Managerial Accounting: Chapter 1 & 2 – Flashcards

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Planning
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Setting goals and objectives and how to achieve them (generate more sales via opening new stores, reduce labor costs by reducing store hours)
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Budgets
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Set amounts of money to use, set different budgets to control money.
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Directing
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Overseeing company's day to day operations (using daily/weekly sales reports to adjust marketing strategies, using product cost reports to adjust raw material usage, getting something done)
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Controlling
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Evaluating results of operations against plans and making adjustments as needed (comparing budgeted sales with actual sales to take corrective actions, comparing budgeted product costs against actual product costs to take corrective actions)
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What is used in order to make decisions?
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Data
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Who are the primary issues of the information?
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Managerial- Internal users (managers) Financial- External users (creditors, stockholders, gov. regulators)
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What is the purpose of the information?
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Managerial- To help managers plan, direct, and control business operations and make business decisions. Financial- To help external users make investing and lending decisions.
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What is the primary accounting product?
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Managerial- Any internal accounting report deemed worthwhile by management Financial- Financial statements
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What must be included in the report, and how must it be formatted?
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Managerial- Management determines what it wants in a report, and how it wants it formatted. Reports are prepared only when management believes the benefit of using the report exceeds the cost of preparing the report. Financial- GAAP determine the content and format of financial statements
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What is the underlying basis of the information?
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Managerial- While some information is based on part transactions, managerial accounting focuses on the future. It provides information on both external and internal transactions. Financial- The information is based on historical transactions with external parties
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What information characteristic is emphasized?
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Managerial- The data must be relevant Financial- The data must be reliable and objective
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What business "unit" is the report about?
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Managerial- Segments of the business, such as products, customers, geographical regions, departments and divisions Financial- The company as a whole (consolidated financial statements). Limited segment data is provided in the footnotes
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How often are the reports prepared?
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Managerial- It depends on managements needs. Some reports are prepared daily, while others may be prepared only one time. Financial- Annually and quarterly
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Does anyone verify the information?
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Managerial- There are no independent audits. However, the company's internal audit functions may examine the procedures used in preparing the reports. Financial- Independent CPAs audit the annual financial statements of publicly traded companies and express on opinion on the fairness of the financial information they contain.
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Is the information required by an outside group/government agency?
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Managerial- No authoritative body requires managerial accounting reports. Financial- Yes, the SEC requires publicly traded companies to issue annual audited financial statements.
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Is there any concern over how the reports will affect employee behavior?
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Managerial- Management carefully considers behavioral implications when designing the managerial accounting system. Financial- The concern is about adequacy of disclosure, behavioral implications are secondary.
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Controller
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Accounting
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Changing roles of management accountants
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Impact of technology, ensuring accurate financial record, planning, analyzing, and interpreting accounting data, providing decision support
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Required skills of managerial accountants
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Analytical skills, Microsoft excel skills, written and verbal communication, ability to work on a team, business & accounting knowledge
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Institute of Management Accountants (IMA)
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Professional association for management accountants. Functions include: certification, forum for research, practice development, education, knowledge sharing, ethical standards, public education
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IMA ethical standards
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1. Maintain professional competence (know what you're doing) 2. Preserve confidentially of information 3. Uphold their integrity (don't commit fraud) 4. Preform duties with credibility (reliable information)
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Ethical behavior
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Means doing the right thing, regardless of consequences
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Examples of unethical behavior
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Allowing reimbursement of false expense reports, manipulating income, preforming tasks not qualified to perform (cheating, dishonestly, unfairness, lack of objectivity, irresponsibility)
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Steps to resolve ethical dilemmas
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Follow company's policies for reporting unethical behavior ... If not resolved: discuss with immediate supervisor, discuss with objective advisor, consult an attorney
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Not all unethical behavior is illegal but...
