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ACCT 226 Week 1 of notes

by: Rachel Whitbeck

ACCT 226 Week 1 of notes ACCT 226 - 002

Rachel Whitbeck
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These notes cover everything we talked about in the first three classes, from January 14th to the 21st. Debbie does post her powerpoints online, so I have what she has on her slides, as well as wha...
Introduction to Managerial Accounting
Debbie Huguley Brumbaugh
Class Notes




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This 5 page Class Notes was uploaded by Rachel Whitbeck on Thursday January 21, 2016. The Class Notes belongs to ACCT 226 - 002 at University of South Carolina taught by Debbie Huguley Brumbaugh in Spring 2016. Since its upload, it has received 149 views. For similar materials see Introduction to Managerial Accounting in Accounting at University of South Carolina.


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Date Created: 01/21/16
Accounting 226 10:05 TR Thursday, January 14, 2016  3 pillars of management o Planning o Controlling  Evaluate feedback to determine where you’re doing well and where you’re falling short  Use performance reports o Decision making  Over 80% of professional accountants in the US work in non- public accounting environments  Certified Management Accountant (CMA)- has the qualifications and passes a rigorous professional exam  Six business management perspectives o Ethical behavior  Guidelines for ethical behavior: Competence, Confidentiality, Integrity; and Credibility  Essential for a smooth running economy o Strategic management  Customer intimacy strategy- fast, convenient, and lower costs  Operational Excellence strategy  Product Leadership strategy- higher quality products o Enterprise risk management  Process used by a company to proactively identify and manage risks  Avoid, accept, or reduce the risk by implementing specific controls o Corporate social responsibility  Organizations consider the needs of all stakeholders when making decisions (customers, employees, suppliers, communities, stockholders, environmental and civil rights advocates)  Extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations o Process management  A business process is a series of steps that are followed in order to carry out some task in a business o Leadership perspective  Organizational leaders unite the behavior of employees around two common themes—pursuing strategic goals and making optimal decisions.  Factors that influence behavior  Intrinsic motivations  Extrinsic motivations  Cognitive bias Tuesday, January 19, 2016  Managers want cost data o For external financial reports o To prepare planning documents and budgets o To make decisions  Classifications of manufacturing costs o Direct materials  Easy to trace  Every product requires them o Direct labor  Touch labors  People who transform the product into a finished product  Assembly line workers o Manufacturing OH (overhead)  Not direct materials and not direct labor  3 categories  Indirect labor o Maintenance people, etc o Shared/common cost  Indirect materials o Not really traceable (glue, lubricant, etc)  General o Taxes, depreciation, rent, etc  Prime costs and conversion costs o Prime cost --> direct material and direct labor o Conversion cost --> direct labor and manufacturing overhead  Classifications of non-manufacturing costs (SG&A) o Selling o General and administrative  Cost of accounting and HR  Executive, corporate, administrative  Product vs. period costs o Product costs include direct materials, direct labor, and manufacturing overhead (inventoriable costs)  Inventory goes on the balance sheet, and then once it’s sold, it goes under cost of goods sold on the income statement o Period costs include all selling costs and general and administrative costs (non-manufacturing costs)  Expense as incurred  Expenses go on the income statement  Quick check- period or product cost? o Manufacturing equipment depreciation- product costs (overhead) o Property taxes on corporate headquarters- period costs o Direct material costs- product o Electrical costs to the light the production facility- product o Sales commissions- period  Cost classifications for predicting cost behavior o Cost behavior- how a cost will react to changes in the level of activity  Variable costs  Vary in total as activity changes  Unit cost does not change though  Activity base (cost driver)- change in number of units that changes the total cost  Fixed costs  Stays constant in total  Doesn’t change with activity level  But average cost per unit varies inversely  Ex: rent  Relevant range: range within which the assumptions made about cost behavior are valid (graph of the cost is flat) o Fixed costs in total remain fixed within the relevant range  Types of fixed costs o Committed  Long term  Cannot be significantly reduced in the short term  Ex: depreciation on buildings and equipment and real estate taxes o Discretionary  May be altered in the short-term by current managerial decisions  Ex: advertising and research  Mixed costs- attributes of both variable and fixed  Ex: cell phone bill  Quick check- variable or not with respect to products sold? o Cost of lighting to the store- doesn’t change, so not variable o Wages of the store manager- not related to number of products, so not variable o Cost of the product- variable! o Cost of napkins for customers- also variable Thursday, January 21, 2016  Exercise 2: direct labor, direct materials, manufacturing overhead, selling, or administrative cost? o Cost of a hard drive installed in a computer: direct materials o Cost of advertising: selling o Wages of employees who assemble computers from components: direct labor o Sales commission paid to the company’s salespeople: selling o Wages of the assembly shop’s supervisors: manufacturing overhead o Wages of the company’s accountant: administrative o Depreciation on equipment: manufacturing overhead (general) o Rent on the facility: manufacturing overhead (but depending on square footage, could be administrative)  Exercise 2: o Depreciation on salespersons’ cars: period cost  Mixed costs- contain both variable and fixed elements o Example: utility costs o Mixed cost equation: Y= a + bX  Y= total mixed cost  a = total fixed cost (vertical intercept of the line)  b = variable cost per unit of activity (slope of the line)  X= activity level o High-low method: the variable cost per hour of maintenance is equal to the change in cost divided by the change in hours  Take the highest and lowest and find the slope  Solves for b- the variable cost rate per unit.  Plug it into the equation and then solve for the fixed cost o Total fixed cost = total cost – total variable cost  Quick check o Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000 units are sold. Use high low method to find fixed portion o 14,000= a + bX  Least-Squares Regression Method o Used to analyze mixed costs if a scattergraph plot reveals an approximately linear relationship between the X and Y variables. o Uses all of the data points to estimate the fixed and variable cost components of a mixed cost. o Goal is to fit a straight line to the data that minimizes the sum of the squared errors o Software can be used to fit a regression line through the data points o The cost analysis objective is the same: Y= a + bX 2 o Also provides a statistic, called the R , which is a measure of the goodness of fit of the regression line to the data points  Comparing results from the two methods o The answers are different o We like least-squares better because it’s more accurate  The traditional and contribution formats of income statement— merchandising company o Traditional format is primarily used for external reporting o Contribution format is primarily used by management  Sales is the same but include all variable expenses o Contribution margin vs gross margin: very important  CM= sales – variable expenses  GM= sales—cost of goods sold  Differential cost and revenue- costs and revenues that differ among alternatives  Opportunity costs- potential benefit that is given up when one alternative is selected over another  Sunk cost- already been incurred and cannot be changed now or in the future. Should be ignored when making decisions


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