Managerial Accounting Exam #2 Test Questions – Flashcards
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1. What are the 4 Primary Responsibilities of a Manager?
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Planning, Directing, Controlling, and Decision-Making
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2. What is the difference between Managerial and Financial Accounting?
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Financial accounting is geared toward annual/quarterly consolidated financial statements that will be used by creditors and investors to make investment decisions. Managerial Accounting is more internal, based on relevance, and based on the future. When a manager is designing a company's managerial accounting system that is not regulated by GAAP, they must ensure that the benefits of the system such as the ability to make wiser decisions, outweighs the costs of the system.
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3. How do reports in both managerial and financial accounting affect employee behavior?
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In managerial accounting, management carefully considers behavior implications when designing the managerial accounting system. In financial accounting, behavioral implications are secondary.
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4. What is the Board of Directors? Who elects them?
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They are elected by shareholders to oversee the company.
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What is the CEO and who elects him/her?
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Hired by the Board of Directors to manage company on a daily basis.
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What is the CFO and who elects him/her?
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Chief Financial Officer: Handles all financial concerns, hired by CEO
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What is the COO? Who elects them?
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Chief Operations Officer: Handles company operations and hired by CEO
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What is the treasurer?
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Responsible for raising capital via stocks and bonds.
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What is the controller?
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Responsible for general financial accounting
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Who does the treasurer and controller report to?
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The CFO
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What must NYSE companies have?
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Internal audit functions to ensure they are in compliance with GAAP
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Provide examples of how management accountants' roles have changed over time.
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Management accountants no longer perform routine mechanical accounting tasks. Now, they are viewed more as internal consultants or business advisors. They are still involved with the traditional responsibility of recording transactions, but technology controls much of the routine work.
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List 5 skills management accountants need to be successful.
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1. Solid knowledge of both financial and managerial accounting. 2. Analytical skills 3. Knowledge of how a business functions. 4. Ability to work on a team. 5. Oral and written communication skills.
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14. What are the ethical standards by which management accountants should work by?
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Competence, Confidentiality, Integrity, and Credibility
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How do managers design a company's management accounting system that is not regulated by GAAP?
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Managers design the managerial accounting system that the benefits (from he,ping managers make wiser decisions) outweigh the costs of the system.
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What are the most common business sectors? What are their activities?
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Service: Are in business to sell intangible services such as health care, insurance, banking, and consulting. Service firms now make up the largest sector of the U.S. economy. They generally don't have inventory. Minimal inventory is maintained by it is typically used for internal operations. Merchandising: (Walmart/JCPenny) These firms resell tangible products they buy from suppliers. Retailers sell to consumers. Wholesalers buy products in bulk from manufacturers, mark up the prices, and then sell those products to retailers. The cost of inventory includes the cost merchandisers pay for the goods plus all costs necessary to get the the merchandise in place and ready to sell. Manufacturing: Use labor, plant, and equipment to convert raw materials into new finished products. Manufacturers sell their products to retailers or wholesalers at a price that is high enough to cover their costs and generate a profit.
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What does the value chain consist?
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1. Research/Development 2. Design 3. Production and Purchases 4. Marketing 5. Distribution 6. Customer Service
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How do Inventoriable Costs relate to the value chain?
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They show up in Production and Purchases
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Where do Period Costs show up in the value chain?
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The other five phases besides Production and Purchases
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Of the 3 main financial statements, which statement do period costs show up on? In what form are they expressed on said statement?
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Period costs show up as operating expenses on the Income Statement.
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How are Inventoriable Costs spread out throughout the three financial statements?
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Inventoriable product costs are spread broken up into Inventory Sold and Inventory Not Sold until the following year. Inventory Sold transitions into Cost of Goods Sold and shows up on the Incomes Statement. Inventory Not Sold transitions into Inventory that shows up on the Balance Sheet and Cost of Goods Sold that shows up on the Income Statement for the following year.
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What is the equation for Inventoriable Product Costs?
