Chapter 10: Introduction to Management Accounting

Flashcards covering concepts from Chapter 10 - Introduction to Management Accounting, including managerial vs. financial accounting, product costs, cost flow, and the role of a management accountant.

Managerial Accounting

The field of accounting designed to meet the needs of internal users.

Financial Accounting

Provides information primarily for investors, creditors, and others outside a business.

Managerial Accounting

Focuses on information for executives, managers, and employees who work inside the business.

External users

Desire global information that reflects the performance of a company as a whole.

Internal users

Focus on detailed information about specific subunits of the company.

Financial Accounting

Its objectivity, reliability, consistency, and historical nature

Managerial Accounting

More Concerned with relevance and timeliness

Financial Accounting

Reports what happened yesterday (past)

Managerial Accounting

Reports what is expected to happen tomorrow (future)

Users of Financial Accounting

Outsiders including creditors, investors, gov’t agencies, analyst, reporters

Users of Managerial Accounting

Insiders including executives, managers and operators

Direct Materials

Sometimes called Raw Materials. The cost of DM can be easily traced to specific products.

Direct Labor

Labor paid to workers involved in ‘hands-on’ contact with product being manufactured. Labor costs that can be easily traced to specific products in order to be classified as a direct cost.

Manufacturing Overhead

Costs that cannot be easily traced to specific products, these are considered indirect costs. Examples: Utility costs, Depreciation, Rent for Mfg Facility. Any costs needed to manufacture the product yet cannot be directly traced.

Raw Materials

Materials used to make products.

Direct Raw Materials Costs

The costs of materials that can be easily and conveniently traced to products.

Direct Labor Costs

Labor costs that can be easily and conveniently traced to products.

Indirect Costs

Costs that cannot be traced to products and services in a cost-effective manner.

Manufacturing Overhead

The indirect costs incurred to make products.

Cost allocation

A process of dividing a total cost into parts and assigning the parts to relevant cost objects.

Product costs

Include direct materials, direct labor, and manufacturing overhead.

Period costs

Include all selling costs and administrative costs.

Manufacturing Companies

Make the goods they sell to their customers.

Merchandising Businesses

Are sometimes called retail or wholesale companies; they sell goods to other companies.

Service Organizations

Provide services to customers, rather than physical products.

Raw Materials Inventory

Includes lumber, metals, paints, and chemicals that will be used to make the company’s products.

Work in Process Inventory

Includes partially completed products.

Finished Goods Inventory

Includes completed products that are ready for sale.

Just-in-Time Inventory

Making products available just in time for customer consumption.

IMA Statement of Ethical Professional Practice

Competence, Confidentiality, Integrity

The accounting procedures and practices permitted in published financial statements are severely restricted by ______.

GAAP

The only reporting restriction for managerial accounting is the

Value-added principle

Characteristics of financial accounting information include

Objectivity, reliability, consistency, and historical nature

Financial accounting information is reported

periodically, typically the end of the year

Pronouncements and practices on how to report financial accounting information are known as

GAAP

Managerial accounting is only restricted by

the value-added principle

Characteristics of managerial accounting information include

timeliness and relevance

Managerial accounting is reported on a

continuous basis

In most cases costs per unit means ___ cost per unit

average

The accounting procedures and practices permitted in published financial statements are severely restricted by

GAAP

Resources, such as equipment and utilities, consumed in the process of manufacturing a product are called

overhead

The cost of raw materials is first recorded in a(n) ______ account. 

asset

Which of the following are added to Inventory?

Selling and administrative salaries only.

Production wages only.

Production wages and selling and administrative salaries.

Production wages only

raw materials are expensed when

goods are sold

Selling, general and administrative costs that are expensed when incurred are called

period costs

Costs that cannot be traced to a product or service in a cost-effective manner are called

overhead costs

Manufacturing overhead includes

• indirect materials

• indirect labor

• factory utilities

• depreciation on manufacturing assets

Indirect costs incurred to make a product, including indirect labor, indirect materials, factory utilities, rent on manufacturing facilities, and depreciation on manufacturing facilities are called

manufacturing overhead

Cost allocation is the process of dividing

a total cost into parts and assigning the parts to relevant cost objects

Goods are transferred to cost of goods sold from ______ inventory.

finished goods

Merchandising companies are often viewed as service companies rather than considered a separate business category. True or False

Tr

The IMA's overarching ethical principles include

• objectivity

• responsibility

• fairness

• honesty

According to the IMA Statement of Ethical Professional Practice, when faced with an ethical conflict, members should

follow organizations established policies

A member of the IMA that fails to comply with the standards may face

disciplinary action

goods are transferred to cost of goods sold from Blank______ inventory.

finished goods

As production occurs, materials used, labor and overhead are first accumulated in ______ inventory

work in process