Chapter 13 - Managerial Accounting Flashcards
Managerial Accounting supplies information to internal users for the following activities:
1) Planning
2) Controlling
3) Decision Making
Planning
The detailed formulation of action to achieve a particular end.
Controlling
Monitoring a plan’s implementation and taking corrective action as needed.
Decision Making
The process of choosing among competing alternatives.
Features of Financial Accounting:
- Externally focused
- Must follow externally imposed rules
- Objective financial information
- Historical orientation
- Information about the firm as a whole
- More self contained
Features of Managerial Accounting:
- Internally focused
- No mandatory rules
- Financial and non-financial information; subjective information possible
- Emphasis on the future
- Internal evaluation and decisions based on very detailed information
- Broad, multidisciplinary
Two general categories of Strategic Positioning
1) Cost leadership: provide same or better value to customers at a lower price.
2) Superior products through differentiation: increase customer value by providing something to customers not provided by competitors.
Value Chain
The set of activities required to design, develop, produce, market and deliver products and services, as well as provide support services to customers.
Continuous Improvement
The continual search for ways to increase the overall efficiency and productivity of activities by reducing waste, increasing quality, and managing costs.
Total Quality Management
A philosophy in which manufacturers strive to create an environment that will enable workers to manufacture perfect (zero-defect) products.
Lean Accounting
Organizes costs according to the value chain and collects both financial and non-financial information. The objective is to provide information to managers that support their waste reduction efforts and to provide financial statements that better reflect overall performance.
Controller
Chief accounting officer. Responsible for both internal and external accounting. Direct responsibility for internal auditing, cost accounting, financial accounting and reporting, and systems accounting (analysis, design, internal controls). In smaller company, may also serve the functions of treasurer.
Treasurer
The treasurer is responsible for the finance function. The treasurer raises capital and manages cash and investments. The treasurer may also be in charge of credit and collection and insurance.
Cost
The amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization.
Expenses
Expired costs. As costs are used up in the production of revenue, they are said to expire. On the income statement, expenses are deducted from revenues to determine income (also called profit).
Price
Revenue per unit.
Accumulating Costs
The way that costs are measured and recorded.
Assigning Costs
The way that a cost is linked to some cost object.
Cost Object
Any item for which costs are measured and assigned. Literally a categorization of costs relating to items such as product, customer, department, project, geographic region, plant, etc.
Direct Costs
Costs that can be easily and accurately traced to a cost object. Generally, the relationship between the cost and the object can be physically observed and is easy to track.
Indirect Costs
Costs that cannot be easily and accurately traced to a cost object.
Allocation
The process by which indirect cost is assigned to a cost object by using a reasonable and convenient method.
Variable Cost
A cost that increases in total as output increases and decreases in total as output decreases.
Fixed Cost
A cost that does not increase in total as output increases and does not decrease in total as output decreases. i.e. property taxes on a factory stay the same no matter how much is produced
Opportunity Cost
The benefit given up or sacrificed when one alternative is chosen over another.
Product (Manufacturing) Costs
Both direct and indirect costs of producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale. Only costs in the production section of the value chain are included. Product costs are inventoried until sold, then transferred to cost of goods sold (COGS).
Three classifications of Product Costs
1) Direct Materials
2) Direct Labor
3) Manufacturing Overhead
Direct Materials
Materials that are part of the final product and can be directly traced to the goods being produced. Physical observation can be used to measure the quantity used by each product.
Direct Labor
Labor that can be directly traced to the goods being produced. Physical observation can be used to measure the amount of labor used to produce a product.
Manufacturing Overhead
All product costs other than direct materials and direct labor. Also known as factory burden or indirect manufacturing costs. Includes indirect materials, indirect labor, depreciation on plant buildings and equipment, plant utilities, plant property taxes, etc.
Total Product Cost =
Direct Materials Cost + Direct Labor Cost + Manufacturing Overhead Cost
Per-unit Cost =
Total Product Cost / Number Of Units Produced
Prime Cost =
Direct Materials Cost + Direct Labor Cost
Conversion Cost =
Direct Labor Cost + Manufacturing Overead. (Cost of converting raw materials into a final product).
Period Costs
All costs in the value chain other than production costs. Period costs are not inventoried. Period costs are usually expensed in the period in which they are incurred. If the cost will provide an economic benefit beyond the next year, then it is recorded as an asset (capitalized) and allocated to expense through depreciation throughout its useful life.
Selling Costs
Costs necessary to market, distribute, and service a product or service. There are order-getting costs such as salaries and commissions of sales personal, marketing and order-filling costs like warehousing, shipping and customer service.
Administrative Costs
All costs associated with research, development and general administration that cannot reasonably be assigned to either selling or production.
Cost Of Goods Manufactured
Total product cost of goods completed during the current period and transferred to the finished goods inventory.
Ending Inventory Of Materials =
Beginning Inventory Of Materials + Purchases - Direct Materials Used In Production
Direct Materials Used In Production =
Beginning Inventory Of Materials + Purchases - Ending Inventory Of Materials
Work In Progress (WIP)
The cost of the partially completed goods that are still on the factory floor at the end of a time period.
Cost Of Goods Sold
The cost of goods that were sold during the period and transferred from finished goods inventory on the balance sheet to COGS on the income statement (as an inventory expense).
Costs Of Goods Manufactured =
Total Manufacturing Cost + Beginning WIP - Ending WIP
Cost Of Goods Sold =
Cost Of Goods Manufactured + Beginning Finished Goods Inventory - Ending Finished Goods Inventory
Number Of Units Sold =
Beginning Finished Goods Inventory + Units Finished - Ending Finished Goods Inventory
Sales Revenue =
Price x Units Sold
Gross Margin =
Sales Revenue - Cost Of Goods Sold
Operating Income =
Gross Margin - Selling Expenses - Administrative Expenses
