Managerial accounting

Question 1

What is the difference between information prepared by financial accountants and information prepared by managerial accountants?

Answer 1

Financial accounting 1focuses on providing historical financial information to external users.

Managerial accounting focuses on internal users—executives, product managers, sales managers, and any other personnel within the organization who use accounting information to make important decisions. Don’t need to conform US GAP

Question 2

What are the two functions that enable management to go through the process of continually planning and evaluating?

Answer 2

Planning 4 is the process of establishing goals and communicating these goals to employees of the organization. The control 5 function is the process of evaluating whether the organization’s plans were implemented effectively.

Question 3

How do organizations formalize their strategic plans?

Answer 3

strategic budget

Question 4

What are 3 forms of budget?

Answer 4

A budgeted income statement indicates a profit plan for the future.

A capital budget shows the long-term investments planned for the future.

A cash flow budget outlines cash inflows and outflows for the future.

Question 5

How do organizations assess the implementation of their plans?

Answer 5

control function evaluates whether an organization’s plans were implemented effectively and often leads to recommendations for the future. Many organizations compare actual results with the initial plan (or budget) to evaluate performance of employees, departments, or the entire organization.

Question 6

What is CFO?

Answer 6

The chief financial officer (CFO) 8 is in charge of all the organization’s finance and accounting functions and typically reports to the chief executive officer.

Question 7

Who is controller?

Answer 7

The controller 9 is responsible for managing the accounting staff that provides managerial accounting information used for internal decision making, financial accounting information for external reporting purposes, and tax accounting

Question 8

What is managerial accountant?

Answer 8

reports directly to the controller and assists in preparing information used for decision making within the organization. Reports prepared by managerial accountants include operational budgets, cost estimates for existing products, budgets for new product lines, and profit and loss reports by division.

Question 9

What is financial accountant?

Answer 9

financial accountant 11reports directly to the controller and assists in preparing financial information, in accordance with U.S. GAAP, for those outside the company. Reports prepared by financial accountants include a quarterly report filed with the Securities and Exchange Commission (SEC) that is called a 10Q and an annual report filed with the SEC that is called a 10K.

Question 10

What is tax accountant?

Answer 10

Tax accountant. The tax accountant 12reports directly to the controller and assists in preparing tax reports for governmental agencies, including the Internal Revenue Service.

Question 11

Who is treasurer?

Answer 11

treasurer reports directly to the CFO. A treasurer’s primary duties include obtaining sources of financing for the organization (e.g., from banks and shareholders), projecting cash flow needs, and managing cash and short-term investments.

Question 12

Who is internal auditor?

Answer 12

internal auditor reports to the CFO and is responsible for confirming that the company has controls that ensure accurate financial data. The internal auditor often verifies the financial information provided by the managerial, financial, and tax accountants (all of whom report to the controller and ultimately to the CFO). If conflicts arise with the CFO, an internal auditor can report directly to the board of directors or to the audit committee, which consists of select board members.

Question 13

What are the two factors that must be considered when deciding on an accounting system?

Answer 13

(1) the size of the organization and (2) the information needs of the organization.

Question 14

What are examples information needs of software?

Answer 14

1) equivalent of a check register, which provides easy tracking of expense codes as checks are issued and makes bank reconciliations a snap.
2) system that can create invoices, process payroll, and track inventory.
3) need to customize reports (e.g., create an income statement by division or customer), modify input screens, send financial reports via e-mail, export reports to spreadsheet software such as Excel, and create reports with graphics (e.g., tables, pie charts, and line charts)

Question 15

What is an enterprise resource planning system, and how does this system help companies utilize accounting data?

Answer 15

systems are designed to record and share information across functional areas (e.g., accounting, marketing, human resources, and shipping) and across geographical areas (e.g., from a sales office in California to headquarters in Hong Kong). ERP systems continually update information to provide real-time data to all users, and the data can be organized in different formats to meet the needs of internal and external users

Expensive 10 million benefits need to outweigh cost

help organizations make better decisions. Better decisions typically lead to improvements in profitability, efficiency, and customer satisfaction.

Question 16

What are the two broad terms used to categorize cost information in a manufacturing setting?

Answer 16

manufacturing costs and nonmanufacturing costs.

Question 17

What are manufacturing costs?

Answer 17

All costs related to the production of goods are called manufacturing costs,

A manufacturer purchases materials, employs workers who use the materials to assemble the goods, provides a building where the materials are stored and goods are assembled, and sells the goods.

3 categories: direct materials, direct labor, and manufacturing overhead

Question 18

What are direct materials ?

