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Financial accounting

Type of accounting used for external users.

Managerial accounting

Accounting type that is more flexible and forward-looking.

Three primary management functions

Planning, controlling, and decision-making.

Four standards of professional ethics

Competence, confidentiality, integrity, credibility.

Managerial accounting focus

Segmented, internal, future-oriented information.

Cost

The use of resources.

Expense

A cost that has been used up.

Product (manufacturing) costs

Direct materials and direct labor are examples.

Period (non-manufacturing) costs

Selling and administrative costs are examples.

Formula for Direct Materials Used

Beg. DM + Purchases - End. DM = DM Used.

Formula for Cost of Goods Manufactured (COGM)

Beg. WIP + DM Used + DL + OH - End. WIP = COGM.

Formula for Cost of Goods Sold (COGS)

Beg. FG + COGM - End. FG = COGS.

Manufacturing overhead costs

Include indirect materials, indirect labor, factory depreciation, factory utilities, etc.

Fixed cost

A cost that remains constant in total but varies per unit.

Variable cost

A cost that varies in total but remains constant per unit.

Mixed cost

A cost containing both fixed and variable components.

High-Low Method formula for variable cost per unit

(Cost at high activity - Cost at low activity) ÷ (High activity - Low activity).

Fixed cost using high-low method

Total cost - (Variable cost × activity level).

Method of least squares

Method that uses regression to determine cost behavior.

Scatterplot method

Used to visually check cost behavior.

Managerial judgment in cost estimation

Important because not all cost relationships are purely mathematical.

Predetermined Overhead Rate (POHR) formula

Estimated OH ÷ Estimated activity (cost driver).

Applied Overhead formula

POHR × Actual activity level.

Under-applied overhead

Occurs if applied OH < actual OH.

Over-applied overhead

Occurs if applied OH > actual OH.

Over-applied overhead at the end of the period

Reduce Cost of Goods Sold (COGS).

Purpose of activity-based costing (ABC)

To assign overhead more accurately using multiple cost drivers.

Plantwide rates distortion

Can distort product costs because many overhead activities are not driven by units produced.

Job order costing

Used for customized or unique products/services.

Process costing

Used for homogeneous, continuous production (e.g., paint, beverages).

Cost pool

A grouping of similar overhead costs for allocation purposes.