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Accounting 210 Chapter 1 Notes

by: Kristin Koelewyn

Accounting 210 Chapter 1 Notes ACCT210

Marketplace > University of Arizona > Accounting > ACCT210 > Accounting 210 Chapter 1 Notes
Kristin Koelewyn
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About this Document

These notes cover the first chapter of managerial accounting.
Managerial Accounting
Heather Altman
Class Notes




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This 6 page Class Notes was uploaded by Kristin Koelewyn on Tuesday January 19, 2016. The Class Notes belongs to ACCT210 at University of Arizona taught by Heather Altman in Spring 2016. Since its upload, it has received 98 views. For similar materials see Managerial Accounting in Accounting at University of Arizona.

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Date Created: 01/19/16
Accounting 210 Chapter 1 Notes: Managerial Accounting - Managerial Accounting: provides economic and financial information for managers and other internal users. - Comparing Managerial and Financial Accounting: - Major Management Functions: o Planning: maximize short term profit and market share, commit to environmental protection and social programs, and add value to the business o Directing: coordinate diverse activities and human resources, implement planned objectives, provide incentives to motivate employees, hire and train employees, and produce a smooth running operation. o Controlling: keeping activities on track, determine whether goals are met, decide changes needed to get back on track, and may use an informal or formal system of evaluations. - Organizational Charts: show the interrelationships of activities and the delegation of authority and responsibility within the company. - True or False? o Managerial accountants have a single role within an organization, collection and reporting costs to management? ▯ FALSE o Financial accounting reports are general-purpose and intended for external users? ▯ TRUE o Managerial accounting reports are special-purpose and issued as frequently as needed? ▯ TRUE o Managers’ activities and responsibilities can be classified into three broad functions: cost accounting, budgeting, and internal control? ▯ FALSE (refer to three major management functions above) o Managerial accounting reports must now comply with generally accounting principles (GAAP). ▯ FALSE - Managers should ask questions such as the following: o What costs are involved in making a product or providing a service? o If we decrease production volume, will costs decrease? o What impact will automation have on total costs? o How can we best control costs? - Manufacturing costs: o Manufacturing consists of activities and processes that convert raw materials into finished goods. ▯ Direct Materials, Direct Labor, Manufacturing Overhead o Direct Materials ▯ Raw Materials: Basic materials and parts used in the manufacturing process ▯ Direct Materials: Raw materials that can be physically and directly associated with the finished product during the manufacturing process. o Indirect Materials: Not physically part of the finished product or they are and impractical to trace to the finished product because their physical association with the finished product is too small in terms of cost. ▯ Considered part of the manufacturing overhead. o Direct Labor: Work of factory employees that can be physically and directly associated with converting raw materials into finished goods. o Indirect Labor: Work of factory employees that has no physical association with the finished product or for which it is impractical to trace costs to the finished goods produced. o Manufacturing Overhead: ▯ Costs that are indirectly associated with manufacturing the finished product. ▯ Includes all manufacturing cost except direct materials and direct labor. ▯ Also called factory overhead, indirect manufacturing costs, or burden. - Product Verses Period Costs: o Product Costs: ▯ Components include direct materials, direct labor, and manufacturing overhead. ▯ Costs that are an integral part of producing the product. ▯ Recorded in “inventory” account. ▯ Not an expense (COGS) until the goods are sold. o Period Costs: ▯ Charged to expense as incurred. ▯ Non-manufacturing costs. ▯ Includes all selling and administrative expenses. o Example: Direct Materials include tires, spokes, and handlebars. Direct Labor includes salaries of employees who put tires on the wheels. Overhead includes factory depreciation, lubricants, factory manager salary, and factory maintenance employees’ salary. - Income Statement: o Under a periodic inventory system, the income statements of a merchandiser and a manufacturer differ in the cost of goods sold section. Costs of good sold is shown by the acronym “COGS”. - Review Question: o For the year, Red Company has cost of goods manufactured of $600,000, beginning finished goods inventory of $200,000, and ending finished goods inventory of $250,000. The COGS is: ▯ Beginning Finished Goods Inventory+ Cost of Goods Manufactured= Costs of Goods Available for Sale- Ending Finished Goods Inventory= COGS ▯ 200,000+600,000= $800,000 ▯ 800,000-250,000= $550,000 • Answer: $550,000 - Cost of Goods Manufactured: o Total Manufacturing Costs: sum of direct material costs, direct labor costs, and manufacturing overhead in the current year. o Total Work in Process: (1) cost of beginning work in process and (2) total manufacturing costs for the current period. ▯ Example: Starting with this information: End with this statement: - Balance Sheet: o Inventory accounts for a manufacturer. ▯ Raw Materials Inventory: Shows the cost of raw materials on hand. ▯ Work in Process Inventory: Shows the cost applicable to units that have been started into production but are only partially completed. ▯ Finished Goods Inventory: Shows the cost of completed goods on hand. o The balance sheet for a merchandising company shows just one category of inventory. ▯ Example of current assets section of merchandising and manufacturing balance sheets: - Service Industries: o Much of the U.S. economy has shifted toward an emphasis on providing services rather than goods. o Over 50% of U.S workers are now employed by service companies. o Most of the techniques learned for manufacturing firms are applicable to service companies. - Focus on the Value Chain o Refers to all business processes associated with providing a product or service. ▯ For a manufacturing firm these include: research and development and product design -> acquisition of raw materials -> production -> sales and marketing -> delivery -> customer relations and subsequent services. o Just-In-Time (JIT) Inventory Methods: ▯ Inventory system in which goods are manufactured or purchased just in time for sale. o Total Quality Management (TQM): ▯ Reduce defects in finished products, with the goal of zero defects. o Theory of Constraints: ▯ Constraints (“bottlenecks”) limit the company’s potential profitability. ▯ A specific approach to identify and manage these constraints in order to achieve company goals. o Enterprise Resource Planning (ERP) ▯ Software programs designed to manage all major business processes. o Activity-Based Costing (ABC): ▯ Allocates overhead based on use of activities. ▯ Results in more accurate product costing and scrutiny of all activities in the value chain. - Balanced Scorecard: o Evaluates operations in an integrated fashion. o Uses both financial and non-financial measures. o Links performance to overall company objectives. - Business Ethics: o All employees are expected to act ethically. o Many organizations have codes of business ethics. o Past financial frauds: ▯ Enron, Global Crossing, WorldCom o Creating Proper Incentives: ▯ Systems and controls sometimes create incentives for managers to take unethical actions. ▯ Controls need to be effective and realistic. o Code of Ethical Standards: ▯ Sarbanes-Oxley Act (SOX) • Clarifies managements’ responsibilities. • Requires certifications by CEO and CFO. • Selection criteria for Board of Directors and Audit Committee. • Substantially increased penalties for misconduct. - Corporate Social Responsibility: o Considers a company’s efforts to employ sustainable business practices with regard to its employees, society, & the environment. o Is sometimes referred to as the triple bottom line because it evaluates a company’s performance regarding people, planet, and profit. o Recent reports indicate that over 50% of the 500 largest U.S. companies provide sustainability reports. - REVIEW Definitions: o Value Chain: All activities associated with providing a product or performing service. o Activity based costing: A method of allocating overhead based on each product’s use of activities in making the product. o Total Quality Management (TQM): Systems implemented to reduce defects in finished products with the goal of achieving zero defects. o Balanced Scorecard: A performance-measurement approach that uses financial and non-financial measures, tied to company objectives, to evaluate a company’s operations in an integrated fashion. o Just-in-time (JIT) Inventory: Inventory system in which goods are manufactured or purchased just as they are needed for use. o Corporate social responsibility: A company’s efforts to employ sustainable business practices with regards to its employees, society and the environment. o Statement of Ethical Professional Practice: Inventory system in which goods are manufactured or purchased just as they are needed for use.


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