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managerial accounting

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the gathering and preparing of accounting information that is used within a company to help ensure the organization's goals are met effectively and efficiently

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internal users

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people inside the company; ex. managers, accountants, etc

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external users

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people outside the organization; ex. investors, creditors, etc

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Three Functions of Management Accountants

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Planning, Directing, Controlling

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Planning

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deciding on the long-term direction of the company; ex. making budgets

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Directing

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monitoring day-to-day operations (HINT: DDD); ex. analyzing yesterday's sales data

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Controlling

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comparing actual results to planned results; ex. comparing yesterday's sales data to a budget and adjusting

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financial accounting differences

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mainly for external use, helps external users make financial decisions, driven by GAAP, looks at the previous year, only financial data, prepared quarterly or annually, measures everything in dollars, all about verifiability, focuses on company as a whole, not so detailed

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managerial accounting differences

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mainly for internal use, helps managers make decisions, plan, direct, and control, not driven by GAAP, looks to the future, not just financial data, prepared anytime, anywhere, for any purpose, can measure anything in any way, all about relevance, focuses on operating segments, very detailed

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Price

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price the consumer pays for the product

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cost

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cost that we (the manufacturer) pay to make the product

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revenue

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amount of money that a firm makes (total $$$ coming in the door)

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profit (operating income)

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revenue minus costs

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fixed costs

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costs that do not change as we produce more units (activity level increases); tutoring ex: classroom Constant in total Varies on a per unit bases

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variable costs

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costs that do change (increase) as we produce more units (think per unit); Changes in total (in direct proportion to changes in volume Constant per unit tutoring ex: packets/paper

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cost driver

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whatever makes our costs move, as we have more cost driver we have more cost; ex. direct labor hours, machine hours, miles driven

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relevant range

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we can only analyze costs across a reasonable range of values

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marginal cost

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cost of producing one additional unit of a good

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Total Cost formula

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total cost = fixed cost + variable cost per unit(x)

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As we produce more units (activity level increases) what happens to...

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(Total) Variable Costs = increase Variable Costs per unit = stay the same (Total) Fixed Costs = stay the same Fixed Costs per unit = decrease Total Costs = increase

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direct materials

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costs that are directly involved in the production of the good ex. calculator ex - plastic, rubber, electronics other ex. freight in on raw materials,

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direct labor

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labor cost of people actually working on the stuff ex. calculator ex - people who build calculators other ex. wages,

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manufacturing (factory) overhead

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indirect materials, indirect labor, other stuff (OH)

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indirect materials

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calculator ex - carboard boxes to ship calculators, buckets of glue

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indirect labor

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supervisors, maintenance on factory equipment, security ex. wages paid to maintenance, supervisors, utilities costs,

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SAG

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selling, administrative and general ex. commissions to sales people, rent on corporate HQ supplies in the accounting office, accountants' salary, legal fees, utilities for administrative offices, depreciation on sale office, etc.

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product/inventoriable costs

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costs that goes into making the actual product = direct materials + direct labor + manufacturing factory overhead OR = Cost of Merchandise + Freight in + Customs/duties + Cost of getting product ready for sale included in the balance sheet as inventory (asset) accounts at first but are only recorded as a COGS expense on income statement when the product is sold

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period costs (non-manufacturing/non-inventoriable)

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(operating expenses) - Research & Development; Design; Marketing; Distribution; Customer Service = SAG (selling, administrative, general) called period costs because they are expensed (on income statement) in the time period they are incurred ex. anything 'outside the factory building' i.e CEO salary, shipping, utilities, etc.

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Prime Costs

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costs of the labor and materials needed to make the product = direct materials + direct labor

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Conversion Costs

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cost of converting direct materials to a usable product = direct labor + overhead

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manufacturing companies

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Three types of inventory: o Raw Materials Inventory o Work in Process Inventory o Finished goods inventory ex. Honda, Budweiser, Frito-Lay,

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merchandising companies

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sell the goods made by manufacturing companies. have only one category of inventory on the balance sheet ex. Wal-mart, dillards, amazon.com

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service companies

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don't have any tangible goods to sell, they provide a service ex. doctors, therapists, accountants

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COGS merchandiser

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Begin. invent. + purchases + import duties/tariffs + freight in = COST OF GOODS AVAILABLE FOR SALE - cost of end inven = COGS

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COGS manufacurer

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Begin inven + COG manufactured = COST OF GOODS AVAILABLE FOR SALE - end finished goods inven = COGS

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gross profit (merchandiser)

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revenue - COGS

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operating income

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gross profit - operating expenses

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process costing

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large number of identical units are produced through uniform production process ex. iPhones, soda, bottlers

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job costing

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used by companies that produce unique, custom-ordered, different products (each product is a separate 'job' - uses job cost records) ex. houses, cruise ships

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raw materials inventory

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materials purchased for the production process that have not been used

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work-in-process inventory

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products that have been started but not yet finished

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finished goods inventory

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products that are complete but have not yet been sold

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COGM (cost of goods manufactured)

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the dollar value of what is moved from work in process inventory to finished goods inventory in this period

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COGS

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the dollar value of what is moved from finished goods inventory to COGS expense

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pre-determined overhead rate

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= estimated overhead cots/estimated cost driver amount

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sustainability

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as defined by the UN, is the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs

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The three pillars of sustainability

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social environmental economic

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triple bottom line

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recognizes that a company's performance should be viewed in terms of the following: • Profits (economic) • People (social) • Planet (environmental)

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service company

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No product costs Income Statement: Revenues - Operating Expenses = Operating income

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Job costing

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used for unique or custom-ordered products/services that differ in the amount of DM, DL, and MOH used. Also used for small batches and trades ex. cruise ships

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service costing

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used for a large number of identical units that typically go through a uniform production process. Used for mass manufacturing ex. iPhones

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When would you calculate and record the amount of MOH to allocate to a specific job?

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The MOH account is a temporary account used to track the actual MOH incurred against the MOH allocated.

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Department rates are more accurate because they capture the

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types of resources used amount/extent of resources used

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cost distortion

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when some products or jobs are allocated too much MOH (overcosted) or allocated too little MOH (undercosted)

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undercosted

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If MOH Costs using dept. rates > MOH costs using plant-wide rate, then it is Think if you would use the plant-wide rate instead of the departmental rate. If the plant-wide rate is less, you would be giving too little costs to the jobs

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overcosted

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If MOH Costs using dept. rates < MOH costs using plant-wide rate, then it is Think if you would use the plant-wide rate instead of the departmental rate. If the plant-wide rate is more, you would be giving too much costs to the jobs

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activity cost pools

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Identify Activities and estimate the total MOH Costs associated with each activity. These are called ______ We use ACTIVITIES to define the indirect cost pools instead of the departments

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4 categories of cost quality

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1. Prevention - costs incurred to avoid producing poor-quality goods or services 2. Appraisal - costs incurred to detect poor-quality goods or services 3. Internal Failure - costs incurred on defective units before delivery to customers 4. External Failure - costs incurred because the defective goods or services are note detected until after delivery is made to customers

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value chain

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production, marketing, and the provision of after-sales service.

Managerial Accounting Exam 1 Chapters: 1-4 – Flashcards

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