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Notes for Wee of 3/23

by: Rachael Han

Notes for Wee of 3/23 ACCY 2002 - Intro to Managerial Accounting

Rachael Han
Intro to Managerial Accounting

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Intro to Managerial Accounting
Class Notes
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This 3 page Class Notes was uploaded by Rachael Han on Wednesday March 25, 2015. The Class Notes belongs to ACCY 2002 - Intro to Managerial Accounting at George Washington University taught by Linsley in Spring2015. Since its upload, it has received 85 views. For similar materials see Intro to Managerial Accounting in Accounting at George Washington University.

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Date Created: 03/25/15
Chapter 5 Variable baarp an Coating Casting Direct Materials Direct Lalbnlr Variable Manufacturing Dwarhead Fixed Ma ufa cm ring Dverhead Variable Selling and Administrative Emaanaaa Fixed Selling and Admi iatratiue Expenaea Absorption Costing all production costs variable and fixed are included when determining unit product cost in uenced by changes in unit sales and units of production NI can increase by producing more units even if not sold Income Statement 0 Revenue COGS GM SAG NI 0000 Variable Costing only variable product costs are included in product costs only affected by changes in unit sales not units produced sales inc NI inc Income Statement 0 Revenue VC product cost amp v SAG Cost CM FC fixed manual and SAG costs NI 0000 Units Produced gt Units Sold I Absorption gt Variable Contribution Format used bc separates fixed from variable costs and enables calculation of CM Fixed Costs cost that doesn t change as you increase production Traceable Fixed Costs cost that will disappear if segment closes arise bc of existence of a particular segment and would disappear if segment disappeared separated from common fixed costs to enable calculation of segment margin Common Fixed Costs cost that doesn t change if you close a segment arise bc of overall operation of company and would not disappear if segment eliminated Segment Margin Contribution margin traceable fixed cost Segmented Income Statement 0 Rev VC CM Traceable FC Segment CM Common FC only appears in total NOT segments NI OOOOOO Chapter 7 Relevant costbene t costbenefit that differs between alternatives Avoidable cost cost that can be eliminated by choosing one alternative over another Relevant costs Irrelevant Costs sunk costs and a future cost that does not differ btwn alternatives Vertically Integrated Company if company is involved in more than one activity in the entire value chain advantages smoother ow of parts and materials better quality control realize profits disadvantages may fail to take advantage of supplies who can create economies of scale advantage by pooling demand rom numerous companies Make or Buy Decision decision to carry out one of the activities in value chain internally rather than to buy externally from supplier Special order one time order not considered part of normal ongoing business when analyzing only incremental costs and benefits are relevant irrelevant costs fixed manufacturing overhead costs Constraint limited resource of some type restricts the company s ability to satisfy demand Bottleneck machineprocess limiting overall output type of constraint Joint Products 2 products produced from common input Splitoff point point in manufacturing process where each joint product can be recognized as separate product Chapter 8 To determine Net Present Value I calculate PV of cash in ows 2 PV of cash out ows 3 PV In ows PV Out ows O NPV acceptable bc great return than required ROR O NPV O acceptable bc equal return 0 NPV unacceptable Emphasizes cash ows NOT accounting NI 0 Cash Depreciation not deducted in computing PV of project bc not current cash ow NPV of one project cannot be directly compared to the NPV value of another project unless investments are equal 0 gtkCan t be used to compare projects because it doesn t say anything about initial investment Assumptions 0 All cash ows other than initial investment occur at end of periods 0 All cash ows generated by project immediately reinvested at ROR discount rate Choosing discount rate firm s cost of capital min ROR cost of capital average ROR the company must pay to its longterm creditors for use of their funds Internal ROR Method Internal ROR ROR promised by an investment project over its useful life computed by finding discount rate that will cause the NPV to equal 0 O return promised by an investment life Works well if project s cash ows are identical each year gtkBetter for comparing proj ecrs Accept if Internal ROR is equal to or greater than min required ROR Higher internal ROR more desirable Decisions of Investment Projects Screening decisions pertain to whether or not some proposed investment is acceptable these decisions come first Preference Decisions attempt to rank acceptable alternatives from most to least appealing Ranking investment Projects 0 Project profitability index NPV of project investment required 0 Higher More Desirable Payback Method Payback period length of time it takes for project to recover its initial cost out of cash receipts that it generates Payback period investment required annual net cash in ow Limitations does not consider life of project and time value of money only works with constant cash ows Simple ROR Method does not focus on cash ows I focuses on NI Simple ROR annual incremental NI DE costs initial investment salvage value of old 0 DE cost years of life I DE if you could sell after life years over cost sell revenue years of life


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