Managerial Accounting Exam 1 Flashcard

Managerial Accounting: Information for decision making, planning and controlling an organization's operations. Difference from Financial: Managerial Accounting is for internal users, where Financial is for external users Financial Accounting is regulated by auditors and government agencies, no one regulates managerial

Managerial accountants add value to an organization by providing information, assisting in directing and controlling activities, motivating managers and employees towards the organization's goals, measuring performance, and assessing the organization's competitive position.

The balanced scorecard is a model of business performance evaluation that balances measures of financial performance, internal operations, innovation and learning, and customer satisfaction. If an organization is to remain viable in a changing and ever more competitive business environment, its managers need to continually ask the questions emphasized in the balanced scorecard.

The chief managerial and financial accountant responsible for: • Supervising accounting personnel • Preparation of information and reports, managerial and financial • Analysis of accounting information • Planning and decision making Also known as the CFO or comptroller

Responsible for raising capital and safeguarding the organization's assets. In addition, the treasurer manages the organization's investments, its credit policy and its insurance coverage.

Responsible for reviewing the accounting procedures, records and reports in both the controller's and treasurer's areas. The internal auditor expresses an opinion to top management about the effectiveness of the accounting system.

Information and Incentives o Managerial accounting is driven by the need for information. It is intended to assist in decision facilitating, but it is also intended to influence a manager's decision. Behavioral Issues o Reactions to managerial accounting information can have impact on an organization. o For Example: How will the General Manager react to a budget? How will this information affect the pricing of the services? o A managerial accountant's understanding of human behavior can help him or her to be more effective provider of information Costs and Benefits o There are costs and benefits to providing managerial accounting information. The costs include compensation of personnel, purchase and operations of computers, and the time spent by users reading and understanding the information. Benefits include improved decisions, more effective planning, improved efficiency, and better control of operations Evolution and Adaptation o Managerial accounting concepts and tools are still evolving. Also, as business environments change, managerial accounting information must also be adapted.

Product Costs: o Costs associated with goods for sale until the time period during which the products are sold, at which time the costs become expenses. Period Costs: o Costs that are expensed during the time period in which they are incurred.

Job-Shop process: o Low volume, little standardization, unique products o Example: Disney Continuous flow: o High volume, highly standardized commodity products o Example: Exxon

Direct Material, Direct Labor, and Manufacturing Overhead

Raw material that is consumed in the manufacturing process, is physically incorporated in the finished product

Cost of salaries, wages, and fringe benefits for personnel who work directly on the manufactured products

All other costs of manufacturing. Comprised of three types of cost: Indirect Material, Indirect Labor, Other Costs

Materials used to support the production process. Example: lubricants and cleaning supplies used in an automobile assembly plant

Cost of personnel who do not work directly on the product. Example: maintenance workers, janitors and security guards

All other manufacturing costs that are neither material nor labor costs. Example: depreciation on plant and equipment, property taxes, insurance, utilities, overtime premium, and unavoidable idle time.

• Manufacturing costs start in the form of Direct Material, Direct Labor, and Manufacturing Overhead. • As resources are consumed in production, the cost is transferred to Work in Process (WIP) Inventory. The total cost of direct material, direct labor and manufacturing overhead transferred to WIP is called Total Manufacturing Cost (TMC) • When products are finished, their costs are transferred from WIP inventory to Finished Goods (FG) Inventory. The total cost of direct material, direct labor and manufacturing overhead transferred from WIP to FG is called the Cost of Goods Manufactured (COGM) • Costs are stored in FG until products are sold. At that time, the product costs are transferred from FG to Cost of Goods Sold (COGS), which is an expense of the period when the sale is made.

Change in total: Total fixed cost remains the same even when the activity level changes. Change per unit: Fixed cost per unit goes down as activity level goes up Example: Netflix (monthly fee regardless of how many movies you watch)

Change in total: Total variable cost increases as activity level increases Change per unit: Variable cost per unit remains the same as activity level increases Example: Pay-Per-View (same fee per movie watched, regardless of how many movies you watch)

Costs apply to all firms, regardless of if they're a service or manufacturing firm. They might have different drivers, such as services firms might rely more on Direct Labor and other overhead costs/expenses than on Direct Material.

