Managerial Accounting Chapter 1 Answers – Flashcards
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MANGERIAL ACCOUNTING
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Provides financial & nonfinancial information to an organization's managers.
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Managerial Tasks
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1. Determining the costs of an organization products & services. 2. Planning future activities. 3. Comparing actual results to planned results
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What is the purpose of managerial accounting?
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To provided useful information to aid in three key managerial tasks.
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What is planning?
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The process of setting goals and king plans to achieve them.
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What is a short-term plan?
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Often, it covers a one-year period that, when translated into monetary terms, is knows as a budget. They translate to strategic plan into actions, which are more concrete & consist of better-defined goal.
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What is control?
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The process of monitoring planning decisions & evaluating an organization's activities & employees. Control allows managers to revise their plans an take corrective actions.
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In financial accounting, users & decision makers are?
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External: Investor, creditors, & other outside of the organization's managers.
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In managerial accounting, users & decision makers are?
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Internal: Managers, employees, & decision makers inside the organization
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What is the purpose of in information in financial accounting?
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Help external users make investment, credit, and other decisions.
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What is the purpose of informationa in Managerial accounting?
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Help managers make planning and control decisions.
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Flexibility of reporting in financial accounting.
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Structured and often controlled by GAAP
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Flexibility of reporting in managerial accounting.
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Relatively flexible. No GAAP constraints
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Timeliness of information in financial accounting.
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Often available only after an audit is complete.
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Timeliness of information in managerial accounting.
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Available quickly without the need to wait for an audit.
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Time dimesion in financial accounting.
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The past; historical information with some predictions.
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Time dimension in managerial accounting.
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The future; many projections and estimates, with some historical information.
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Focus of information in financial accounting
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The whole organization
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Focus of information in managerial accounting
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An organization's projects, processes, and divisions.
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Nature of infomation in financial accounting.
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Monetary information.
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Nature of information in managerial accounting
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Mostly monetary; but also nonmonetary information.
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Internal control system
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The policies & procedures managers use to ensure reliable accounting; protect assets; uphold companies policies; promote efficient operations.
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Ethics
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Beliefs that distinguish right from wrong.
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Institute of Management Accountants (IMA)
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The professional association for management accountants, issuing a code of ethics to help accountants solve ethical dilemmas.
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Types of costs
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Fixed or variable Direct or indirect Product or period
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Period costs
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appear only on the income statement under operating expenses. They are expensed when incurred.
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Product costs
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Either in the income statement as part of cost of goods sold or in the balance sheet as inventory.
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Flow deirectly to the current income statement as expenses. They are not reported as assets.
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Period costs
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First assigned to inventory. Their final treatement depends on when inventory is sold or disposed of
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Product costs
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Manufacturing costs
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Direct Materials, Direct labor, and Factory overhead
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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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Refers to 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, also called manufacturing overhead
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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. They include maintenance, supervision, repairs, factory manager's salary, factory rent, depreciation of factory building, property taxes, accounting & legal services. Indirect materials, indirect labor, & others.
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Indirect materials
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Components used in manufacturing the product, but they are NOT clearly defined w/ specific product per unit.
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Indirect labor
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Workers who assist or supervise in manufacturing the product, but they are NOT clearly identified w/ specific product units.
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Indirect labor costs
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The costs of workers who assist in or supervise manufacturing.
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Prime costs
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Expenditures directly associated w/ the manufacture of finished goods. Direct material costs & direct labor costs.
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Conversion costs
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Expenditures incurred in the process of converting raw materials to finished goods. Direct labor costs & overhead costs.
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Manufacturers' inventories
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Raw material inventory, Work in Process inventory (Goods in process inventory), Finished goods inventory.
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Raw materials inventory
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The goods the company acquires to use in making products.
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Work in process inventory
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Consists of products in the process of being manufactured but not yet complete
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Finshied goods inventory
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Consists of completed products ready for sale, is similar to merchandise inventory owned by a merchandising company.
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Cost of goods manufactured
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It is the total cost of making & finishing products in the period. That amount is included on the income statement in the computation of cost of goods sold.
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Schedule of cost of goods manufactured
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It summarizes the types and amounts of costs incurred in the manufacturing process.
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The lean business model
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The goal is to eliminate waste while "satisfying the customer" and "providing a positive return" to the company.
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Continuous improvement
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It rejects the notions of "good enough" or acceptable" and challenges employees and managers to continuously experiment w/ new & improved business practices.
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Total quality management
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It focuses on quality improvement to business activities.
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Just-in-time manufacturing
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A system that acquires inventory & produces only when needed.
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Value chain
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It refers to the series of activities that add value to a company' products or services.
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Corporate social responsability (CSR)
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A concept that goes beyond following the law.
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Triple bottom line
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It focuses on 3 measures: Financial (profits), social (people), & environment (planet). Adopting it, impacts how businesses report.
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Sustainability Accouting Standards Board (SASB)
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It was established to develop reporting standards for businesses' sustainability activities.
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The institute of Management Accoutants' Statement of Ethical professional Practices requires members to:
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Act with integrity, be competent, maintain confidentiality, & communicate information in a fair & credible manner.
