Chapter 14-Managerial Accounting – Flashcards
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Managerial Accounting
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an activity that provides financial and nonfinancial information to an organization's managers
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The Purpose of Managerial Accounting
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to provide useful information to managers of an organization
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The three key tasks that help managers with managerial accounting
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determining the costs of an organization's products and services, (2) planning future activities, and (3) comparing actual results to planned results
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What are predicted costs used in
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used in product pricing, profitability analysis, and in deciding whether to make or buy a product or component
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What does managerial accounting assist in
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assists in analysis, planning, and control of costs
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Planning
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the process of setting goals and making plans to achieve them
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Long term plans
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usually span a 5- to 10-year horizon. Strategic plans usually set a firm's long-term direction based on opportunities such as new products, new markets, and capital investments
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short term strategic plans
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translate the strategic plan into actions, and they are more concrete and consist of better-defined objectives and goals. A short-term plan often covers a one-year period that, when translated in monetary terms, is known as a budget
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Controlling
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the process of monitoring planning decisions and evaluating an organization's activities and employees. It includes the measurement and evaluation of actions, processes, and outcomes
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Users in Managerial Accounting?
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Internal: managers, employees, and decision makers inside the organization
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Purpose of information
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help managers make planning and control decisions
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Flexibility of reporting
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relatively flexible (no GAAP constraints)
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timeliness of information
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available quickly without the need to wait for an audit
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time dimension
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the future; many projections and estimates, with some historical information
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focus of information
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an organization's projects, processes, and divisions
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nature of information
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mostly monetary, but some nonmonetary information
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The focus of managerial accounting
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the level of success achieved by each individual, product, or department in each division of the whole company
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Similarities between financial and managerial accounting
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information about costs of manufacturing products is useful to all users in making decisions. Also, both financial and managerial accounting affect people's actions
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Fraud
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involves the use of one's job for personal gain through the deliberate misuse of the employer's assets
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The three factors that must exist for a person to commit fraud
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opportunity, financial pressure, and rationalization. This is known as the fraud triangle
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Internal Control System
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to monitor and control business activities. An internal control system is the policies and procedures managers use to: ensure reliable accounting, protect assets, urge adherence to company policies, and promote efficient operations
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ethics
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beliefs that distinguish right from wrong. They are accepted standards of good and bad behavior
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fixed cost
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does not change with changes in the 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
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variable costs
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changes in proportion to changes in the volume of activity. Sales commissions computed as a percent of sales revenue are variable costs.
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direct costs
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traceable to a single cost object
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Indirect Costs
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cannot be easily and cost-beneficially traced to a single cost object
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Product Costs
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those production costs necessary to create a product and consist of: direct materials, direct labor, and factory overhead
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Period Costs
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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 sales staff, wages of maintenance workers, advertising expenses, and depreciation on office furniture and equipment
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Difference between Product and Period Costs
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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.
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direct materials
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tangible components of a finished product
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direct material costs
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the expenditures for direct materials that are separately and readily traced through the manufacturing process to finished goods
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direct labor
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the efforts of employees who physically convert materials to finished product
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direct labor costs
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the wages and salaries for direct labor that are separately and readily traced through the manufacturing process to finished goods
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factory overhead
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also called manufacturing overhead, consists of all manufacturing costs that are not direct materials or direct labor.
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factory overhead costs
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cannot be separately or readily traced to finished goods. Thus, all factory overhead costs are considered indirect costs. These costs include indirect materials, indirect labor, and other costs not directly traceable to the product.
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indirect materials
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materials used in manufacturing and become part of the final product, but they are not clearly identified with specific product units
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indirect labor costs
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refer to the costs of workers who assist in or supervise the manufacturing process
