costs for the year to be 350000 What is the predetermined overhead rate Answer 280000 350000 80 80 is your predetermined OH rate Use of Predetrmined overhead rate enables company to determine aprrox Total cost of each job when it completes the job 0 Under or Over applied manufacturing Overhead When manufacturing OH account has a 0 Debit Balance overhead is underapplied Underapplied OH means that the overhead assigned to work in process is less than the overhead incurred 0 Credit Balance overhead is overapplied Overapplied OH means that the overhead assigned to work in process is greater than the overhead incurred lf actual overhead is greater than applied manufacturing is underapplied o If actual overhead is less than applied manufacturing is overapplied Ch 3 Activity Based Costing 0 Traditional Costing system 0 Allocates OH using predetermined rate Job order costing Process costing o What is the need for a new approach 0 Tremendous change in manufacturing and service industries 0 Decrease in amount of direct labor usage 0 Signi cant increase in total overhead 0 Inappropriate to apply plantwide overhead rate when lack of correlation exists 0 Complex manufacturing process may require Activity Based Costing Activity Based Costing o Allocates OH to multiple activity costs 0 Assings activity to cost pools to products or services by means of cost drivers A high degree of correlation must exist between the cost driver and the actual consumption of the overhead costs in cost pool 0 More complex operations more cost pools cost drivers 0 When to use 0 Product lines differ in volume and manufacturing complexity 0 Product lines are numerous and diverse o OH costs constitute signi cant portion to cost 0 Manufacturing process or number of products have changed signi cantly 0 Production or marketing managers are ignoring data 0 Putting ABC to use 0 First Identify Cost pools and assign overhead to cost pools Ex Morgan company identi es 3 activites in its manufacturing process machine setups machining and inspections Estimated overhead cost for each activity is 150000 375000 and 87500 respectively 0 Identify Cost Drivers Remember cost drivers must have a high degree of correlation to cost pool Ex continued from above The cost drivers for each activity and the expected annual usage are number of setups 2500 machine hours 25000 and number of inspections 1750 0 Next you compute the activity based overhead rate and allocate overhead costs to products This is done by Estimated OH per activity Expected use of cost drivers per activity ExcontJ Setups 150000 2500 60 per setup Machining 375000 25000 15 per machine hour Inspections 875001750 50 per inspection 0 Why not ABC 0 Expensive to use 0 Some allocations will be dif cult to nd good cost driver for This problem should diminish as system gets updated Ch 5 CVP analysis 0 Variable Costs 0 Sales increase 10 Total Variable costs increase 10 Directly proportional Remain the same per unit at every activity level Relevant Range The activity range in which a business expects to operate More costeffective to do so 0 Fixed Costs 0 Remain the same in total regardless of activity 000 o Fixed costs per unit vary inversely with activity as volume increases unit cost declines and vice versa 0 Mixed Costs 0 O 0 Change in total but not proportionately with activity level Have a xed cost element and a variable cost element Highlow method classi es mixed costs into xed and variable components Change in total costs High minus low activity level variable cost per unit Ex High and low levels are January Miles driven were 7500 and total cost was 13500 February Miles driven were 8500 and total cost was 15000 150001350085007500 15001000 150 per unit To nd Fixed Component 150 7500 11250 13500 11250 2250 xed component 150 8500 12750 15000 12750 2250 xed component CVP cost volume pro t analysis 0 Formatted for internal use in a CVP income statement Always reports the same netincome as GAAP income statement 0 Contribution margin amount of revenue remaining after deducting variable costs Often reported as per unit unit contribution margin CM Total Sales Variable Costs Unit Contribution margin unit selling price unit variable costs 0 Breakeven point point where contribution margin exactly equals xed costs and the rm quotbreaks evenquot or has a net income of 0 Every unit sold above break even point net income increases by the m contribution margin Mathematical Equation Required Sales Variable costs Fixed costs 0 CM ratio technique o Fixed Costs CM ratio Break even point in dollars 0 Fixed Costs Unit CM Break even point in units 0 Contribution Margin Ratio Contribution margin Total Sales OR unit CM unit selling price ls percent of sales that company generates towards CM 0 Ex CM ratio of 40 is 40 cents that is available to cover xed costs and generate net income 0 Target Net Income Nl 0 Amount company hopes to make in income 0 Mathematical Equation Required Sales Variable Costs Fixed Costs Target NJ 0 CM technique Fixed Costs Target Nl Unit CM Required sales in units Fixed Costs Target Nl CM ratio Required Sales in Dollars o Margin of Safety 0 Difference between actual or expected sales and sales at the breakeven point Actual Expected Sales Break Even Sales Margin of Safety in Dollars o Margin of Safety ratio amount of sales that can drop before it operates at a loss Higher the dollars or percentage the greater the margin of safety Margin of Safety in dollars Actual Expected Sales Margin of Safety Ratio
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