Accounting 2 master set – Flashcards

An activity that provides financial and non-financial information to an organization's managers.

To provide useful information to managers of an organization. Managerial accounting helps managers with 3 key tasks: 1: Determining the costs of an organization's products and services 2: Planning future activities 3: Comparing actual results to planned results

Financial, Non-financial and Information for internal decision-makers

Providing useful information to internal decision-makers

1: Users M→ Internal: Managers, employees and decision makers inside the organization F→ External: Investors, creditors and others outside of the managers of the organization 2: Purpose of Information M→ Help managers make planning and control decisions F→ Help external users make investment, credit and other decisions 3: Flexibility of Reporting M→ Relatively flexible (no GAAP constraints) F→ Structured and often controlled by GAAP 4: Timeliness of Information M→ Available quickly without the need to wait for an audit F→ Often available only after an audit is complete 5: Time dimension M→ The future; many projections and estimates with some historical information F→ The past; historical information with some predictions 6: Focus of Information M→ An organization's projects, processes and divisions F→ The whole organization 7: Nature of Information M→ Mostly monetary; but also non-monetary information F→ Monetary information

Managerial accounting is used in making planning and control decisions; financial accounting is used primarily in making credit decisions

Internal users

Flexible

At a basic level, a cost can be classified by how it behaves with changes in the volume of activity. Thus, a cost can be classified as fixed or variable. A FIXED cost does not change with changes in volume of activity (within a range of activity known as an activity's relevant range). For example, straight-line depreciation on equipment is a fixed cost. A VARIABLE cost changes in proportion to changes in the volume of activity. Sales commissions computed as a percent of sales revenue are variable costs. Classification of costs as fixed or variable is helpful in cost-volume-profit analyses and short-term decision making.

A cost is often traced to a cost object, which is a product, process, department, or customer to which costs are assigned. DIRECT costs are traceable to a single cost object. INDIRECT costs cannot be easily and cost-beneficially traced to a single cost object. Assuming the cost object is a bicycle, Rocky Mountain Bikes will first identify the costs that can be directly traced to bicycles. The direct costs traceable to a bicycle as a cost object would include direct material and direct labor costs used in its production. Such direct costs include wheels, brakes, chains, and seat, plus the wages and benefits of the employees who work directly on making the bike. What are the indirect costs associated with bicycles? One example is the salary of the supervisor. She monitors the production process and other factory activities, but she does not actually work on producing any bikes. Thus, her salary cannot be directly traced to bikes. Likewise, depreciation (other than units-of-production method) on manufacturing warehouses cannot be traced to individual bikes. Another example is a maintenance department that provides services to two or more departments of a company making bicycles and strollers. If the cost object is the bicycle, the wages of the maintenance department employees who clean the factory area every night would be indirect costs.

Cost of shoes; Shoe department manager's salary NOT direct costs for shoe department→ Store rent; Store manager's salary

All production (or factory) costs are product costs. PRODUCT costs are those production costs necessary to create a product and consist of: direct materials, direct labor and factory overhead. Overhead refers to production costs other than direct materials and direct labor. Product costs are capitalized as inventory during and after completion of the products; they are recorded as CoGS when those products are sold. PERIOD costs are non-production costs and are usually more associated with activities linked to a time period than with completed products. Common examples of Period costs include salaries of the wage staff, wages of maintenance workers, advertising expenses, and depreciation on office furniture and equipment. Period costs are expensed in the period when incurring either as selling expenses or as general and administrative expenses. A distinction between Product and Period costs is important because Period costs are expensed when incurred and reported on the income statement, whereas Product costs are capitalized as inventory on the balance sheet until that inventory is sold. Period costs flow directly as expenses. They are not reported as assets. Product costs are first designed as inventory. Their final treatment depends on when inventory is sold or disposed of.

Commissions based on sales; Materials used in production NOT Variable costs→ Property tax; Insurance premiums

Wages of assembly line workers NOT Direct labor→ Wages of factory maintenance worker; Salary of production supervisor; Salary of the accounting manager

Sales commissions; Wages for administrative staff; Rent on the office building NOT Period costs→ Wages for factory labor; Utilities for the manufacturing plant

Direct; Variable; Product NOT→ Indirect; Period; Fixed

Direct; Variable NOT→ Fixed; Period; Indirect N/A→ Product (service company)

Direct materials; Depreciation on the factory equipment NOT→ Depreciation on the office equipment; Sales commissions; Store rent

Indirect; Fixed NOT→ Direct; Variable

Direct materials

True

Purchase materials→ Materials activity Use Materials→ Production activity Overhead costs incurred→ Production activity Direct labor used→ Production activity Product sold→ Sales activity

1) Beginning finished goods inventory 2) Plus 3) Cost of goods manufactured 4) Minus 5) Ending finished goods inventory

Factory supplies used; Factory insurance; Factory utilities NOT: Direct labor; Direct materials

Service

Direct materials; Indirect materials NOT: Finished goods; Goods in process

$10,000. Manufacturing costs + beginning Work in process inventory - ending Work in process inventory.

Work in process (WIP)

Finished goods inventory

Raw materials inventory; Finished goods inventory; Work in process inventory NOT: Merchandise inventory; Goods for sale inventory

Direct labor

Customer orientation

E-commerce

JIT (just-in-time) manufacturing

TQM (Total quality management)

$55,000 Manufacturing costs + Beginning WIP inventory - Ending WIP inventory = Cost of goods manufactured.

1) Design 2) Production 3) Marketing 4) Distribution 5) Service

$4,800. CoGM + BB - EB = CoGS.

Factory overhead & Direct labor

Hidden from the employer; Employer has a loss of assets; Benefits the employee NOT: Employee has a loss of assets; Benefits the employer

Quality of purchase decisions. NOT: Quantity of purchase decisions; Budgeting information

Quickly when needed

Verify inventory records; Adopt a code of ethics; Review the inventory handling procedures. NOT: Fire the inventory manager; Only be concerned if inventory losses exceed 10%

Purchasing materials; Storing materials NOT: Selling finished products; Incurring overhead costs

Using materials; Production workers assembling products; Incurring overhead costs NOT: Selling finished products; Purchasing materials

Sales

CoGS. NOT: Income taxes expense; Operating expenses; Sales

Customer orientation

JIT manufacturing; TQM; Continuous improvement NOT: Traditional manufacturing; Service focus

Eliminate waste while still satisfying the customer.

Online sales activities; Smartphone sales activities; Text messaging sales activities NOT: In-person sales activities

Specific information NOT: Broad based information; Information on the whole company

Inventory account NOT: Cash account; A/R account

Ensure reliable accounting; Protect assets; Promote efficient operations; Urge adherence to company policies* NOT: Eliminate fraud; Set stock prices