ACC 312 Exam Review Notes

Chapter 1: Financial vs Managerial Accounting

• Managerial Accounting Activities:

  • Decision Making: Process of choosing among alternatives to reach a desired outcome.

  • Planning: Creating strategies to achieve goals.

  • Directing Operations: Overseeing day-to-day activities.

  • Controlling: Monitoring performance and making adjustments.

Chapter 2: Costs & Costs Behaviors

• Three Ways to Categorize Cost Behavior:

  1. Timing:

  • Product Cost: Related to creating a product (e.g., direct labor, direct materials, manufacturing overhead—"COGS").

  • Period Cost: All costs not related to product costs (e.g., selling, general, and administrative expenses).

  1. Assignment:

  • Direct Costs: Easily traced to a cost object.

  • Indirect Costs: Allocated across multiple cost objects; includes prime costs (Direct Materials + Direct Labor) and conversion costs (Direct Labor + MOH).

  1. Behavior:

  • Variable Costs: Change in proportion to the level of the cost driver.

  • Fixed Costs: Remain constant in total despite changes in the activity level.

Cost Behavior: Timing

• Product and Period Costs Defined:

  • Product Costs include:

  • Direct labor

  • Direct materials

  • Manufacturing overhead

  • Reflected as COGS on the income statement.

  • Period Costs include:

  • Selling, general and administrative expenses, research and development, etc.

  • Reflected as OPEX on the income statement.

Assignment of Costs

• Manufacturing Inventory Flows:

  • Raw Material Inventory: Begin inventory + Purchases - End inventory.

  • WIP Inventory: Begin inventory + Direct Materials Used + Direct Labor Used + Overhead Used - End inventory.

  • Finished Goods Inventory: Begin inventory + Cost of Goods Manufactured - End inventory.

• Direct vs. Indirect Costs:

  • Direct Costs: Traceable to a specific cost object.

  • Indirect Costs: Need to be allocated.

Cost Behavior: Variable vs Fixed Costs

• Variable Costs:

  • Change in total in direct proportion to the activity level.

  • Example: If 10,000 units are produced, and variable cost per unit is $5, total variable costs = $5 x 10,000 = $50,000.

• Fixed Costs:

  • Remain constant within a relevant range, regardless of activity level.

  • Example: If fixed costs are $20,000, they stay constant irrespective of production levels.

Cost Estimation Methods

• Five Cost Estimation Methods:

  1. Account Classification: Analysis based on historical data.

  2. Visual-Fit Method: Graphical estimation of costs.

  3. High-Low Method: Based on highest and lowest costs and volumes.

  4. Regression Analysis: Statistical analysis for cost estimation.

  5. Multiple Regression Analysis: Handles multiple variables for complex cost relationships.

• Choosing the Best Method: No one method is superior; use what fits best based on circumstances.

Chapter 7: Break-Even & CVP Analysis

• Break-Even Point: Volume where Total Revenues = Total Costs, or Profit = $0.

• Break-Even Point in Units: ext{Fixed Costs} ig/ ext{Contribution Margin per Unit}

• Break-Even in Sales Dollars: ext{Fixed Costs} ig/ ext{Contribution Margin Ratio}

• Contribution Margin: Revenue available after covering variable costs.

• Calculating Contribution Margin:

  • ext{CM per Unit} = ext{Sales Price per Unit} - ext{Variable Cost per Unit}

  • Contribution Margin Ratio: ext{Contribution Margin per Unit} ig/ ext{Sales Price per Unit}

Decision-Making Process

• Steps in Decision Making:

  1. Define the problem clearly.

  2. Specify the criteria and constraints of the problem.

  3. Evaluate alternatives.

  4. Gather data for analysis.

  5. Choose the best alternative.

  6. Assess the effectiveness of decisions.

  7. Ensure information is relevant and specific to the decision at hand.

• Relevant Costs: Costs that will change as a direct result of a decision, including avoidable fixed costs.

• Irrelevant Costs: Fixed costs that will not change due to the decision should be excluded.

Good luck on your exam! Remember to review key concepts and practice problems.