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all illegal behavior is unethical
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Sarbanes-Oxley Act of 2002 (SOX)
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Restore trust in publicly traded corporations, management, financial statements, and auditors. Have certain requirements for public corporations
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International Financial Reporting Standards (IFRS)
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Results of globalization, consistent reporting standards needed worldwide, SEC is studying IFRS (internaional GAAP)
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Extensible Business Reporting Language (XBRL)
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Standardized tagging system for financial reports (when data gets computerized- things are called the same thing)
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Sustainability and Managerial Accounting
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Triple bottom line (profit, people, planet)
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Shifting Economy
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Shift away from manufacturing toward service, managerial accounting has expanded
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Competing in Global Marketplace
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Barriers to international trade have fallen, more accurate and timely information needed
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Enterprise Resource Planning (ERP)
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System that integrates a company's functions, departments, and data advantages: streamline operations, respond quickly to changes, replace separate software systems disadvantages: expensie
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Lean Operations
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A philosophy and business strategy of manufacturing without waste (lowers costs, increases competitive position, eliminate waste)
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Just-In-Time Inventory (JIT)
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Manufacture just in time to fill orders. Reduces RM inventory, FG inventory, storage costs and handling costs
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TQM- Total Quality Management
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Goal to provide customers with superior products and services, continuously set higher goals for quality
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What are the 3 types of companies
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Service, Merchandisers, Manufacturers
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Service companies
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Provide a service only, no inventory (advertising agencies, banks, law firms, insurance companies, accountants)
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Merchandisers
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Resell products purchased from suppliers One inventory account (Merchandise inventory) (Walmart, Best Buy, Amazon)
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Manufacturers
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Use labor and other inputs to convert RM into finished products (Procter&Gamble, General Mills, Dell Computer) 3 inventory accounts (RM, WIP, FG)
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Value Chain
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Activities that add value to products and services and cost money
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Steps of the value chain
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Design, Research & development, production or purchases, marketing, distribution and customer service
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direct cost
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can be directly traced to cost object
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indirect cost
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cannot be directly traced to cost object
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Total costs
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used internally only
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Inventoriable product costs
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Used for external reporting (what is allowed by GAAP)
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Period costs
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are expensed when they are incurred
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Inventoriable Product costs
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Things that get the inventory to sell (purchase price from suppliers, cost to get ready for sale, freight-in, import duties or tariffs)
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Invenoriable product costs
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direct materials, direct labor, manufacturing overhead
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Direct materials (direct cost)
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things used to directly make the product
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Direct labor (direct cost)
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Who directly put it together
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Manufacturing overhead (indirect cost)
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Anything production related or related to manufacturing that are not direct materials or labor. (indirect materials= lubricant on machines, indirect labor= supervisor, other = factory utilities/depreciation (factory/plant)
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prime costs
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direct materials + direct labor
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conversion costs
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manufacturing overhead + direct labor
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direct and indirect labor costs include
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salaries and wages, fringe benefits (healthcare), payroll taxes
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Income statement for service company
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all costs are period costs (rev-operating expenses = operating income)
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Income statement for merchandiser
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sales -COGS =GP - operating expenses = operating income
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COGS calculation for merchandiser
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Beg inv + purchases = COGAS - EI = COGS
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cost of goods manufactured has how many parts?
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3... RM, WIP and FG
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RM cost of goods manufactured
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Beg RM + purch of RM = RM available = End RM = RM used
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WIP cost of goods manufactured
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Beg WIP + DM + DL + MOH = WIP available - ending WIP = COGM
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FG cost of goods manufactured
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Beg FG + COGM =COGAS - Ending FG = COGS
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income statement for manufacturer
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sales - COGS = GP - operating expenses = operating income
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controllable
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management can influence or change costs (advertising costs, labor costs, supply costs)
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uncontrollable
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management cannot change or influence cost in the short run (rent costs, property taxes)
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relevent
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differential costs, which are costs that differ between alternatives (matters to a decision- change)
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irrelevant
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costs that do not differ between alternatives( don't change)
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sunk costs
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costs incurred in the past that cannot be changed
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variable costs
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CHANGE in TOTAL cost in direct proportion to changes in volume. STAYS THE SAME in PER UNIT cost
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fixed cost
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STAYS CONSTANT in TOTAL cost but CHANGES in PER UNIT cost in an indirect proportion changes in volume
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average cost per unit
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is NOT appropriate for predicting total costs at different levels of output
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average cost equals
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total cost/number of units
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total cost equals
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fixed costs + (variable costs per unit * number of units)
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