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Example of fixed costs relative to the number of units produced and sold
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Straight-line depreciation, store rent, manager's salary.
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Example of direct costs for a shoe department at a local store.
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Cost of shoes & shoe department manager's salary b/c the shoe manager works directly for the shoe department.
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Example of period costs for a manufacturer
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Sales commissions, rent on the office building, wages for administrative staff.
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Example of direct materials for a company that manufactures picture frames
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Oak wood used for frame, glass used in the frame.
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Classify the cost of the processor chips for a production department of manufacturer of laptop computers.
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Variable, direct, and product.
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Direct material costs for an automobile manufacturer would include:
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Steering wheels, tires, bumpers.
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The effors of employees who work directly to convert direct materials into the finished product are referred to as
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direct labor.
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Factory overhead are all manufacturing costs except direct materials and direct labor.
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True
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Inventory accounts commonly found in manufacturing companies
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Work in progress inventory; finished goods inventory; raw materials inventory
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Raw materials inventory include all the following
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Indirect materials, and direct materials.
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Partially complete units are know as w
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Work in process inventory
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Inventory which is completed but not yet sold by a manufacturer is known as
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Finished goods inventory
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A merchandisin company usually has one inventory account while a manufacturing company usually has
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3 inventory accounts
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Calculation of cost of goods sold for a manufactoring company
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1. beg. fin. goods inv. + Cost of goods manu. minus ending finished goods inventory.
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Minor Manufacturing Company has ending raw materials inventory of $15,000, raw materials used of $60,000 Calculate the days' slaes in raw materials inventory.
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$15,000/$60,000 x 365= 91.25
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Example of variable costs relative to number of units produced and sold.
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Materials used in production, Commissions based on sales.
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Example of product costs for a manufacturer.
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Direct materials, depreciation on the factory equipment.
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Example of direct labor for a company that manufactures automobiles.
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Wages of assembly line workers.
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Finished goods are products which are partially complete. True or false?
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false
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A manufacturing company reports the following items: Finished goods inv., beg, bal: $1,000 Finished goods inv., end, bal: $1,200 Cost of goods manu. $4,800
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$1,000 + $5,000 - $1,200= $4,800
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Example of materials activity
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Purchase of materials
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Example of product activity
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Use materials, direct labor used, overhead costs.
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Example of Sales activity
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Product sold
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A company began the year w/ 500 in raw materials & purchased $10,250 more during the yr. If the company has $725 in raw materials at the end of the yr, then they would report direct materials used of
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$10,025 on the schedule of cost of goods manufactured. $500+$10,250-$725 = $10,025
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A company reported Cost of goods manufactured of $55,000 on the manufacturing statement. If the beginning balance in Work in process inventory was $5,000 & the $60,000, then the ending balnce in Work in process inventory was
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Manufacturing costs + beginning work in process inventory-ending work in process inventory= $10,000
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Customer orientation
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Emphasis on customers as the most important part of a business.
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E-commerce
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Company's website used to promote online sales transactions.
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JIT manufactring
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Establishing better relationships with vendors to ensure on-time delivery of quality raw materials.
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TQM
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Evaluating business activities with a focus on improving quality.
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Understanding the changing needs of customers is referred to as
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customer orientation.
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Examples of e-commerce:
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smartphone sales activities, text messaging sales activities, online sales activities.
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Lean practices include those which are designed to eliminate waste while still satisfying the customer. Examples of lean practices include:
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Total quality management, continuous improvement, just-in-time manufacturing.
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List of the value chain in the order they occur
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Acquire raw materials, baking, sales, service.
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The tripple bottom line focuses on three measures including:
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Financial, social, an environmental.
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Activities in the order which they occur.
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Materials activity, production activity, sales activity.
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Managerial accounting information is normally provided to managers
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Quickly when needed.
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Managerial accouting systems report both monetary and nonmonetary information. Examples of nonmonetary information include:
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employee satisfaction data.
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Activities such as purchasing and storing raw materials are considered?
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Material activities
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Production activities include:
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Incurring overhead costs, production workers assembling products, using materials.
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Sales actvities include:
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Storing finished products, selling finished products.
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Material activities include:
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Purchasing raw materials, storing raw materials
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Activities such as using materials and labor to produce finished products are considered?
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Production activities
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THe main difference between a manufacturer's and a merchandiser's balance sheet is in the?
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Inventory account.
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The primary difference between the income statement for a merchandising company and a manufacturing company is in the?
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Cost of goods sold section
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Conversion costs consist of:
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Factory overhead and direct labor.
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Raw materials inventory turnover. formula
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Raw materials used/Average raw material
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Major manufacturing Company has direct materials used of $50,000, beginning raw materials inventory of $10,000 and ending raw materials inventory of $8,000. Compute raw material
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$50,000/($10,000+$8000/2)=5.5
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Consider a service company that provides carpet cleaning. Classify the cost of the hourly workers who clean carpets for customers.
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Direct and variable.
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Managerial accouting primarily provides information to
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Internal users.
