Managerial Accounting Exam 1 Questions And Answers – Flashcards
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Management
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Those responsible for operating the business, meeting profitability and liquidity goals
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Direct Financial Interest
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Depends on accounting information to report on how the business has performed, as an indicator of how it will do in the future
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Indirect Financial Interest
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Depends on accounting information to help make decisions on public issues
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Financial Accounting
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-Used by external decision makers -Communicated financial information -Highly summarized -Must follow GAAP
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Managerial Accounting
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-Used by internal decision makers -Includes more detailed information -Does NOT have to follow GAAP
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Purpose of Managerial Accounting
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To help managers to plan, direct, and control business operations and to make business decisions
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Planning
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Setting goals and objectives for the company
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Directing
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Overseeing the company's day to day operations
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Controlling
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Evaluating results of operations against the plan and making adjustments
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Decision Making
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Occurs at all stages of planning, directing, and controlling
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Primary Accounting Information Produced
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Internal reports, much more detailed information, capturing key areas the company is interested in. Does not follow GAAP. Management determines how reports should be designed and what information should be captured
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Focus
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Uses some historical information, but generally takes past information and tries to help predict or make decisions that affect the future
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Frequency
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Can be produced daily, weekly, monthly, etc. All reporting deadlines are designed by the company
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Skills Required
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-solid background in both financial and managerial accounting -analytical skills -operational information on "how" the business functions, team approach, etc.
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Institute of Management Accountants (IMA)
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professional organization for management accountants. works to advance managerial accounting by certification, practice development, education, and networking
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CMA
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professional exam that tests management accounting topics heavily, including economics and business finance
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CFM
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profession exam that tests financial statement analysis, business valuations, capital structures, etc.
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Statement on Ethical Professional Practice(2005)
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Standard of ethics for accountants. includes the following -Competence -confidentiality -integrity -credibility
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Sarbanes oxley act of 2002
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Designed to restore trust in publicly traded corporations and the accounting profession after several large accounting frauds. enhances financial reporting requirements and internal controls for all publicly traded companies
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Requirements of SOA
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-CEO and CFO certify financial statements and assume responsibility that all material information is properly accounted for and disclosed -CEO and CFO acknowledge responsibility for developing adequate internal control structure to ensure information is accurate and reliable -Extremely harsh fines and/or prison time for executives that knowingly falsify financial statements or commit other white collar crimes -audit committee now required-has to be independent from company and must include at least one financial expert -outside auditors must maintain independence, cannot provide certain services for clients they are currently auditing
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Shifting Economy
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Man. acctg needs to help all organizations better understand their costs so they can competitively price their products, maintain acceptable profit margins, and be able to compete in a global market
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Competing in the global marketplace
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need to understand the countries in which you wish to do business, and also management accounting techniques used in other countries that can help companies in the U.S. be successful
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Time Based Competition
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New technologies affect the speed at which business transactions take place
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ERP Systems
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Integrate all of a company's functions into one system
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E commerce
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assists with supply chain management
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JIT Management
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Receive materials "just in time" to process an order, eliminates storage costs throughout time. strive for zero defects in manufacturing process
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Lean Production
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manufacturing without waste, which lowers a company's costs and makes them more competitive
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Just in Time
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Advocates of lean normally adopt, inventory system where manufacture products just in time to fill customer's orders, rather than produce a lot of inventory
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Total Quality Management
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Idea that Company continually strives for improvement, to provide best possible quality of product at lowest possible cost
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Cost-Benefit analysis
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looks at expected costs of each outcome vs. expected benefits
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sustainability
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focuses not just on measuring a company's financial performance but also their impact on people and the planet. more long term thinking
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service organizations
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sell intangible services to customers rather than a tangible product
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Merchandising organizations
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generate revenues by purchasing products from suppliers and reselling to customers
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Manufacturing companies
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generate revenues by converting raw materials into a finished product and then selling it.
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3 inventory accounts listed on balance sheet
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-raw materials -work in progress -finished goods
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Value Chain
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links organization's processes to ideas, resources, suppliers, and customers (activities that add value to the product and services provided).
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cost object
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anything managers want to be able to separately measure the cost
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Direct Cost
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Cost that can be directly traced to a cost object (trace costs).
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Indirect Cost
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Cost that relates to the cost object, but can't be directly traced
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product costs
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a cost assigned to goods used to produce or resell a product ( inventoriable, counts as asset on bal. sheet. until sold).
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period cost
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expensed as incurred; anything that is not a product cost
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Items included in WIP
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-raw materials/direct materials -direct labor -overhead
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Raw materials/direct materials
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can be traced to the products made
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Direct Labor
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"touch labor" cost of employees' salaries that actually touch the product to make it. can also be traced
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overhead
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all manufacturing costs other that direct materials and direct labor, but still required for the manufacturing process. includes -indirect labor -indirect materials -electricity -property taxes on the plant -etc. MUST indirectly relate to manufacturing process
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cost drivers
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causes costs to go up
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fixed cost
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cost stays the same
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variable costs
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vary in direct proportion to # of units produced
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sunk costs
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cannot change future, so irrelevant for decision making
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marginal costs
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cost of making one more item
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prime costs
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direct materials + direct labor
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conversion costs
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direct labor + manufacturing overhead
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year to year
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company can evaluate own performance from year to year to see if its financial results have improved
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against competitor
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company can evaluate its financial performances against a competitor and use this information as a benchmark for improvement
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against industry averages
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company can evaluate its financial performance against average stats for like companies within its same industry. used as another benchmark for improvement
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Horizontal analysis
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year to year comparison of a company's financial performance for different periods. computes percentage change over time
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Trend percentages
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form of horizontal analysis, where several years are compared and percentages computed against a base year, to highlight andy trends that have happened over a longer period of time
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vertical analysis
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more complete analysis of entire financial statement by showing relationship of each line item on the financial statement to a base amount
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common size financial statements
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used to benchmark one company against another competitor or industry averages. report all items on income statement and balance sheets as percentages
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process costing
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assigns costs to products that are homogenous in nature and can distinguish one from another -costs are averaged and equivalent units are computed -costs are similar across all products because units are identical -costs are allocated to each unit
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job costing
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assigns costs to products that pass through production in a distinct job. -common in industries that produce goods to meet customer specifications -not confined to manufacturers -costs allocated to each job
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predetermined overhead rate
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company determines what basis to use to allocate overhead and estimate what they think they will spend on overhead for the year formula est. $ amount to spend on OH / total est. allocation base for year
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actual expenses
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actual expenses related to overhead are still debited as incurred
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applied
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apply overhead to jobs all year based on predetermined overhead rate x allocation base per job