• Job-order costing is used by companies with job shop operations or batch production operations. The products are manufactured in low volumes and each batch is a job or job order. • Process-costing is used by companies that produce large number of identical units. A process costing system accumulates all production costs for a large number of output and then these costs are averaged over all the units

• The predetermined rate is based on estimates made at the beginning of the accounting period. In traditional product-costing systems this measure is usually some volume based cost driver. An estimate is made of, the amount of manufacturing overhead that will be incurred during a specified period of time and the amount of the cost driver that will be used or incurred during the same time period. • Using a predetermined rate makes it possible to estimate total job costs sooner, the actual overhead is not known until the end of the period.

Adjusting entry must be done to adjust for over/under applied Manufacturing Overhead by crediting/debiting Cost of Goods Sold

Under-Applied • Cost of Goods Sold debited by the value of the difference • Manufactured Overhead credited by the value of the difference

Over-Applied • Manufactured Overhead debited by the value of the difference • Cost of Goods Sold credited by the value of the difference

• Normal costing is a system in which direct material and labor are combined with predetermined overhead. As opposed to actual which combines them with actual overhead.

• Degree of Correlation • Cost of Measurement If Direct Material is more of a cost driver, (or other inputs) than direct labor then direct labor will not be a good cost driver.

• The process of assigning overhead costs to production costs in two stages. In the first stage all manufacturing overhead costs are assigned to the production departments such as machining an assembly. • In the second stage all of the manufacturing overhead costs accumulated in each production department are assigned to the production jobs on which the department has worked. This is known as overhead application.

Yes, they just refer to production jobs they use terminology that reflects their operations

Job-order costing: o Costs accumulated by the job o WIP has a job-cost sheet for each job. o Many unique, high cost jobs. o Jobs built to customer order Process costing: o Costs accumulated by department or process o WIP has a production report for each batch of products o A few identical, low cost products o Units continuously produced for inventory in automated process.

• Costs are accumulated for a period of time for products in WIP inventory. • Products in WIP inventory at the beginning and end of the period are only partially complete. • Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products

Stage 1: o Identify significant activities and assign overhead costs to each activity in proportion to resources used. o The overhead costs assigned to each activity comprise an activity cost pool. Stage 2: o Identify cost drivers appropriate to each activity and allocate overhead to the products. o The overhead costs are allocated from each activity cost pool to each product line in production to the amount of the cost driver consumed by the product line.

The cost per unit of the cost driver for a particular activity pool

They don't, overhead costs change, however since direct material and direct labor are both direct and straightforward, they don't change.

A large proportion of non-unit-level activities • A unit-level cost driver, such as direct labor, machine hours, or throughput, will not be able to assign the costs of non-unit-level activities accurately Product diversity • When the consumption ratios differ widely between activities, no single cost driver will accurately assign the resulting overhead costs.

Degree of Correlation Behavior Effects Cost of Measurement

The concept of an activity-based costing system is to infer how each product line consumes the activity by observing how each product line consumes the cost drive, that is, how closely the two are correlated. The closer the correlation, the more accurate the cost assignments will be.

Information systems have the potential not only to facilitate decisions but also to influence the behavior of decision makers. This can be good or bad, depending on the behavioral effects. In identifying cost drivers, an ABC analyst should consider the possible behavioral consequences. Dysfunctional behavioral effects are also possible

Designing any information system entails cost-benefit trade-offs. The more activity cost pools there is in an activity-based costing system, the greater will be the accuracy of the cost assignments. However, more activity cost pools also entail more cost drivers, which results in greater costs of implementing and maintaining the system.

Focuses on managing activities to reduce costs. The use of ABC costing information helps management make decisions.

Uses activity-based costing to determine the activities, costs, and profit associated with serving particular customers. If managers have a good understanding of which customers are generating the greatest profit, they can make more-informed decisions about customer service.

JIT systems reduce or eliminate inventories at every stage of production, from raw materials to finished goods. Tremendous cost savings can be realized. Risks: o Disruptions in production can occur if delivery complications arise. o More vulnerable to supply shocks of inputs