Chapters 1-2 Acct 2302 – Flashcards

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Managerial accounting
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Identifies, collects, measures, classifies, and reports financial and non financial information that is useful to internal users in planning, controlling, and decision making.
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Managerial accounting reports are prepared..
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To meet the needs of decision makers within the firm.
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Financial accounting..
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Is concerned with the information about the firm as a whole. Has to adhere to GAAP policies. Focuses on external users.
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The primary objective of managerial accounting is...
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To provide management with information useful for planning and control operations.
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Which of the following would normally occupy a staff position?
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Cost Accounting Manager
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The object of profit maximization...
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Should be achieved through legal and ethical means
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Overhead includes
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Indirect labor, Indirect materials, and supplies.
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Product costs consist of...
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direct materials, direct labor and manufactoring overhead
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Materials in the raw materials account do not become direct materials until...
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They are withdrawn from inventory for use in production.
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The unit cost...
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Is the total product costs divided by the number of units produced.
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Indirect labor would include...
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Salary of factory supervisor
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The unit cost...
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Is the total product costs divided by the number of units produced.
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Period costs are..
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Selling costs and administrative costs
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Cost of goods manufactured equals
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the product cost of goods completed during the current period,
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The provision of accounting information for internal users is known as
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Managerial Accounting
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The users of managerial accounting information include
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For-profit companies, not-for-profit companies, city governments, educational institutions. All of these.
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Planning is
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Setting objectives and identifying objectives to achieve those objectives.
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Planning is also
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The detailed formulation of action to achieve a particular end.
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Decision making is
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The process of choosing among competitive alternatives.
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Controlling is
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The managerial activity of monitoring a plan's implementation and taking corrective action needed. Comparing the actual performance and expected performance.
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What is a characteristic of financial accounting?
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There is a historical orientation and is used for investment decisions, stewardship evaluation, monitoring activity, and regulatory measures.
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Financial accounting is primarily concerned with producing information for which type of users?
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External users. Which include investors, creditors, customers, suppliers, government agencies, and labor unions.
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In terms of strategic positioning, which two general strategies may be chosen by a company?
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Cost leadership and product differentiation.
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Managerial accounting is primarily concerned with producing information for which type of users?
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Internal users, such as, managers, executives, and workers.
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Managerial accounting is sometimes called
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Internal accounting
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Financial accounting is sometimes called
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External accounting
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Financial accounting is
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Externally focused, must follow externally imposed rules, objective financial information, historical orientation, information about the firm as a whole, more self-contained.
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Managerial accounting is
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Internally focused, no mandatory rules, financial and information; subjective information possible non-financial, emphasis on the future, internal evaluation and decisions based on very detailed information, broad, multidisciplinary.
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Managerial accountants in an organization are typically
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Staff positions
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The chief accounting officer for a firm is the
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Controller
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Compliance with the rule of law, integrity, honesty, competence would all be found in what?
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The corporation's code of ethics.
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Activity-based costing (ABC) is
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A more detailed approach to determining the costs of goods and services. ABC improves costing accuracy by emphasizing the cost of the many activities or tasks that must be done to produce a product or offer a service.
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Customer value is
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Is the difference between what a customer receives and what the customer gives up when buying a product or service.
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Customer value can be increased through effective cost information which is done through which two strategies?
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Cost leadership and superior products through differentiation.
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What is the objective of the cost leadership strategy?
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To provide the same or better value to customers at a lower cost than competitors.
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Superior products through differentiation strategy does what?
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It strives to increase customer value by providing something to customers not provided by competitors.
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These two strategies require an understanding of what?
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The firms value chain
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The value chain is
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The set of activities require to design, develop, produce, market, and deliver products and services, as well as provide support services to customers.
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Continuous improvement is
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The continual search for ways to increase the overall efficiency and productivity of activities by reducing waste, increasing quality, and managing costs. Continuous improvement is fundamental for establishing excellence.
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Total quality management is
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A philosophy in which manufacturers strive to create an environment that will enable workers to manufacture perfect (zero-defect) products.
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What is a crucial element of the value chain?
