ACC 220 EXAM 1

Managerial Accounting

The provision of accounting information for a company's internal users. More specifically, the system designed to provide the necessary financial and non-financial information that helps company managers make the best possible decisions.

Three Objectives of Man. Accounting

1. To provide info for planning actions

2. To provide info for controlling actions.

3. To provide info for making effective decisions.

Planning

The detailed formulation of action to achieve a particular end.

Controlling

Monitoring a plan's implementation and taking corrective action. A manager may decide to continue with the plan based on feedback, or do some re-planning.

Decision Making

The process of choosing among competing alternatives. One of the major roles is to supply information that facilitates this.

Financial Accounting

Primarily concerned with producing information for external users, including investors, creditors, customers, suppliers, government agencies, and labor unions.

Difference between Fin. & Man. Accounting

1. Targeted Users - Man. is for internal while Fin. is for external users.

2. Restrictions on inputs and processes - Man. Accounting has no official body that prescribes the format, content, and rules for selecting inputs and processes and preparing reports.

3. Type of Information - Fin. Accounting is more objective while Man. Accounting may be more subjective.

4. Time Orientation - Fin. Accounting is historical, while Man. is focused more on the present and future.

5. Degree of Aggregation - Man. Accounting tends to break the company down into groups, while Fin. Accounting puts things together more as a whole.

6. Breadth - Man. Accounting is much more broader than Fin. Accounting.

Activity-Based Accounting (ABC)

A more detailed approach to determining the cost of goods and services.

Process-value Analysis

Focuses on the way in which companies create value for customers. The objective is to find ways to perform necessary activities more efficiently and to eliminate those that do not create customer value.

Customer Value

Firms can establish a competitive advantage by creating better customer value for the same or lower cost than competitors or creating equivalent value for lower cost than that of competitors.

Cost Leadership

To provide the same or better value to customers at a lower cost.

Superior products through differentiation

Strives to increase customer value by providing something to customers not provided by competitors.

Value Chain

The set of activities required to design, develop, produce, market, and deliver products and services, as well as provide support services to customers.

Cross-Functional Perspective

Allows us to see the big picture, by combining all the different sections of a business together to make a smart decision.

Continuous Improvement

The continual search for ways to increase the overall efficiency and productivity of activities by reducing waste, increasing quality, and managing costs.

Total Quality Management

Manufacturers strive to create an environment that will enable workers to manufacture perfect (zero-defect) products.

Lean Accounting

Organizes costs according to the value chain and collects both financial and non-financial information.

Line Positions

Positions that have direct responsibility for the basic objectives of an organization.

Staff Positions

Positions that are supportive in nature and have only indirect responsibility for an organization's basic objectives.

Controller (CAO)

Supervises all accounting functions and reports directly to the general manager and COO. May include internal auditing, cost accounting, financial accounting, systems accounting, and taxes, varies from firm to firm.

Treasurer

Responsible for the finance function. Raises capital and manages cash and investments.

Ethical Behavior

Involves choosing actions that are right, proper, and just.

10 core values of Ethics

1. Honesty

2. Integrity

3. Promise Keeping

4. Fidelity

5. Fairness

6. Caring for others

7. Respect for others

8. Responsible citizenship

9. Pursuit of excellence

10. Accountability

Sarbanes-Oxley Act (SOX)

Tries to limit securities frauds and accounting misconduct scandals.

AICPA and IMA

Stress the importance of competence, confidentiality, integrity, and credibility or objectivity

Certified Fraud Examiner (CFE)

Allows them to conduct expert work in the areas of fraud prevention, detection, and deterrence.

Certified Management Accountant (CMA)

A rigorous qualifying examination, met an experience requirement, and participates in continuing education.

Certified Public Accountant (CPA)

Is permitted by law to serve as an external auditor

Certified Internal Auditor (CIA)

has passed a comprehensive examination designed to ensure technical competence and has 2 years' experience.

Cost

the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization

Expenses

expired costs that are used up in production of revenues.

Price

revenue per unit. cost and price are not the same. revenue and price are the same.

Cost Object

any item such as products, customers, departments, projects, and so on, for which costs are measured and assigned.

Accumulating costs

the way that costs are measured and recorded

Assigning costs

the way that a cost is linked to some cost object; tells the company why the money was spent

Direct costs

Costs that can be easily and accurately traced to a cost object

Indirect costs

costs that cannot be easily and accurately traced to a cost object

Allocation

an indirect cost is assigned to a cost object by using a reasonable and convenient method.

Variable cost

one that increases in total as output increases and decreases in total as output decreases

Fixed cost

a cost that does not increase in total as output increases and does not decrease in total as output decreases

Opportunity Cost

benefit given up or sacrificed when one alternative is chosen over another

Products

Goods produced by converting raw materials through the use of labor and indirect manufacturing resources, such as the manufacturing plant, land, and machinery.