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Direct Materials+Direct Labor+Manufacturing Overhead=Inventoriable Product Cost
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What are Direct Materials?
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The primary raw materials that become a physical part of the finished product.
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How else are Period Costs referred to? How are they expensed?
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Period costs are often called "operating expenses" on the company's income statement. Period costs are always expensed in the period in which they are incurred and never become part of an inventory account.
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What is total cost? What does it consist of?
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Total cost includes the costs of all resources used throughout the value chain. It is simply the Inventoriable Product Costs+Period Costs
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What is an Inventoriable Product Cost?
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Include only the costs incurred during the Production/Purchases stage of the value chain. Inventoriable product costs are treated as an asset (inventory) until it is sold.
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What is a Period Cost?
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The costs that a company incurs along the value chain outside of Production and Purchases.
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What is a direct cost?
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A cost that can be traced to the cost object.
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What is an indirect cost?
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A cost that relates to the cost object but cannot be traced to it.
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What does it mean to allocate?
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Assign an indirect cost to a cost object.
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What does it mean to trace an object?
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Assign a direct cost to a cost object.
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Between allocating and tracing, which is more precise?
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With tracing, amount of cost assigned to the cost object is very precise. With allocating, the cost assigned to the cost object is less precise.
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What is Manufacturing Overhead?
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Includes all manufacturing costs other than direct materials and direct labor. It encompasses indirect materials, indirect labor, and other indirect manufacturing costs.
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What are Prime Costs?
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Refer to the combination of direct materials and direct labor.
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What are Conversion Costs?
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Refer to the combination of direct labor and manufacturing overhead. These are the costs of converting direct materials into finished goods.
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What are Controllable Costs?
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Costs that you can change with relative ease.
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What are Uncontrollable Costs?
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Costs that you can't change right away.
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What are Relevant Costs?
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Costs relevant to a manager in making a decision.
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What are Irrelevant Costs?
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Opposite of Relevant Costs
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What are Differential Costs?
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Comparing cost of Product A and Product B
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What are Sunk Costs?
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A cost that has already been incurred.
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What is the equation for Direct Materials used? What account is this equation applicable to?
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Beginning RM Inventory+DM purchased+Freight In-Ending RM Inventory. (The Raw Materials Inventory)
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What is the Equation for Cost of Goods Manufactured? What account is this equation applicable to?
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Beginning WIP Inventory +DM used+DL+MOVHD-Ending WIP Inventory (Works in Process Inventory)
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What is the Equation for Cost of Goods Sold? What account is this equation applicable to?
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Beginning Finished Goods Inventory+Cost of Goods Manufactured-Ending Finished Goods Inventory (Finished Goods Inventory)
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What is the equation for total cost?
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Total Fixed cost +(Variable Cost per unit*Number of units)=Total Cost
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What is the equation for Average Cost?
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Total Cost/Number of Units
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When is employing the Average Cost equation valid?
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The average cost per unit is valid only at one level of output-the level used to compute the average cost per unit. Never use average costs to forecast costs at different output levels.
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Marginal Cost
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Cost of making one more unit
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How do managers decide which costs are relevant to their decisions?
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Costs are relevant to a decision when they differ between alternatives and affect the future. Thus, differential costs re relevant, whereas sunk costs and costs that don't differ are not relevant.
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What inventoriable product costs are useful for internal decision making, and which product costs are used for external reporting?
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Managers use total costs for internal decision making. However, GAAP requires companies to use only inventoriable product costs for external financial reporting.
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What costs are treated as inventoriable product costs under GAAP?
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Service: No inventoriable product costs Merchandising: The cost of merchandise purchased for resale plus all of the costs of getting the merchandise to the company's place of business. Manufacturing companies: Direct materials, direct labor, and manufacturing overhead
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What is Process Costing and what types of companies use it?
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Used by companies that produce extremely large numbers of identical units through a series of uniform production steps or processes.
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What is Job Costing and what types of companies use it?
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Used by companies that produce unique, custom-ordered products, or relatively small batches of different products. Each order is treated as a separate job.
