Chapter 16

Question 1

Because accounting information is critical for assessing an organization’s output, ___________ and _________ are key activities frequently coordinated through accounting

Answer 1

performance measurement and reporting

Question 2

Management accounting information links __________ with _________

Answer 2

decision-making authority with the information necessary to make decisions

Question 3

Management accounting

Answer 3

The design and use of accounting information systems inside the firm to achieve the firm’s objectives. (provides financial and non financial information to an organization’s managers)

Question 4

Three principles govern how management accounting systems are designed. What are they?

Answer 4

1. Management accounting systems help to decide who has decision-making authority over company assets. (Determining the costs of an organization’s products and services)
2. Accounting information produced by or created from a management accounting system supports planning and decision making. (Planning future activities)
3. Management accounting reports provide a means by which to monitor, evaluate, and reward performance. (Comparing actual results to planned results)

Question 5

To achieve organizational goals, managers often are assigned what?

Answer 5

decision-making authority for some of the firm’s assets.

Question 6

Employees usually know their decision-making responsibilities because they are conveyed in a variety of ways. Provide some examples

Answer 6

Job descriptions, verbal instructions from supervisors, and internal accounting documents and reports.

Question 7

Managers need what to base their decisions?

Answer 7

reliable and timely information

Question 8

What types of information do managers need?

Answer 8

Historical information and Projected information. They need information oriented both toward their specific operations and toward other parts of the organization’s value chain. They need information from both internal operations and externally oriented benchmark sources.

Question 9

Value Chain

Answer 9

The linked set of activities and resources necessary to create and deliver a product or service to customers

Question 10

Define benchmark studies

Answer 10

A study to show an organization how its costs and processes compare to others in the industry

Question 11

Management accounting systems are designed to provide what to a diverse group of stakeholders?

Answer 11

past, current, and future-oriented information

Question 12

What must management accounting systems clearly assign?

Answer 12

decision-making authority, support decision-making processes, and furnish information for evaluating and rewarding performance

Question 13

A management accounting system must be constantly _______ and _________ to be certain that all three roles are being supported.

Answer 13

monitored and adjusted

Question 14

In most corporations, the assets over which managers have decision making authority belong to who as do the returns on investment in those assets?

Answer 14

The belong to the corporations for whom they work

Question 15

To ascertain whether investments in assets are earning sufficient returns, corporations monitor

Answer 15

the outcomes of managerial decisions

Question 16

T/F A single accounting information system generally serves multiple sets of users.

Answer 16

True. The system must span a multitude of organizational levels and job responsibilities, and it must serve numerous geographic areas with different cultures, languages, currencies, and economic environments.

Question 17

Compare financial and management accounting purpose

Answer 17

FA: Provide information about the financial position and performance of the company.

MA: Provide information for planning, evaluating and rewarding performance, and sharing with outside parties.

Question 18

Compare financial and management accounting types of reports

Answer 18

FA: Balance sheet, income statement, and statement of cash flows.

MA: Various, non–standard reports

Question 19

Compare financial and management accounting standards

Answer 19

FA: Generally accepted accounting principles (GAAP)

MA: None. Rules set within each organization.

Question 20

Compare financial and management accounting reporting identity

Answer 20

FA: Usually the company viewed as a whole

MA: A component of the company’s value chain - supplier, customer, product line, department, or product.

Question 21

Compare financial and management accounting time periods

Answer 21

FA: Usually a year, quarter, or month. Focus on completed periods. Emphasis on the current (latest) period, with prior periods shown for comparison.

MA: Any period. Some reports historical in nature, others focus on expected future results.

Question 22

Compare financial and management accounting users

Answer 22

FA: Investors, creditors, and other external parties.

MA: Management, customers, and others in the value chain.

Question 23

Merchandising

Answer 23

• Buy or purchase products
  and resell them
• All retail
• BestBuy, Target, etc.

Question 24

Manufacturing

Answer 24

*Buy the parts and raw materials and make a product and then sell it
*Coca-Cola, Dell, Apple, etc.

Question 25

Manufacturing costs

Answer 25

The cost of manufacturing the goods that will be sold to customers. The basic types of manufacturing costs are direct materials, direct labor, and manufacturing overhead.

Question 26

Manufacturing operations are an excellent example of how managerial and financial accounting overlap. Why?

Answer 26

Manufacturing costs are vital importance to both financial and managerial accountants. Financial accountants must have manufacturing cost information to determine the cost of goods sold and inventory values reported in financial statements used by investors and creditors. Management accountants also require reliable manufacturing cost information to help answer questions.

Question 27

Conversion costs

Answer 27

The direct labor and overhead costs required to convert raw materials into finished goods.

Question 28

Prime costs

Answer 28

The direct materials and direct labor consumed in the production of goods and services.

Question 29

Direct materials

Answer 29

Materials and component parts that become an integral part of manufactured goods and can be traced directly to the finished products.

Question 30

Direct labor

Answer 30

Payroll costs for employees who work directly on the products being manufactured, either by hand or with machines.