Answer 18

Raw materials used in the production process that are easily traced to the product are called direct materials1

Question 19

What is direct labor?

Answer 19

Workers who convert materials into a finished product and whose time is easily traced to the product are called direct labor

Question 20

What items are included in manufacturing overhead?

Answer 20

1) Indirect material costs. The cost of materials necessary to manufacture a product that are not easily traced to the product or not worth tracing to the product.
2) Indirect labor costs. The cost of workers who are involved in the production process but whose time cannot easily be traced to the product. For example, supervisors in the production process who oversee several different products and are responsible for hiring employees, scheduling employees, and ordering materials are considered indirect labor.
3) Other manufacturing costs. These are all other costs for items associated with the factory, including equipment maintenance, insurance, utilities, and depreciation.

Question 21

What are non manufacturing costs?

Answer 21

Costs that are not related to the production of goods are called nonmanufacturing costs; they are also referred to as period costs

Costs incurred to obtain customer orders and provide customers with a finished product are called selling costs
Eg) advertising, sales commissions, salaries for marketing and advertising personnel, office space for marketing and advertising personnel, finished goods storage costs, and shipping costs paid by the seller for products shipped to customers.

Costs related to the overall management of an organization are called general and administrative costs. Eg) accounting, human resources, legal, executive, and information technology. Depreciation of office equipment and buildings associated

Question 22

Why is it important to make this distinction manufacturing and non manufacturing costs?

Answer 22

Distinguishing between the two categories is critical because the category determines where a cost will appear in the financial statements.

All manufacturing costs (direct materials, direct labor, and manufacturing overhead) are attached to inventory as an asset on the balance sheet until the goods are sold, at which point the costs are transferred to cost of goods sold on the income statement as an expense.

As we indicated earlier, nonmanufacturing costs are also called period costs; that is because they are expensed on the income statement in the time period in which they are incurred.

Question 23

To record product costs as an asset, accountants use one of what three inventory accounts?

Answer 23

raw materials inventory, work-inprocess inventory, or finished goods inventory

account they use depends on the product’s level of completion.

Question 24

What is the difference between raw materials inventory, work-in-process inventory, and finished goods inventory?

Answer 24

raw materials inventory account records the cost of materials not yet put into production.

The work-in-process (WIP) inventory account records the costs of products that have not yet been completed
Once goods in WIP inventory are completed, they are transferred into finished goods inventory.
The cost of completed goods that are transferred out of inventory into finished goods inventory is called the cost of goods manufactured

The finished goods inventory account records the manufacturing costs of products that are completed and ready to sell

Question 25

What happens to the product costs in finished goods inventory when the products are sold?

Answer 25

When completed goods are sold, their costs are transferred out of finished goods inventory into the cost of goods sold 31 account. Cost of goods sold is an expense account on the income statement that represents the product costs of all goods sold during the period.

Question 26

Why are accounting systems more complex for manufacturing companies?

Answer 26

need a system that tracks manufacturing costs throughout the production process to the point at which goods are sold.

Question 27

How do companies use the cost flow equation to calculate unknown balances?

Answer 27

We can use the basic cost flow equation to calculate unknown balances for just about any balance sheet account (e.g., cash, accounts receivable,
and inventory). The equation is as follows:

Beginning balance (BB) + Transfers in (TI) – Ending balance (EB) = Transfers out (TO)

Question 28

What are primary differences between manufacturing and merchandising company income statements?

Answer 28

Merchandising companies do not calculate the raw materials placed in production or cost of goods manufactured.

Merchandisers purchase goods from suppliers instead of manufacturing goods. The cost of these purchases from suppliers is often called net purchases in the income statement, in contrast to cost of goods manufactured in a manufacturer’s income statement. The net purchases line consists of purchases, purchases returns and allowances, purchases discounts, and freight in.

Merchandisers do not use the schedule of cost of goods manufactured

Merchandisers use an account called merchandise inventory, or simply inventory, instead of finished goods inventory. This reflects that merchandisers do not produce goods.

Question 29

What 3 schedules are necessary to prepare an income statement for a manufacturing company?

Answer 29

Schedule of raw materials placed in production, which shows cost of direct materials added to work-in-process inventory and cost of indirect materials added to manufacturing overhead ◦

Schedule of cost of goods manufactured, which shows cost of goods completed and transferred out of work-in-process inventory into finished goods inventory ◦

Schedule of cost of goods sold, which shows cost of goods sold and transferred out of finished goods inventory into cost of goods sold

Question 30

How do manufacturing companies account for inventory at different stages of production?