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What is the Flow of Inventory through a Manufacturing?
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RM Inventory is first kept in the storeroom until needed. It is then brought from the storeroom to the factory where it is now placed in the Worked in Process Inventory. It is then placed in the Finished Good Inventory where all finished, unsold products are kept. Finally, it becomes a Cost of Goods Sold when the product is sold.
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What is stock inventory?
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Products normally kept on hand in order to quickly fill customer orders.
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What is a production schedule?
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A written or electronic document authorizing the purchase of specific raw materials from a specific supplier.
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What is the Bill of Materials?
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A list of all of the raw materials needed to manufacture a job.
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What is the Raw Materials Record?
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A written or electronic document listing the number and cost of all units used and received, and the balance currently in stock; a separate reocrd is maintained for each type of raw material kept in stock
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What is a purchase order?
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A written or electronic document authorizing the purchase of specific raw materials from a specific supplier.
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What is a Receiving report?
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A written or electronic document listing the quantity and type of raw materials received in an incoming shipment; the report is typically a duplicate of the purchase order without the quantity prelisted on the form.
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What is an Invoice?
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A bill from a supplier
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What is a Materials Requisition?
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A written or electronic document that requests specific materials be transferred from the raw materials inventory storeroom to the production floor.
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What is picking?
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Storeroom workers remove items from raw materials inventory that are needed by production.
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What is a Job Cost Record?
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A written or electronic document that lists the DM, DL, and MOV costs assigned to each individual job.
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What is a Labor Time Record?
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A written or electronic document that identifies the employee, the amount of time spent on a particular job, and the labor cost charged to a job.
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How are Direct Materials Cost traced to a job?
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Once production is ready to begin a particular job, it will need many of the parts shown on the bill of materials. The production schedule will specify how long the job is supposed to last. Each time production needs some raw materials, it will fill out a materials requisition. As soon as the materials requisition is received by the raw materials storeroom, workers pick the appropriate materials and send them to the factory floor. The unit cost and total cost of all materials picked are posted to the materials requisition based on the cost information found in the individual raw materials records. The individual raw materials records are also updated as soon as the materials are picked. Finally, the raw materials requisitioned for the job are posted to the job cost record. Each time raw materials are requisitioned for a specific job, they ar e posted to the direct materials section of the job cost record. They are considered direct materials since they can be traced specifically to a specific job. By using this system to trace direct materials to specific jobs, managers know exactly how much direct material cost is incurred by each job.
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Where do job cost records on incomplete jobs sum to?
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Total WIP shown on the balance sheet
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Where do the balance of unsold units from completed job cost records sum to?
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Total FGI on the balance sheet
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What is the process that management uses to allocate MOVHD?
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1) Estimate total MOVHD for the coming year 2) Select an allocation base and estimate total amount of that base to be used during that year, ideally a cost driver. 3) Calculate the predetermined MOVHD rate using the information from steps 1 and 2. Formula: Predetermined MOVHD rate=Total est. MOVHD costs/Total est. amount of allocation base 4) Allocate some MOVHD to each individual job Formula: MOVHD allocated to each job= Predetermined rate*Actual amount of allocation base used by each job
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What is cost driver?
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Primary factor for cost
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Why do managers use the Predetermined MOVHD rate?
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Relevance, decisions
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When is MOVHD allocated to jobs?
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-Depends -Job Cost Record must be updated at end of reporting period to have accurate inventory amounts on balance sheet
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How do you determine the cost of a job and use it to make business decisions?
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Direct materials+Direct Labor+MOVHD
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What happens if MOVHD is underallocated?
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This means that that the Cost of Goods Sold is too low. We must increase the COGS for the amount of the underallocation.
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What happens if MOVHD is overallocated?
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This means that COGS is too high. As a result, we must decrease COGS for the amount of the overallocation.
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What if a company has not sold all of the goods?
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If you are under or over allocated and have not sold all of the goods, you prorate the total amount of under or over allocation among WIP, FGI, and COGS.
