Acc 3020 Chapter 16: Intro to Managerial Accounting

Question 1

What information should managerial accountants provide?

Answer 1

Managerial accounting provides information that helps managers make better decisions.

Question 2

What is the primary focus of managerial accounting?

Answer 2

• Focus on relevance to business decisions and
• Future orientation

Question 3

How do you decide on a company’s managerial accounting system, which is not regulated by GAAP?

Answer 3

Use cost/benefit analysis: Design the managerial accounting system so that benefits (from helping managers make wise decisions) outweigh the costs of the system.

Question 4

How do you distinguish among service, merchandise, and manufacturing companies?

Answer 4

Service companies:

• Provide customers with intangible services
• Have no inventories on teh balance sheet

Merchandising companies:

• Resell tangible products purchased ready make from suppliers
• Have only one category of inventory

Manufacturing companies:

• Use labor, plant, and equipment to transform raw materials into new finished products
• Have three categories of inventory:
• Materials inventory
• Work in process inveotnry
• Finished goods inventory

Question 5

How do you compute the cost of goods sold?

Answer 5

Service companies:

No cost of goods sold, because they do not sell tanglible goods

Merchandising companies:

Beginning merchandise inventory

+ Purchases and freight in

• Ending merchandise inventory

= Cost of goods sold

Manufacturing companies:

Beginning finished goods inventory

+ Cost of goods manufactured

• Ending finished goods inventory

= Cost of goods sold

Question 6

How do you compute the cost of goods manufactured for a manufacturer?

Answer 6

Beginning work in process inventory

+ Current period manufacturing costs (direct materials used + direct labor + manufacturing overhead)

• Ending work in process inventory

= cost of goods manufactured

Question 7

How do you compute the cost per unit?

Answer 7

Cost of goods manufactured

• Total units produced

= Unit product cost

Question 8

Which costs are initially treated as assets for external reporting? When are these costs expensed?

Answer 8

Inventoriable products costs are initially treated as assets (Inventory); these costs are expensed (as Cost of goods sold) when the products are sold.

Question 9

What costs are inventoriable under GAAP?

Answer 9

Service companies:

No inventoriable product costs

Merchandising companies:

Purchases and freight in

Manufacturing companies:

• Direct materials used
• Direct labor
• Manufacturing overhead

Question 10

What costs are never inventoriable product costs?

Answer 10

Period costs.

There are always expensed as incurred

Question 11

What is a budget?

Answer 11

A manthematical expression of the plan that managers use to coordinate the business’s activities.

Question 12

What is controlling?

Answer 12

Implementing plans and evaluating the results of business operations by comparinb the actual results to the budget

Question 13

What are conversion costs?

Answer 13

Direct labor plus manufacturing overhead

Question 14

What is a cost/benefit analysis?

Answer 14

Weighing costs against benefits to help make decisions

Question 15

What is a cost object?

Answer 15

Anything for whch manager want a separate measurement of cost

Question 16

What is cost of goods manufactured?

Answer 16

The manufacturing or plant-related costs of the goods that finished the production process in a given period.

Question 17

What is a direct cost?

Answer 17

A cost that can be traced to a cost object

Question 18

What is direct labor?

Answer 18

The compensation of employees who physically convert materials into finished products.

Question 19

What are direct materials?

Answer 19

Materials that become a physical part of a finsihed product and whose costs are traceable to the finished product.

Question 20

What is Enterprise Resource Planning (ERP)?

Answer 20

Software systems that can integrae all of a company’s worldwide functions, departments, and data into a single system.

Question 21

What is factory overhead?

Answer 21

All manufacturing costs other than direct materials and direct labor. Also called manufacturing overhead or indirect manufacturing costs

Question 22

What is finished good inventory?

Answer 22

Completed goods that havenot yet been sold

Question 23

What are indirect costs?

Answer 23

Costs that cannot be traced to a cost object

Question 24

What is indirect labor?

Answer 24

Labor costs that are necessary to make a product but whose costs eighter cannot conveniently be direclty traced to specific finished products or whose costs are not large enough to justify tracing to the specific product.

Question 25

What are indirect manufacturing costs?

Answer 25

All manufacturing costs other than direct materials and direct labor. Also called factory overhead or manufacturing overhead

Question 26

What are indirect materials?

Answer 26

Materials used in making a product but whose costs either cannot conveniently bedirectly traced to specific finished products or whose costs are not large enought to justify tracing to the specific product.

Question 27

What are Inventoriable Product Costs?

Answer 27

All costs of a product that GAAP require companies to treat as an asset for external financial reporting. These costs are not expensed until the product is sold.

Question 28

What is Just-in-Time (JIT)?

Answer 28

A system in which a company produces just in time to satisfy needs. Suppliers deliver materials just in time to begin production and finished units are completed just in time for delivery to the cusotmer.

Question 29

What is management accountability?

Answer 29

The manager’s responsibility to manage the resources of an organization

Question 30

What is a manufacturing company?

Answer 30

A company that uses labor, equipment, supplier, and facilities to convert raw materials into new finished products

Question 31

What is manufacturing overhead?

Answer 31

All manufacturing costs other than direct materials and direct labor. Also called factory overhead or indirect manufacturing costs

Question 32

What is materials inventory?

Answer 32

Raw materials for use in manufacturing

Question 33

What is a merchandising company?

Answer 33

A company that resells products previously bought from suppliers

Question 34

What are period costs?

Answer 34

Period costs are operating costs that are expensed in the period in which they are incurred.

Question 35

What is planning?

Answer 35

Choosing goals and deciding how to achieve them

Question 36

What is a service company?

Answer 36

Companies that sell intangible services rather than tangible products.

Question 37

What are stakeholders?

Answer 37

Groups that have a stake in a business.

Question 38

What is Total Quality Management (TQM)?

Answer 38

A philosophy designed to integrate allorganizational areas in order to provide customers with superior products and services, while meeting organizational goals throughout the value chain.

Question 39

What is a value chain?

Answer 39

Includes all activities that add value to a company’s products and services.

Question 40

What is Work In Process Inventory?

Answer 40

Goods that have been started into the manufacturing process but are not yet complete.

Question 41

Learning Objective:

Distinguish between managerial accounting and financial acccounting

Answer 41

Financial accounting focuses on preparing financial statements.

Financial accounting is for external reporting.

F

Managerial accounting focuses on the accounting tools managers use to run a business.

Managerial accounting is for internal planning and control.

Question 42

Learning objective:

Identify trends in the business environment and the role of managment accountability

Question 43

Learning objective:

Apply ethical standards to decision making

Question 44

What are period costs?

Answer 44

Period costs, also known as non-manufacturing costs or period expense, include all non-manufacturing overhead costs such as marketing and selling costs and general administrative costs incurred by passage of time rather than by production. Such costs do not directly relate to production and do not trace back to the products or inventory in the same way that product costs such as materials, labor and manufacturing related overheads do.