Ch 1 – Managerial Accounting – Flashcards
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Which of the following statements is true?
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Managerial accounting reports are less regulated than financial accounting reports. Managerial accounting focuses on preparing information for internal users. The types and quality of information are dictated by the management of the reporting entity and are not subject to regulatory requirements.
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Which of the following branches of accounting focuses more on historical data?
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Financial accounting. Managerial accounting focuses more on current and future data while financial accounting focuses on reports that explain historical data. For example, financial accounting seeks to determine the amount of income that has been earned in the past while managerial accounting provides information that will facilitate the amount of income to be earned in the future.
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The Financial Accounting Standards Board (FASB) establishes standards for the preparation of financial accounting reports while the Securities and Exchange Commission (SEC) establishes standards for the preparation of managerial accounting reports. This statement is
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False The FASB and the SEC provide standards, rules, and guidance for financial reporting. Managerial accounting is largely unregulated.
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Managerial accounting focuses on the needs of external users while financial accounting focuses on the needs of internal users. This statement is
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False The relationships described in this statement are reversed. Specifically, managerial accounting focuses on internal users while financial accounting focuses on external users.
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Which of the following are characteristics of managerial accounting information?
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Is more willing to sacrifice reliability to gain relevance than is financial accounting. Is future oriented. Provides information to the company's management team.
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The cost of manufacturing a product includes all of the following except
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advertising Advertising is a cost of selling products as opposed to making them.
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The cost of a small amount of glue used to manufacture a product may be called
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an indirect cost. a product cost. an overhead cost.
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Which of the following describes the flow of product costs in a manufacturing company?
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Product costs are first accumulated in an asset account (Inventory) and then transferred to an expense account (Cost of Goods Sold) when the products are sold.
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ManCo Manufacturing Company paid cash for wages of production workers. Which of the following choices reflects how this event would affect the Company's balance sheet and income statement?
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Assets: +/- When ManCo pays cash for production workers the company is paying money to make inventory. As a result, one asset account (Cash) decreases and another asset account (Inventory) increases, the total amount of assets is not affected. The income statement is not affected until the time goods are sold.
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ManCo Manufacturing Company paid cash for commissions paid to sales staff. Which of the following choices reflects how this event would affect the Company's balance sheet and income statement?
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Assets - Equity - Exp + Net Inc - When ManCo pays cash to the sales staff the company is paying to sell the product. Selling expenses are downstream costs that are incurred after the product has been made. They are period costs as opposed product cost. Selling costs are expensed in the period they are incurred. As a result, the asset account (Cash) decreases and the expense recognition causes equity (Retained Earnings) to decrease. On the income statement expenses increase and net income decreases.
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Celestin Manufacturing Company incurred $5,000 of depreciation on its manufacturing equipment during its first year of operation. During this year the company made 2,500 units of product and sold 2,000 units of product. Based on this information alone the company would show
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$4,000 of cost of goods sold expense on its income statement. The cost of depreciation on manufacturing equipment is an overhead cost which is a product cost. The amount of the depreciation is first placed in the Inventory account and then transferred to the Cost of Goods Sold account when the units are sold. Since the company made 2,500 units of product and sold 2,000 of them, the amount of cost transferred to the Cost of Goods Sold account is $4,000 (5,000 depreciation / 2,500 units = $2 per unit; $2 per unit x 2,000 units sold = $4,000 cost of goods sold. The remaining $1,000 of depreciation would remain in the inventory account until the time the remaining goods are sold.
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Brock Company makes candy. During the most recent accounting period Brock paid $3,000 for raw materials, $4,000 for labor, and $2,000 for overhead costs that were incurred to make candy. Brock started and completed 10,000 units of candy of which 8,000 were sold. Based on this information Brock would recognize which of the following amounts of expense on its income statement?
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$7,200. Total product cost= 9,000/10,000 (units) = 0.90 cost per unit 0.90 x 8,000 units sold = $7,200 COGS expense
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Brock Company makes candy. During the most recent accounting period Brock paid $3,000 for raw materials, $4,000 for labor, and $2,000 for overhead costs that were incurred to make candy. Brock started and completed 10,000 units of candy of which 8,000 were sold. Based on this information the balance in the inventory account on Brock's balance sheet would be
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$1,800 cost per unit = $0.90 x 2,000 units in inventory = $1,800 in inventory
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Calgary Manufacturing company makes chairs and desks. The following costs were incurred in making its products during its first year of operation. Direct Materials: chairs $4,000 Desks $6,000 (total =$10k) Direct Labor: chairs $12k desks $8k (total = $20k) Also the company incurred $14,000 of employee benefits cost. Since these overhead costs are driven by the use of labor they are allocated to the products based on the direct labor dollars. Based on this information alone the total cost of making chairs is.
