Chapter 13 - Managerial Accounting

Question 1

Managerial Accounting supplies information to internal users for the following activities:

Answer 1

1) Planning
2) Controlling
3) Decision Making

Question 2

Planning

Answer 2

The detailed formulation of action to achieve a particular end.

Question 3

Controlling

Answer 3

Monitoring a plan’s implementation and taking corrective action as needed.

Question 4

Decision Making

Answer 4

The process of choosing among competing alternatives.

Question 5

Features of Financial Accounting:

Answer 5

• Externally focused
• Must follow externally imposed rules
• Objective financial information
• Historical orientation
• Information about the firm as a whole
• More self contained

Question 6

Features of Managerial Accounting:

Answer 6

• 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

Question 7

Two general categories of Strategic Positioning

Answer 7

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.

Question 8

Value Chain

Answer 8

The set of activities required to design, develop, produce, market and deliver products and services, as well as provide support services to customers.

Question 9

Continuous Improvement

Answer 9

The continual search for ways to increase the overall efficiency and productivity of activities by reducing waste, increasing quality, and managing costs.

Question 10

Total Quality Management

Answer 10

A philosophy in which manufacturers strive to create an environment that will enable workers to manufacture perfect (zero-defect) products.

Question 11

Lean Accounting

Answer 11

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.

Question 12

Controller

Answer 12

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.

Question 13

Treasurer

Answer 13

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.

Question 14

Cost

Answer 14

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.

Question 15

Expenses

Answer 15

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).

Question 16

Price

Answer 16

Revenue per unit.

Question 17

Accumulating Costs

Answer 17

The way that costs are measured and recorded.

Question 18

Assigning Costs

Answer 18

The way that a cost is linked to some cost object.

Question 19

Cost Object

Answer 19

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.

Question 20

Direct Costs

Answer 20

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.

Question 21

Indirect Costs

Answer 21

Costs that cannot be easily and accurately traced to a cost object.

Question 22

Allocation

Answer 22

The process by which indirect cost is assigned to a cost object by using a reasonable and convenient method.

Question 23

Variable Cost

Answer 23

A cost that increases in total as output increases and decreases in total as output decreases.

Question 24

Fixed Cost

Answer 24

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

Question 25

Opportunity Cost

Answer 25

The benefit given up or sacrificed when one alternative is chosen over another.

Question 26

Product (Manufacturing) Costs

Answer 26

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).

Question 27

Three classifications of Product Costs

Answer 27

1) Direct Materials
2) Direct Labor
3) Manufacturing Overhead

Question 28

Direct Materials

Answer 28

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.

Question 29

Direct Labor

Answer 29

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.

Question 30

Manufacturing Overhead

Answer 30

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.

Question 31

Total Product Cost =

Answer 31

Direct Materials Cost + Direct Labor Cost + Manufacturing Overhead Cost

Question 32

Per-unit Cost =

Answer 32

Total Product Cost / Number Of Units Produced

Question 33

Prime Cost =

Answer 33

Direct Materials Cost + Direct Labor Cost

Question 34

Conversion Cost =

Answer 34

Direct Labor Cost + Manufacturing Overead. (Cost of converting raw materials into a final product).

Question 35

Period Costs

Answer 35

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.

Question 36

Selling Costs

Answer 36

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.

Question 37

Administrative Costs

Answer 37

All costs associated with research, development and general administration that cannot reasonably be assigned to either selling or production.

Question 38

Cost Of Goods Manufactured

Answer 38

Total product cost of goods completed during the current period and transferred to the finished goods inventory.

Question 39

Ending Inventory Of Materials =

Answer 39

Beginning Inventory Of Materials + Purchases - Direct Materials Used In Production

Question 40

Direct Materials Used In Production =

Answer 40

Beginning Inventory Of Materials + Purchases - Ending Inventory Of Materials

Question 41

Work In Progress (WIP)

Answer 41

The cost of the partially completed goods that are still on the factory floor at the end of a time period.

Question 42

Cost Of Goods Sold

Answer 42

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).

Question 43

Costs Of Goods Manufactured =

Answer 43

Total Manufacturing Cost + Beginning WIP - Ending WIP

Question 44

Cost Of Goods Sold =

Answer 44

Cost Of Goods Manufactured + Beginning Finished Goods Inventory - Ending Finished Goods Inventory

Question 45

Number Of Units Sold =

Answer 45

Beginning Finished Goods Inventory + Units Finished - Ending Finished Goods Inventory

Question 46

Sales Revenue =

Answer 46

Price x Units Sold

Question 47

Gross Margin =

Answer 47

Sales Revenue - Cost Of Goods Sold

Question 48

Operating Income =

Answer 48

Gross Margin - Selling Expenses - Administrative Expenses