Chpt 1 Accounting study cards Flashcards
Comparing managerial and financial accounting
Financial Accouting- External users, stockholders,creditors and regultors
External and financial statments, Quaterlly and Annually
General Purpose
Pertains the business as a whole
Highly aggregated
limited to accrural accounting and cost data
Goverend by generally accepted accoutning principles
Audited by CPA
Managerial -
Internal users: offices and managers
internal reports as freuqenlty as needed
Specific purpose for specific decisions
pertains to sub-units of the business
Very detailed
Extends beyonds accural accounting to any revelant data
Based on relevance to decisions
No independent audits
Manufacturing Costs
Manufacturing consists of activities and processes that convert raw materials into finished goods.
- Contrast this type of operation with merchandising, which sells products in the form in which they are purchased.
Manufacturing costs incurred to produce a product are classified as direct materials, direct labor, and manufacturing overhead.
Typically, manufacturing costs are incurred at the production facility (the factory).
Raw materials
that can be physically and directly associated with the finished product during the manufacturing process are direct materials.
Examples include flour in the baking of bread, syrup in the bottling of soft drinks, and steel in the making of automobiles. A primary direct material of many Current Designs’ kayaks is polyethylene powder. Some of its high‐performance kayaks use Kevlar®.
Product Costs
Direct materials, direct labor, and manufacturing overhead—are product costs.
Product costs are costs that are a necessary and integral part of producing the finished product All manufacturing costs are classified as product costs.
Companies record product costs, when incurred, as an asset called inventory.
These costs do not become expenses until the company sells the finished goods inventory.
At that point, the company records the expense as cost of goods sold.
Period Costs
Period costs are costs that are matched with the revenue of a specific time period rather than included in inventory as part of the cost to produce a salable product.
These are nonmanufacturing costs.
Period costs include selling and administrative expenses.
In order to determine net income, companies deduct these period costs from revenues in the period in which they are incurred.
Product versus period costs
Product-
Direct Materials, Direct Labor, Maufacturing Overhead
Period- Selling expenses,adminstriative expenses
Balance Sheet
The balance sheet for a merchandising company shows just one category of inventory. In contrast, the balance sheet for a manufacturer may have three inventory accounts, raw materials, work in process, and finished goods
Cost of Goods Manufactured
Total Manufacturing Costs – sum of direct material costs, direct labor costs,
and manufacturing overhead incurred in the current year.
Total Work in Process – (1) cost of beginning work in process and (2) total
manufacturing costs for the current period.
High Low Method Equation
Total costs at high level - Total cost low level divided by high activity level - low activity level
Break Even Point Equation
Break Even Point In Dollars= FC divided by CM Ratio
Unit CM equation
Unit CM= Unit Price- Unit VC
CM Ratio equation
Unit CM divided by Unit Prices
BE POINT DOLLARS EQAUTION (includes target income)
FC+ target income divided by CM Ratio