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Time. Firms deliver products or services quickly by eliminating nonvalue-added time, which is time of no value to the customer. (Example: the time a product spends on the loading dock).
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What happens when you decrease nonvalue-added time?
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Increases quality
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What is a critical measure of efficiency?
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Cost
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How can efficiency be of value to the firm?
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Costs must be properly defined, measured, and assigned; furthermore, production of output must be related to the inputs required, and the overall financial effect of productivity changes should be calculated.
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Positions that have direct responsibility for the basic objectives of an organization are called what?
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Line positions
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Positions that are supportive in nature and have only indirect responsibility for an organization's basic objectives are called what?
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Staff positions
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Who supervises all accounting functions and reports directly to the general manager and chief operating officer?
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Controller
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Who is responsible for the finance function?
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Treasurer
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Important parts of corporate codes of conduct are
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Integrity, performance of duties, and compliance with the rule of law.
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What organizations have established ethical standards for accountants?
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The American Institute of Certified Public Accountants (AICPA) and the Institute of Management Accountants (IMA). Professional accountans are bound by these codes of conduct.
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What are the three certifications you can get being in the accounting profession?
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Certificate in Management Accounting, Certificate in Public Accounting, Certificate in Internal Auditing.
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Which certificate is designed to meet the needs of managerial accountants?
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Certificate of Management Accounting (CMA)
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The Certificate of Public Accounting is
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The oldest and most well-known certification in accounting. This is the only certificate that is permitted by law to serve as an external auditor.
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Which certificate require you pass a comprehensive exam ensuring your technical competence and two years experience?
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Certificate of Internal Auditor (CIA)
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What is the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization?
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Cost
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Expired costs are called what?
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Expenses. As costs are used up in the production of revenues, they are said to expire.
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How do we determine profit (income) on the income statement?
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Expenses are deducted from revenues.
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How do we figure the PRICE?
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Revenue per unit
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What is considered any item such as a product, customer, department, project, geographic region, plant, and so on, for which costs are measured and assigned? Also known as Allocating Cost
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Cost object
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What is the objective to assigning costs to cost objects?
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To measure and assign costs as well as possible, given management objectives.
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Which type of costs can be easily and accurately traced to a cost object?
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Direct Costs.
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Which type of costs can NOT be easily and accurately traced to a cost object? These are also costs that cannot be seen or touched.
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Indirect Costs
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What is allocation?
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It is when indirect cost is assigned to a cost object by using a reasonable and convenient method. Since no clearly observable casual relationship exists, allocating indirect costs is based on convenience or some assumed casual linkage.
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What are the three other categories of cost?
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Variable cost, fixed cost, and opportunity cost.
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Which cost increases in total as output increases and decreases in total as output decreases? Example: Starbucks coffee cups
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Variable cost
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Which cost does NOT increase in total as output increases and does not decrease in total as output decreases? Example: rent
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Fixed cost.
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Which cost is the benefit given up or sacrificed when one alternative is chosen over another? Example: Sleep rather than going to class, but instead went to class and gave up sleep.
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Opportunity cost
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Outputs represents one of the most important cost objects. What are the two types of outputs?
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Products and services.
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Which output are the goods produced by converting raw materials through the use of labor and indirect manufacturing resources, such as the manufacturing plant, land, and machinery? Example: TVs, hamburgers, cars, clothes, etc.
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Products
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Which output are tasks or activities performed for a customer or an activity performed by a customer using an organization's products or facilities?
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Services
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How do services differ from products?
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Services are intangible, are perishable, and require direct contact between providers and buyers.
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When providing cost information, managers do what?
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They typically rely on managerial accounting information that is prepared in whatever manner the managerial accountant believes provides the best analysis for the decision at hand.
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What is the one exception when providing cost information?
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Managerial accountant must follow external reporting rules, GAAP, when their companies provide outside parties with cost information about the amount of ending inventory on the balance sheet and the cost of goods sold on the income statement.
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Product (manufacturing) costs are
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Those costs, both indirect and direct, of producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale.
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Are product costs inventoried?
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Yes
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Are product costs inventoried?