Question 31

Manufacturing overhead

Answer 31

A “catchall” category including all manufacturing costs other than the costs of direct materials used and direct labor.

Question 32

Manufacturing costs represent sources consumed to create inventory; as such they are not immediately reported in the income statement as current period expenses. Instead what occurs?

Answer 32

They are reported in the balance sheet as finished goods inventory

Question 33

As items in finished goods are sold, their manufacturing costs are transferred from the balance sheet to the income statement as what?

Answer 33

Cost of goods sold

Question 34

Manufacturing costs are often called what?

Answer 34

product costs (or inventoriable costs)

Question 35

Product costs

Answer 35

The costs of purchasing or manufacturing inventory. Until the related goods are sold, these product costs represent an asset—inventory. Once the goods are sold, these costs are deducted from revenue as the cost of goods sold.

Question 36

Period costs

Answer 36

Costs that are charged to expense accounts in the period that the costs are incurred. Includes all items classified as “expense.”

Question 37

Period costs are classified in the income statement how?

Answer 37

separately from cost of goods sold, as deductions from a company’s gross profit.

Question 38

Product and Periodic cost example

Answer 38

Question 39

Compare depreciation as a product vs periodic cost

Answer 39

raw material depreciation is a product cost. depreciation of a finished good is a periodic cost

Question 40

Matching principle

Answer 40

Product cost should be reported in the income statement only when they can be matched to product revenue.

Question 41

List the three types of inventory. How are they classified on the balance sheet?

Answer 41

Materials, work in process, and finished goods. Classified as current assets.

Question 42

Raw Materials inventory

Answer 42

The cost of direct materials on hand and available for use in the manufacturing process. Based on its purchase price.

Question 43

Work in process inventory

Answer 43

Goods at any stage of the manufacturing process short of completion. As these units are completed, they become finished goods. Based on the cost of direct material, direct labor, and manufacturing overhead assigned to them.

Question 44

Finished goods inventory

Answer 44

The completed units that have emerged from the manufacturing process and are on hand available for sale. Based on the cost of direct material, direct labor, and manufacturing overhead assigned to them.

Question 45

Two types of inventory systems. Which is favored and why?

Answer 45

Perpetual and periodic. Virtually all large manufacturing companies use perpetual inventory systems. These systems provide managers with up-to-date information about the amounts of inventory on hand and the per-unit costs of manufacturing products.

Question 46

Six general ledger accounts used by manufacturing companies to account for their production activities

Answer 46

Materials inventory, direct labor, manufacturing overhead, work in process inventory, finished goods inventory, and cost of goods sold.

Question 47

Accounting for manufacturing costs example

Answer 47

Question 48

Direct Materials

Answer 48

Raw materials and components parts that become an integral part of finished products and can be traced directly and conveniently to products manufactured

Question 49

Direct labor and Direct labor account

Answer 49

The direct labor account is used to record the payroll cost of direct workers and assign this cost to the goods they help manufacture. Direct workers are those employees who work directly on the items being manufactured, either by hand or by using machines.

Question 50

Factory overhead costs include

Answer 50

Indirect materials, indirect labor, and other indirect costs

Question 51

Indirect materials

Answer 51

Materials used in the manufacturing process that cannot be traced conveniently to specific units of production. Examples include lubricating oil, maintenance supplies, and glue. Indirect materials are accounted for as part of manufacturing overhead.

Question 52

Indirect labor

Answer 52

Payroll costs relating to factory employees who do not work directly on the goods being manufactured. ­Examples are wages of security guards and maintenance personnel. Indirect labor costs are classified as manufacturing overhead.

Question 53

Other indirect costs

Answer 53

Include factory utilities (water, gas, electricity), factory rent, depreciation on factory buildings and equipment, factory insurance, and property taxes on factory buildings.

Question 54

T/F Selling expenses and general administrative expenses do no relate to the manufacturing process and are not included in manufacturing overhead

Answer 54

True

Question 55

Direct manufacturing cost

Answer 55

A manufacturing cost that can be traced conveniently and directly into the quantity of finished goods manufactured. Examples include direct materials and direct labor.

Question 56

Indirect manufacturing cost

Answer 56

A manufacturing cost that cannot be conveniently traced to the specific products being manufactured. Examples include property taxes, depreciation on machinery, and other types of manufacturing overhead.

Question 57

Work in process account is used to

Answer 57

1. Record the accumulation of manufacturing costs associated with the units of product worked on during the period.
2. Allocate these costs between those units completed during the period and those that are only partially completed.

Question 58

Cost of goods sold is equal to

Answer 58

beginning finished goods inventory + cost of goods manufacture - ending finished goods inventory = cost of goods sold

Question 59

Schedule of the cost of finished goods manufactured

Answer 59

A schedule summarizing the flow of manufacturing costs into and out of the Work in Process Inventory account. Intended to assist managers in evaluating manufacturing costs. Not a formal financial statement and generally does not appear in the company’s annual report.

Question 60

Once products are classified as finished goods what happens?

Answer 60

No additional costs are added to them. Cost of storing, marketing, or delivering finished goods are regarded as selling expenses.