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$24,400 Cost to be allocated / Allocation base = Allocation Rate $14,000 / $20,000 = $0.70 per labor dollar Overhead cost allocated to chairs $ 12,000 x .70 = $ 8,400 Overhead cost allocated to desks $ 8,000 x .70 = 5,600 Total overhead cost allocated $ 14,000 Total cost of making chairs = $4,000 materials + $12,000 labor + $8,400 overhead = $24,400
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Companies that start a just-in-time inventory system are seeking to
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reduce the size of the inventory they carry. In an ideal just-in-time system, inventory is produced just-in-time to meet customer demand. In other words, because inventory is delivered to customers immediately upon completion, the manufacturer carries a zero inventory balance. In practice, companies rarely accomplish the ideal. For example, it may be necessary to hold inventory for several days before it can be delivered or it may be necessary to hold a minimum amount of inventory for display purposes. Regardless the goal is to reduce the holding of inventory as much as possible.
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Which of the following is not a cost associated with holding inventory?
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The cost of customizing products. Customizing products normally suggests that a company is making the inventory to meet the specifications of a buyer who is ready to take delivery of the product(s) immediately upon its completion. Therefore normally there are not finished goods inventory costs associated with product customization.
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Just-in-time inventory systems are designed to minimize
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the cost of waste. opportunity cost the cost of storage space
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Within the context of a just-in-time inventory system, the cost of missing a sale because of an insufficient amount of inventory is commonly called waste. This statement is
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false Missing an opportunity to earn income from the sell products that is caused by a lack of inventory is called an opportunity cost rather than waste.
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The Bake Shop (TBS) buys and sells cakes. To preserve freshness TBS donates cakes that have not been sold within 5 days to charitable organizations. To avoid waste TBS usually orders fewer cakes than it can sell. Sold out signs are frequently seen in the store. Even so, the cakes come in several flavors and occasionally some of the flavors do not sell out before the 5 day shelf life expires. Cakes cost $8 each to purchase and are sold for $14 each. During the most recent month TBS had customer orders for 20 cakes that could not be filled due to a lack of inventory. There were only 4 cakes that had to be donated to charity during the month. Based on this information the
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Opportunity cost amounted to $120 lost revenue ($14x20 units) = $280 COGS that would have been incurred ($8x20) = 160 loss of potential profit = $120
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If a manager misclassifies a selling and administrative expense as a product cost and the number of units of the product made is equal to the number of units sold, the amount of net income will not be affected. This statement is
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true
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Net income will be overstated if a significant selling and administrative expense is classified as a product cost and
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the number of products made is less than the number of products sold.
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The three features of the fraud triangle are
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opportunity, incentive and rationalization.
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The primary objective of internal controls is to reduce
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the opportunity for fraud
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Which of the following is a requirement of the Sarbanes-Oxley Act?
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The establishment of a strong set of internal controls. The establishment of a code of ethics. The establishment of a hotline for whistle blowers.
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Cost Category: Utilities used in manufacturing facility
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Product cost/Asset
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Cars for sales staff
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SG&A cost/Asset
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Real estate tax levied on a factory
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Product cost/Asset
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General office supplies
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SG&A cost/Asset
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Raw materials used in the manufacturing process
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Product cost / Asset
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Cost to rent office equipment
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SG&A cost / Expense
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Wages of production workers
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Product cost / Asset
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Advertising costs
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SG&A cost / Expense
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Promotion costs
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SG&A cost / Expense
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Production supplies
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Product cost / Asset
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Depreciation on administration building
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SG&A cost / Expense
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Depreciation on manufacturing equipment
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Product cost /Asset
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Research and development costs
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SG&A cost / Expense
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Cost to set up manufacturing equipment
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Product cost / Asset
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Interest on the mortgage for the company's corporate headquarters.
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SG&A
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Indirect labor used to manufacture inventory.
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Product Cost
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Attorney's fees paid to protect the company from frivolous lawsuits.
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SG&A
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Research and development costs incurred to create new drugs for a pharmaceutical company.
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SG&A
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The cost of secretarial supplies used in a doctor's office.
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SG&A
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Depreciation on the office furniture of the company president.
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SG&A
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Direct materials used in a manufacturing company.
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Product Cost
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Indirect materials used in a manufacturing company.
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Product Cost
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Salaries of employees working in the accounting department.
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SG&A
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Commissions paid to sales staff.
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SG&A
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Ames Corp recognized accrued compensation expense. How did this affect the companies financial statement: The compensation is for office personnel
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Assets N/A Liab + Equity - Rev N/A Exp + Net Inc. -
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Ames Corp recognized accrued compensation expense. How did this affect the companies financial statement: the compensation is for production workers
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Assets N/A Liab + Equity - Rev N/A Exp + Net Inc. -