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Yes
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How are product costs inventoried?
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They are initially added to an inventory account and remain in inventory until they are sold, at which time they are transferred to cost of goods sold.
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What consists of product costs?
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Direct material, direct labor and manufacturing overhead.
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What type of materials are part of the final product and can be directly traced to the goods being produced?
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Direct materials
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What type of labor can be directly traced to the goods being produce and those employees who convert direct materials into a product?
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Direct labor
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Manufacturing overhead is
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All product costs other than direct materials and direct labor. Manufacturing overhead are costs that cannot be traced to the cost object of interest. Examples are depreciation on plant buildings and equipment, janitorial and maintenance labor, plant supervision, etc.
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Direct materials plus direct labor plus manufacturing overhead equals
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Product cost
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Direct materials plus direct labor equals
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Prime Cost
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Direct labor plus manufacturing overhead equals
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Conversion cost
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True or False: do PRIME plus CONVERSION cost equal PRODUCT COST?
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FALSE - because direct labor is part of both prime cost AND conversion cost.
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The costs of production are assets that are carried in inventories until when?
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Until the goods are sold
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What are the other costs of running a company that are NOT carried in inventory?
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Period costs
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Are period costs considered product costs?
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No.
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What would be examples of period costs?
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Cost of office supplies, research and development activities, the CEOs salary, and advertising.
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When are period costs expensed?
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In the period in which they are incurred.
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What is capitalization?
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The asset is allocating to expense through depreciation throughout its useful life. Example: Nike buys a large sewing machine. Do not expense because it is a large purchase, instead capitalize over time.
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Why would a period cost be recorded as an asset (capitalized)?
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If it is expected to provide an economic benefit (revenues).
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Which kind of costs are those costs necessary to market, distribute, and service a product or service?
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Selling costs
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Which kind of costs are costs associated with research, development, and general administration of the organization that cannot be reasonably be assigned to either selling or production?
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Administrative costs
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What are some examples of administrative costs?
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Executive salaries, legal fees, printing the annual report, and general accounting.
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Is indirect labor included in overhead?
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Yes.
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Why is it important for service companies to distinguish between direct period costs and indirect period costs?
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Having the correct classification affects the numerous decisions and planning and control activities for managers.
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If in a restaurant, what would be an example of a direct period cost?
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Chef salary
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If in a restaurant what would be an example of an indirect period cost?
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Disposable napkins. (Basically, anything you cannot keep track of)
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What represents the total product cost of goods completed during the current period and transferred to finished goods inventory?
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Cost of goods manufactured.
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Beginning inventory plus purchases minus ending inventory equals
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Direct materials.
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Direct materials plus direct labor plus manufacturing overhead plus beginning work in process inventory minus ending work in process inventory equals
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Cost of goods manufactured.
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What is the cost of the partially completed goods that are still on the factory floor at the end of a time period?
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Work in process (WIP)
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Work in process are
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Units that have been started, but not finished; they have some value, but not as much as they will when they are completed. Not exactly raw material but not read to be sold either.
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What happens when we adjust the total manufacturing cost for the time period for the inventories of work in process?
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We will have the total cost of the goods that were completed and transferred from work in process inventory to finished goods inventory during that time period.
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What represents the cost of goods that were sold during the period?
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Cost of goods sold
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Beginning finshed goods inventory plus costs of goods manufactured minus ending finished goods inventory equals
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Cost of goods sold.
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Price times units sold equals
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Sales revenue.
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What is the difference between sales revenue and cost of goods sold?
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Gross margin
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Sales revenue minus cost of goods sold equals
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Gross margin.
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True or false: does gross margin equal operating income or profit?
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FALSE
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Are selling and administrative expenses included in the gross margin?
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No
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If gross margin, the firm at least charges the prices that cover what cost?
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Product cost
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Gross margin divided by sales revenue equals
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Gross margin percentage.
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Why would companies want to figure out the gross margin percentage?
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To compare their gross margin percentage with the average for its industry to see if it is within ballpark range for other firms in the industry.
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Gross margin minus selling and administrative expenses equal
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Operating income.
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