Why Managerial Accounting Is Important - Flashcards

Q: Strategic plans

Sets firm\'s long term directions

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Planning

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The process of setting goals and making plans to achieve them

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Strategic plans

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Sets firm's long term directions

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Budget

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Short term planning more operational

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Control

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Process of monitoring planning decisions and evaluate an orgs activities and employees

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Feedback

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Provided by the control function allows managers to revise their plan.

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Financial accounting - users/decision makers

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Investors, creditors, other users external to organization

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Financial accounting - purpose of info

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Assist external users in making investment, credit and other decisions

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Financial accounting - flexibility of practice

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Structured and often controlled by GAAP

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Financial Accounting - timeliness of info

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Often available only after audit is complete

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Financial accounting - time dimension

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Focus on historical info with some predictions

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Financial accounting - focus of info

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Emphasis on whole organization

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Financial accounting - nature of info

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Monetary info

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Managerial accounting - users/decision makers

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Mgrs, employees, decision makers internal to organization

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Managerial accounting - purpose of info

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Assist managers in making planning and control decisions

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Managerial accounting - flexibility of practice

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Relatively flexible (no GAAP restraints)

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Managerial accounting - timeliness of info

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Available quickly without the need to wait for an audit

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Managerial accounting - time dimension

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Many projections and estimates; historical info also presented

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Managerial accounting - focus of info

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Emphasis on an orgs projects, processes and subdivisions

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Managerial accounting - nature of info

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Mostly monetary; but also non-monetary

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2008 Report to the Nation estimates US loses an average of -----% of revenue to fraud

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7%

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Fraud increases business

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Costs

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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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Professional association for management of accountants - provides a road map for resolving ethical conflicts

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Classification by behavior

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Fixed or variable

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Fixed cost

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Does not change with changes in volume

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Variable cost

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Changes in proportion to changes in the volume of activity

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Classification by Traceability

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Direct and indirect costs

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Direct costs

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Costs are those traceable to one single cost object

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Indirect costs (overheads)

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Those costs that cannot easily and cost-beneficially traced to a single cost object

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Classification by controllability

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Controllable or not controllable

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Nonfinancial information / nonmonitary information

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Customer and employee satisfaction data, % of on time deliveries and product defect rates

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Purpose of managerial accounting

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Assists in analysis, planning and control of costs

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Subsequent events

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Reporting important events that occur while the financial statements are being prepared

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Classification by relevance

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Sunk cost or out of pocket cost

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sunk costs

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costs that have already been incurred and cannot be recovered or refunded

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out-of-pocket cost

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a cost that involves the payment of money or other resources

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Opportunity Cost

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the loss of potential gain from other alternatives when one alternative is chosen.

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Classification by function

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Product and period costs

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Product Costs

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Costs that are a necessary and integral part of producing the finished product (inventory). Capitalized costs because they are expected to have a future. First assigned to inventory, if sold that year then "income statement" as COGS. If not sold then "balance sheet" as inventory.

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Period costs

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Refer to expenditures identified more with a time period than a finished product (selling and G&A expenses). Flow to directly to "income statement" as expenses.

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Cost item by behavior - bike tires

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Variable

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Cost item by behavior - wages of assembly worker

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Variable

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Cost item by behavior - advertising

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Fixed

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Cost item by behavior - office depreciation

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Fixed

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Cost item by behavior - prod mgr salary

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Fixed

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Cost item by traceability - bike tires

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Direct

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Cost item by traceability- wages of assembly worker

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Direct

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Cost item by behavior - advertising

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Indirect

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Cost item by traceability - prod mgr salary

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Indirect

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Cost item by traceability- office depreciation

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Indirect

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Cost item by function - bike tires

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Product

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Cost item by function - wages for assembly workers

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Product

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Cost item by function - advertising

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Period

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Cost item by function - prod mgr salary

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Product

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Cost item by function - office depreciation

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Period

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Cost Concept

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Applicable to service companies, relies on estimate costs

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Which type of behavior increases total costs when when volume of activity increases

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Variable

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Manufacturers 3 balance sheets

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Raw materials, goods in process, finished goods

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Raw Material Inventory

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Materials that are usually purchased but have yet to enter the manufacturing process.

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Direct materials

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Raw materials used directly in a product Tangible components of a finished product.

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Indirect Materials

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Materials used to support production processes

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Materiality Principle

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An accounting standard can be ignored if the net impact of doing so has such a small impact on the financial statements that a reader of the financial statements would not be misled.

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Goods in process inventory

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Products in process of being manufactured but not yet complete

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finished goods inventory

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manufactured items that are completed and ready for sale

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Merchandiser cost of goods sold

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Beginning inventory + cost of purchases - ending inventory = cost of goods sold

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Manufacturer Cost of goods sold

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Beginning "finished goods" Inventory + cost of goods manufactured - ending "finished goods" = cost of goods sold

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Merchandise Inventory

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The goods a business has on hand for sale to customers.

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Manufacturer inventory

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Finished goods inventory - not included are raw material and goods in process

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Direct material costs

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Expenditures for direct materials that are separately and readily traced through manufacturing process to finished goods.

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Direct labor

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Efforts of employees who physically convert materials to finished product

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Direct labor costs

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Wages and salaries for direct labor that are separately and readily traced through manufacturing process to finished goods

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indirect labor costs

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Costs of other workers who assist direct labor

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Indirect labor

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Manufacturing workers effort not linked to a specific unit or batch of the product

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Factory overhead costs

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all manufacturing costs that are not direct materials or direct labor

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prime costs

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Direct materials + direct labor

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conversion cost

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direct labor + overhead

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Manufacturers Materials Activity

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Raw materials (beginning inv and purchased)

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Manufacturing production activity

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Goods in process (GIP beginning inv, raw materials used, direct labor used, factory overhead used)

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Manufacturing sales activity

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Finished goods (finished goods beginning, goods manufactured) goods

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Manufacturing statement

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1) computes direct material used. 2). Reports direct labor costs 3). Reports overhead costs 4). Computes and reports cost of goods manufactured

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Trends of managerial accounting

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Customer orientation, global economy, e-commerce, service economy, lean practices and value chain

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Lean business model

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Eliminate waste while satisfying the customer and providing a positive return to the company.

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Balanced scorecard

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Financial, customer, internal business processes, learning and growth

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cycle time

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the time needed to complete a process (process time + inspection time + move time + wait time)

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Process time

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Time spent on producing the product. Is the only "value added" time activity.

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Non value added activities

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Inspection, move and wait time

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Cycle efficiency (CE)

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CE = value added time (process time) ➗ cycle time (process time + inspection time + move time + wait time)

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Continuous improvement

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Rejects the notion of "good enough"

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Total Quality Management (TQM)

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Quality improvement applied to all aspects of business, seek to uncover waste

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just in time manufacturing

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Acquires inventory and produces only when needed after they receive an order.

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