Answer 30

process of accounting for manufacturing costs depends on which costing system a company uses—job costing or process costing.

Question 31

How does a job costing system help companies that produce unique products or jobs?

Answer 31

job costing system 2records revenues and costs for each job. Because each job at Custom Furniture Company results in a unique product and has different material and labor requirements, the company uses a job costing system

managers want to assess the accuracy of cost estimates. This is particularly important when prices are based on estimated costs.

Managers want to review actual revenues and costs for each job to see if the job is profitable

Managers want to compare actual costs with estimated costs throughout a project so they can identify unexpected changes as early in the project as possible.

Question 32

Which types of companies use this process costing system?

Answer 32

Companies that produce identical units of product in batches using a consistent process track costs with a process costing system

Question 33

In job cost system, How do we record the purchase of raw materials?

Answer 33

record the cost of raw materials purchased in the raw materials inventory account

Question 34

The next step is to move raw materials from the storeroom to production. How does the company track this information, and how is this transaction recorded in the general journal?

Answer 34

A materials requisition form 4tracks materials taken out of raw materials inventory and placed in production. This form specifies the type, quantity, and cost of materials being requested, as well as the number of the job in which the materials will be used.

Question 35

next step is to post the information shown on the materials requisition form to the appropriate job cost sheet. Because the work-in-process (WIP) inventory account tracks manufacturing costs in total, a separate subsidiary ledger is necessary to track manufacturing costs for each job. The total of all WIP inventory subsidiary ledgers matches the WIP inventory account shown on the balance sheet. What does a WIP inventory subsidiary ledger look like, and how is it used?

Answer 35

The WIP inventory subsidiary ledger typically comprises many individual job cost sheets.

Question 36

Manufacturing companies must keep track of the hours each worker spends on any given job. How do companies track this information, and how is this information recorded in the general journal?

Answer 36

Workers use a timesheet 6to track the hours spent on each job. The timesheet is often called a time card, time ticket, or job ticket. The worker is responsible for completing the timesheet, including the date, job number, and hours worked on each job.

Question 37

What. Is job cost sheet?

Answer 37

A job cost sheet accumulates manufacturing costs for each job and serves as a subsidiary ledger for the work-in-process inventory account.

Question 38

How do companies assign manufacturing overhead costs, such as factory rent and factory utilities, to individual?

Answer 38

the amount allocated to each job is based on an estimate. The process of creating this estimate requires the calculation of a predetermined rate.

Question 39

How does one predetermine Overhead Rate?

Answer 39

goal is to allocate manufacturing overhead costs to jobs based on some common activity, such as direct labor hours, machine hours, or direct labor costs.

The activity used to allocate manufacturing overhead costs to jobs is called an allocation base Once the allocation base is selected, a predetermined overhead rate can be established. The predetermined overhead rate is calculated prior to the year in which it is used in allocating manufacturing overhead costs to jobs

Question 40

How is the predetermined overhead rate calculated?

Answer 40

Predetermined overhead rate =

Estimated overhead costs/Estimated activity in allocation base

Question 41

What is overhead applied?

Answer 41

assignment of overhead costs to jobs based on a predetermined overhead rate is called overhead applied

Remember that overhead applied does not represent actual overhead costs incurred by the job—nor does it represent direct labor or direct material costs.

Instead, overhead applied represents a portion of estimated overhead costs that is assigned to a particular job

Question 42

various other types of allocation bases. The most common allocation bases are direct labor hours, direct labor costs, and machine hours. What factors do companies consider when deciding on an allocation base?

Answer 42

Link to overhead costs. The goal is to find an allocation base that drives overhead costs, often called a cost driver. For example, if a company’s production process is labor intensive

Ease of measurement. An allocation base should not only be linked to overhead costs; it should also be measurable

Question 43

The use of a predetermined overhead rate rather than actual data to apply overhead to jobs is called normal costing . Most companies prefer normal costing over assigning actual overhead costs to jobs. Why do most companies prefer to use normal costing?

Answer 43

Actual overhead costs can fluctuate from month to month, causing high amounts of overhead to be charged to jobs during high-cost periods.

Actual overhead cost data are typically only available at the end of the month, quarter, or year. Managers prefer to know the cost of a job when it is completed—and in some cases during production—rather than waiting until the end of the period.

The price charged to customers is often negotiated based on cost. A predetermined overhead rate is helpful when estimating costs.

Bookkeeping is simplified by using a predetermined overhead rate. One rate is used to record overhead costs rather than tabulating actual overhead costs at the end of the reporting period and going back to assign the costs to jobs.