Midterm #1 Prep

Managerial Accounting by Ronald W. Hilton and David E. Platt, Twelfth Edition.
Focus on the creation of value in a dynamic business environment.

Definition:
- Managerial Accounting: Targets internal users. Provides information for decision-making, planning, and controlling an organization's operations.
- Financial Accounting: Targets external users. Involves published financial statements and reports.
Managerial Accounting involves:
- Information for decision-making and planning.
- Directing and controlling activities.
- Motivating business units to achieve goals.
- Measuring and monitoring performance and efficiency of processes.
- Assessing competitive position for long-term competitiveness.

Examples:
- For 1,000 pay-per-view movies watched, total bill = $10,000.
- For 1,300 pay-per-view movies watched, total bill = $13,000.
Per Unit Variable Cost:
- Cost per movie = Total Pay-Per-View Bill / Number of Movies Watched.
- For 1,000 units: $rac{10,000}{1000} = 10$ per unit (constant).

Fixed costs remain unchanged irrespective of the number of units produced, such as a monthly Netflix charge.
Per Unit Fixed Costs: Decrease as production volume increases.

Product Costs: Associated with the manufacturing of products/services; inventoried on the balance sheet and expensed at the time of sale. Also known as inventoriable costs.
Period Costs: Incurred and expensed during the time period in which they are incurred (e.g. advertising, salaries of sales personnel).

Direct Material (DM): Primary materials used in production.
Direct Labor (DL): Labor costs directly tied to physical product creation.
Manufacturing Overhead (MO): Indirect costs related to manufacturing, such as indirect materials and indirect labor.

Start with Beginning Raw Materials Inventory, add Raw Materials Purchased, and subtract Ending Raw Materials Inventory.
Moving to Work-in-Process (WIP) Inventory, add Direct Materials, Direct Labor, and Manufacturing Overhead, then subtract Ending WIP Inventory to derive Cost of Goods Manufactured.
Finished Goods Inventory leading into Cost of Goods Sold on the Income Statement.

Schedule Elements:
- Raw material used = $134,980,
- Direct labor = $50,000,
- Total manufacturing overhead = $230,000.
- Total manufacturing costs = $414,980$ .
- Adjust for beginning and ending work-in-process inventory to identify Cost of Goods Manufactured = $415,000$ .

Opportunity Costs: Benefits lost from choosing one alternative over another.
Sunk Costs: Costs that have already been incurred and cannot be recovered.
Differential Costs: Costs that differ between alternatives.
Marginal Costs: Additional costs incurred from producing one more unit.
Average Costs: Total costs divided by number of units produced.

Divides overhead into different pools associated with various activities (e.g., purchasing, material handling, etc.).
Uses different cost drivers for each pool to allocate costs.
- Example calculations illustrate specific allocation per product line based on different activities.

If manufacturing overhead is applied at differing rates than actual costs:
- Underapplied Overhead: Increase Cost of Goods Sold.
- Overapplied Overhead: Decrease Cost of Goods Sold.
Allocation of under applied balance based on finished goods, WIP, and COGS ratios.

Quality costs are the costs associated with preventing, detecting, and correcting defects:
1. Prevention Costs: Costs aimed at preventing defects (e.g., training).
2. Appraisal Costs: Costs incurred to identify defects (e.g., inspection).
3. Internal Failure Costs: Costs related to repairing defects before delivery (e.g., rework).
4. External Failure Costs: Costs incurred after delivery of defective products (e.g., warranty claims).
Formula for Optimal Quality Level:
$ext{Prevention Costs} + ext{Internal Failure Costs} = ext{Appraisal Costs} + ext{External Failure Costs}$

ESG stands for Environmental, Social, and Governance considerations in investment decisions.

Basic algebra is fundamental for solving various accounting problems.
Important principles include ensuring equal operations on both sides of an equation and manipulating equations to isolate variables.

Review lecture slides, redo homework and in-class exercises, and utilize available resources such as TA tutoring and practice exams to prepare for midterm assessments effectively.