Chapter 1: Managerial Accounting - Key Concepts (Flashcards)

A comprehensive set of Q&A flashcards covering Chapter 1 concepts from the Just Add Water … and Paddle Managerial Accounting text, including cost classifications, inventory treatment, COGM/COGS, and trends in managerial accounting.

What is managerial accounting?

A set of tools that helps management make decisions and evaluate the effectiveness of those decisions by providing economic and financial information for internal users.

Who are the primary users of managerial accounting information?

Internal users such as officers, managers, and department heads who make and evaluate decisions.

How does managerial accounting differ from financial accounting in terms of primary users?

Managerial: internal users; Financial: external users (investors, creditors, regulators).

Name the three broad management functions.

Planning, Directing, and Controlling.

What is the difference between line positions and staff positions?

Line positions are directly involved in revenue-generating activities; staff positions support those line activities.

Who is typically responsible for internal controls in an organization?

The CFO, supported by the controller, treasurer, and internal audit staff; they ensure internal controls and safeguarding of assets.

What are the three components of manufacturing costs?

Direct materials, Direct labor, and Manufacturing overhead.

Define direct materials.

Raw materials that can be physically and directly traced to the finished product.

Define indirect materials.

Materials that cannot be easily traced to the finished product or are too small in cost; treated as Manufacturing Overhead.

Define direct labor.

Factory workers' effort that can be physically and directly traced to converting raw materials into finished goods.

Define indirect labor.

Factory-related labor that cannot be directly traced to the finished product; part of Manufacturing Overhead.

Define manufacturing overhead (MOH).

Indirect manufacturing costs not directly traceable to specific products (e.g., indirect materials, indirect labor, depreciation on factory, etc.).

What is a product cost?

Costs that are a necessary and integral part of producing the finished product (DM, DL, MOH); also called inventoriable costs.

What is a period cost?

Costs matched with the revenue of a specific time period and not inventoried (selling and administrative expenses).

What does ‘inventoriable costs’ mean?

Product costs that are recorded as inventory until the product is sold.

Define Cost of Goods Manufactured (COGM).

The total cost of goods completed during the period; Beginning Work in Process plus Total Manufacturing Costs minus Ending Work in Process.

What are Total Manufacturing Costs?

The sum of Direct Materials used, Direct Labor, and Manufacturing Overhead incurred in the current period.

What are the three inventory accounts for a manufacturer?

Raw Materials Inventory, Work in Process Inventory, Finished Goods Inventory.

How does the balance sheet differ for a manufacturer vs. a merchandiser?

Merchandiser typically shows a single Inventory account; Manufacturer shows Raw Materials, Work in Process, and Finished Goods inventories.

What is Cost of Goods Available for Sale?

Beginning inventory plus purchases (merchandiser) or Beginning Finished Goods plus Cost of Goods Manufactured (manufacturer).

What is the periodic COGS formula for a merchandiser?

Beginning Inventory + Cost of Goods Purchased – Ending Inventory.

What is the periodic COGS formula for a manufacturer?

Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending Finished Goods Inventory.

What is the difference between Product Costs and Period Costs (with examples)?

Product costs: DM, DL, MOH (inventoriable). Period costs: Selling and Administrative expenses (not inventoriable).

What is the purpose of the Cost of Goods Manufactured (COGM) Schedule?

To detail the costs of manufacturing and to compute Cost of Goods Manufactured for the period.

Explain Beginning Work in Process and Ending Work in Process.

Beginning WIP is the costs in progress at period start; Ending WIP is the costs in progress at period end; used to compute COGM.

What is the formula for COGM in a simple schedule?

COGM = Beginning Work in Process + Total Manufacturing Costs (DM + DL + MOH) – Ending Work in Process.

What is ‘Cost of Goods Available for Sale’ used for in statements?

To determine Cost of Goods Sold by combining beginning inventory with costs incurred to produce goods available for sale.

What is the key difference in the Balance Sheet’s current assets section between merchandising and manufacturing companies?

Manufacturers show RM, WIP, FG inventories; merchandisers typically show a single Inventory account.

What is the Value Chain?

All business processes involved in providing a product or service, from R&D to after-sales service; includes both manufacturing and nonmanufacturing costs.

What is Just-in-Time (JIT) inventory?

An inventory system in which goods are manufactured or purchased just in time for sale, reducing inventory levels.

What is Enterprise Resource Planning (ERP) systems?

Integrated software that centralizes data and manages major business processes, often replacing many standalone packages.

What is Activity-Based Costing (ABC)?

An overhead allocation method based on each product’s use of activities that drive costs.

What is the Balanced Scorecard?

A performance measurement framework using financial and nonfinancial measures linked to company objectives.

What is Corporate Social Responsibility (CSR)?

A company’s efforts to employ sustainable practices regarding employees, society, and the environment (the triple bottom line: people, planet, profit).

What is the Sarbanes-Oxley Act (SOX) about?

A law requiring CEOs/CFOs to certify financial statements and strengthening internal controls; independent audit committee requirements.

What is the IMA’s Code of Ethical Professional Practice?

A set of ethical standards guiding management accountants to uphold integrity and avoid unethical practices.

What is a “data analytics” approach in managerial accounting?

Using data analytics and visualizations to analyze data, identify trends, and support decision making.

How does the text describe the role of budgets in managerial accounting?

Budgets are used as planning tools and evaluation tools; they can affect behavior and incentives.

What is the difference between direct materials and indirect materials with respect to tracing costs?

Direct materials are traceable to the product; indirect materials are traced via MOH (not easily traceable to a specific product).

What is the difference between direct labor and indirect labor?

Direct labor is traceable to the product; indirect labor is part of MOH and not easily traced.

What is a “COGS” schedule’s relation to manufacturing and merchandising statements?

In merchandising, COGS uses beg/ purchases/ ending inventory; in manufacturing, COGS uses beg FG, COGM, ending FG.

What is “Cost of Goods Sold” (COGS) and where does it appear?

The cost of products that were sold during the period; appears on the income statement.

In the Terrain Park Boards example, what is the computed COGM?

$370,000.

What does the term ‘Total manufacturing costs’ include for a period?

Sum of Direct Materials used, Direct Labor, and Manufacturing Overhead incurred in the current period.

What is the role of data visualizations in managerial analytics (as per the text)?

Help managers understand relationships and trends, supporting informed decision making.