BUS100 (Managerial Accounting Basics)

Differences between financial accounting and managerial account : 

  • Financial accounting produces financial statements for parties outside the company, managerial accounting is primarily within the company 

  • Financial accounting reports results of transactions that happened during the prior period, managerial accounting still uses historical information, but also uses forecasts and predictions about the future to help management.


Determining the cost of a product: 

Product differentiation:  Companies differentiate the products from another company to stand out. (Ex. BMW stands out from other cars in their speed and handling)

Price-Based Competition: Companies sell products for a lower price. (Ex. Walmart)


Three types of costs for Inventory: 

Direct Materials:  Often called raw materials, which are materials the company buys that go directly onto the product being produced. 

Direct Labor:  Includes the labor cost for all the employees working directly on the product to convert the raw materials into a finished product. (Ex. fork-lift drivers are not classified as direct labor.)

Manufacturing overhead: Includes all other expenses of the factory. Any manufacturing expense that is not considered direct materials or direct labor is considered manufacturing overhead. (Ex. factory utilities, fork-lift drivers, factory rent, etc.)


Total cost of inventory recorded on Balance Sheet:

Raw materials(direct)+Direct Labor+Manufacturing= Total cost of Inventory

Factory Expenses are called inventoriable expenses or product costs.

  • Other expenses not related to the Factory Expenses are non-inventoriable or period costs.

*Period costs are expensed in the period they are incurred and are NEVER part of the company’s inventory (Ex. marketing, distribution and shipping, and customer service)




Top Hat Questions 1-4:

  1. Which of the following statements is true? 

  1. Managerial accounting for companies in the US is governed by GAAP.

  2. Managerial accounting statements are prepared to go to parties outside the company.

  3. Managerial accounting is more future oriented than financial accounting. 

  4. The results of both managerial and financial accounting are reported only in currency.


2.) On what date would a door handle for a freezer be expensed by a manufacturing company?

  1. When door handle is paid for by the company

  2. When the freezer is sold by the company

  3. When payment is received for the sale of the freezer

  4. When the door handle is attached to the freezer in the production assembly line


3.) Which of the following is true of a manufacturing company?

  1. Period costs are expensed as cost of goods sold when the inventory is sold.

  2. The salary of the factory foreman is a period cost.

  3. Selling expenses are considered a product cost of the company.

  4. Period costs are expensed as they are incurred.


4.) The salary of the factory supervisor is classified as? 

  1. A non-product cost

  2. An administrative expense 

  3. An inventoriable cost

  4. A process cost


Fixed costs: stay the same in total regardless of the volume produced. (Ex. Rent) *associated with rent, advertising, and insurance

*Fixed costs per unit varies with volume

*Fixed costs in total stay the same 

IN CONTRAST

Variable costs: move exactly with the level of production. (Ex. If you need produces 100 belts, you will need 100 buckles) *associated with direct materials and direct labor

*Variable costs per unit always stay the same

*Variable costs in total stay the same 


Top Hat Questions 5-7:

5.) Which of the following is true?

  1. Total fixed costs vary exactly as the level of production varies.

  2. Variable costs are fixed per unit.

  3. The contribution margin per unit varies as the number of units varies.

  4. Fixed costs are fixed per unit.


6.) Which of the following is true? 

  1. Changing the sales price per unit has no impact on the contribution margin percentage of total sales.

  2. An increase in the total number of units sold increases the contribution margin percentage.

  3. Fixed cost per unit decreases as the total sales increase.

  4. Variable cost per unit varies as the total sales vary.


7.) Which of the following is true of the contribution margin income statement?

  1. The percentage of fixed costs to total sales remains constant.

  2. The total amount of variable costs remains constant.

  3. The breakeven point is the level of sales at which total sales equals variable costs plus fixed costs.

  4. Total fixed costs will always equal the contribution margin.


Week 1 slides:

Simple Income Statement: Revenue - Expenses = Net Income or (loss)


Multi Step Income Statement: Sales - Costs of Goods sold = Gross Profit - Operating Expenses = Net Income or (loss)

*Sales = Revenue


Contribution Margin Income Statement: Sales - Variable costs = Contribution Margin - Fixed Costs = Net Income or (loss) 

*Checkpoint Question: The Contribution Margin will always equal fixed costs plus net income


Total Product Cost: Direct materials + Direct Labor + Overhead