ACCT 202 Midterm Review

Financial accounting

• external users

• financial statements. Quarterly and annually. General purpose

• Pertains to business as a whole

• Highly aggregated

• Limited to double-entry accounting and cost data

• Follow GAAP

• audited by CPA

Managerial Accounting

• Internal users

• Internal reports. As often as needed. Special purpose for special decisions

• Pertains to subunits of the business

• very detailed

• extended beyond double entry accounting

• standard is relevance to decisions

• no independent audits

What is manufacturing?

activities and processes that convert raw materials into finished goods

How to find total manufacturing costs?

Direct materials + direct labor + manufacturing overhead

Direct materials

Raw materials that can be physically and directly associated with the finished product during the manufacturing process

Direct labor

Work of factory employees that can be physically and directly associated with converting raw materials into finished goods

Manufacturing overhead

Costs that are indirectly associated with manufacturing the finished product

Product costs

DM, DL, MOH (anything in the factory)

Period Costs

selling expenses, adminstrative expenses

Cost of goods sold formula

Beginning (finished goods) inventory + COG manufactured/purchased - ending (finished goods) inventory

COG Manufactured formula

Beginning WIP inventory + Total Manufacturing costs - ending WIP inventory

Job order cost flow

the flow of costs parallels the physical flow of the materials as they are converted into finished goods

• Manufacturing costs (direct) → WIP Inventory account

• Cost of completed jobs → Finished goods inventory account

• Once units are sold → COGS account

Predetermined Overhead Rate formula

Estimated total manufacturing overhead cost for the coming period / Estimated total units in the allocation base for the coming period

Underapplied overhead is when…

Actual MOH is greater than applied MOH

Overapplied overhead is when…

Actual MOH is less than applied MOH

Treatment of under- or overapplied overhead

Underapplied - debit to COGS, Credit MOH

Overapplied - Debit MOH, credit COGS

4 steps of Overhead costs

1. Identify activity cost pools and allocate cost to pools

2. identify cost drivers and estimate total usage

3. compute activity-based overhead rate

4. assign overhead costs to products based on use of cost drivers

Activity-based overhead rate formula

Estimated overhead per activity / expected use of cost drivers per activity

Variable Costs

costs that vary in total directly and proportionately with changes in the activity level

Fixed costs

costs that remains the same in total regardless of changes in the activity level within a relevant range

Mixed costs

costs that have both a variable element and a fixed element

Variable cost per unit formula

high minus low total costs / high minus low activity level

High- Low Method

Step 1: Determine variable cost per unit

Step 2: Determine the fixed cost by subtracting the total variable cost either high or low (total activity levels timed VC per unit) from corresponding total cost 

Total contribution margin formula

Total sales - Total variable costs

Unit contribution margin formula

Unit selling price - Unit variable cost

Contribution margin ratio formula

Unit contribution margin / unit selling price

Break-even point in units formula

fixed cost / UCM

Break-even point in dollars formula

Fixed cost / CMR

Target net income formula

add the target income to appropriate break even formula

Margin of safety formula

Total sales - break-even sales