Services

tasks or activities performed for a customer or an activity performed by a customer using an organization's products or facilities.

Manufacturing Organizations

organizations that produce physical goods

Service organizations

organizations that produce nonphysical products in the form of services

Service vs. products

1. services are intangible

2. services are perishable

3. services require direct contact between providers and buyers

Product (manufacturing) costs

those costs, both direct and indirect, of producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale

Direct materials

those materials that are a part of the final product and can be directly traced to the goods being produced.

Direct Labor

The labor that can be directly traced to the goods being produced.

Manufacturing overhead

all manufacturing costs except direct materials and direct labor

Total Product Cost

direct materials + direct labor + manufacturing overhead

Unit Product Cost

Per-Unit Product Cost = Total Product Cost/Number of Units Produced

Prime Cost

Direct Materials + Direct Labor

Conversion Cost

direct labor + overhead

Period Costs

All costs that are not product costs

Selling Costs

those costs necessary to market, distribute, and service a product or service.

Administrative Costs

all costs associated with research, development, and general administration of the organization that cannot reasonably be assigned to either selling or production

Cost of Goods Manufactured

Total cost of goods completed during the current period and transferred to finished goods inventory

Ending Inventory of Materials

Beginning Inventory of Materials + Purchases - Direct Materials Used in Production

Work in Progress (WIP)

the cost of the partially completed goods that are still being worked on at the end of a time period.

Cost of Goods Sold

The cost of goods sold during the period and transferred from finished goods inventory on the balance sheet to cost of goods sold on income statement

Sales Revenue

price x units sold

Gross margin

sales revenue - cost of goods sold

Gross Margin Percentage

gross margin / sales revenue

Operating Income

gross margin - selling and administrative expenses

Income statement for a service firm

No beginning or ending inventories. No cost of goods sold or gross margin. Important because it showcases how the major expenses incurred to provide key services compare to the organizations overall sales revenue.

cost behavior

The general term for describing whether and how a cost changes when the level of output changes.

cost driver

a casual factor that measures the output of the activity that leads (or causes) costs to change

Relevant Range

the range of output over which the assumed cost relationship is valid for the normal operations of a firm

discretionary fixed costs

Fixed costs that can be changed or avoided relatively easily in the short run at management discretion

committed fixed costs

fixed costs that cannot be easily changed

total variable cost

Variable Rate x Units of Output

Discretionary variable costs

Variable costs that can be changed or avoided relatively easily in the short run at management discretion

Semi-variable costs

A cost that is variable in nature but whose rate of change is not constant

Mixed Costs

costs that have both a fixed and a variable component

total cost

total fixed cost + total variable cost

Steep costs

Display a constant level of total cost for a range of output and then jump to a higher level (or step) of total cost at some point, where they remain for a similar range of output

Three common methods of separating a mixed cost into its fixed and variable components

1) high low method

2) scattergraph method

3) method of least squares

intercept

corresponds to fixed cost

slope of the cost line

corresponds to the variable rate (the variable cost per unit of output).

high-low method

a method of separating a mixed cost into fixed and variable elements by using the high and low data points

scattergraph method

a way to see the cost relationship by plotting the data points on a graph

Method of least squares (regression)

a statistical way to find the best-fitting line through a set of data points

absorption costing (full costing)

assigns all manufacturing costs to the product

variable costing

assigns only variable manufacturing costs to the product; these costs include direct materials, direct labor, and variable overhead.

coefficient of determination (r^2)

the percentage of variability in the dependent variable explained by an independent variable

Job

one distinct unit or set of units

Job Order Costing

a costing system in which costs are accumulated by job, and there's a wide variety of distinct products

Unit Costs

Process Costs / Output

Process-costing system

A costing system that accumulates production costs by process or by department for a given period of time. homogenous (similar products as competitors)

Actual cost system

only actual costs of direct materials, labor and overhead are used to determine unit cost

Issues of actual costing

defining overhead, uneven overhead, uneven production

Normal cost sytem

a system in which the cost of production consists of actual direct materials, actual direct labor, and applied (not actual) overhead.

Predetermined Overhead Rate

determined at the beginning of the year by dividing the total estimated annual overhead by the total estimated level of associated activity or cost driver

Applied Overhead

found by multiplying the predetermined overhead rate by the actual use of the associated activity for the period

Total Normal Product Costs

= Actual Direct Materials + Actual Direct Labor + Applied Overhead

Overhead Variance

Actual Overhead - Applied Overhead

underapplied overhead

if actual overhead is greater than applied overhead, added to COGS

overapplied overhead

if actual overhead is less than applied overhead, subtracted from COGS

Adjusted cost of goods sold

Unadjusted COGS +/- Overhead Variance