Slide Set 1

Question 1

Managerial accounting provides economic and financial information for…

Answer 1

…managers and other internal users.

Question 2

Managerial accounting applies to what types of businesses?

Answer 2

Managerial accounting applies to all types of businesses: service, merchandising, and manufacturing.
It also applies to all forms of business organizations: proprietorships, partnerships, and corporations.

Question 3

Name the task of managerial accounting

Answer 3

A major task of managerial accounting is to determine cost.

Question 4

Comparing Managerial and Financial Accounting

• Primary users of reports
• Types and frequency of reports
• Purpose of reports
• Content of Reports
• Verification Process

Answer 4

Financial Accounting

• external users
• financial statements (Annually/Quarterly)
• general purpose
• Pertains to business as a whole/Highly aggregated/Limited to double-entry accounting and cost data/Generally accepted accounting principles
• Audited by CPA

Managerial Accounting

• internal users
• internal reports (as frequently as needed)
• Special-purpose for specific decisions
• Pertains to subunits of the business/Very detailed/Extends beyond double-entry accounting to any relevant data/Standard is relevant to decisions
• No independent audits

Question 5

What are the 3 Management Functions

Answer 5

1. Planning
2. Directing
3. Controlling

Question 6

What does Planning means?

Answer 6

Set targets, such as:

• Maximize short-term profit and market share.
• Commit to environmental protection and social programs.
• Add value to the business.

Question 7

What does Directing means?

Answer 7

• Manage in order to achieve targets
• Coordinate diverse activities and human resources.
• Implement planned objectives.
• Provide incentives to motivate employees
• Hire and train employees.
• Produce a smooth- running operation.

Question 8

What does Controlling means?

Answer 8

• Determine whether targets are met.
• Keeping activities on track.
• Decide changes needed to get back on track.
• May use an informal or formal system of evaluations.

Question 9

What are Manufacturing Costs?

Answer 9

Manufacturing consists of activities and processes that convert raw materials into finished goods.

• Direct materials
• Direct labor
• Manufacturing overhead

Question 10

Define Direct Materials

Answer 10

Raw materials that can be physically and directly associated with the finished product during the manufacturing process. (“Materialeinzelkosten”)

Question 11

Define Indirect Materials

Answer 11

1. Not physically part of the finished product or
2. they are an impractical to trace to the finished product because their physical association with the finished product is too small in terms of cost.
   Considered part of manufacturing overhead.

Question 12

Define Direct Labor

Answer 12

Work of factory employees that can be physically and directly associated with converting raw materials into finished goods. (“Fertigungseinzelkosten”)

Question 13

Define Indirect Labor

Answer 13

Work of factory employees that has no physical association with the finished product or for which it is impractical to trace costs to the goods produced.

Question 14

Define Manufacturing Overhead

Answer 14

• Costs that are indirectly associated with manufacturing the finished product (“Gemeinkosten”).
• Includes all manufacturing costs except direct materials and direct labor.
• Also called factory overhead, indirect manufacturing costs, or burden.

Question 15

Define Product Costs

Answer 15

Components:
- Direct materials
- Direct labor
- Manufacturing overhead
Costs that are an integral part of producing the
product.
- Recorded (“capitalized”) in “inventory” account.
- Not an expense (COGS) until the goods are sold. Matching with associated revenues.

Question 16

Define Period Costs

Answer 16

• Non-manufacturing costs.
• Includes all selling and administrative expenses.
  (“Vertriebs- und Verwaltungskosten”)
• Charged to expense as incurred.
• Matching with revenue of a specific time (not associated revenues)

Question 17

Calculate COGS for a Merchandiser and Manufacturer

Answer 17

Merchandiser
Beg. Inventory + COG Purchased - End. Inventory
Manufacturer
Beg. Finished Goods Inventory + COG Manufactured - End. Finished Goods Inventory

Question 18

Inventory categories for Merchandiser and Manufacturer

Answer 18

Manufacturer:
- Raw material inventory
- WIP Inventory
- Finished goods inventory
Merchandiser:
- Inventory

Question 19

Trends may change managerial accounting in

order to better meet changing demands like

Answer 19

1. Service Industries:
   - Much of the U.S. economy has shifted toward an emphasis on providing services rather than goods.
2. Focus on the Value Chain
   Structured analysis of the value chain helps to identify potentials to increase efficient use of resources
   a) Just-In-Time (JIT) Inventory Methods
   - Inventory system in which goods are manufactured or purchased just in time for sale.
   b) Total Quality Management (TQM)
   - Reduce defects in finished products, with the goal of zero defects.
   c) Theory of Constraints
   - A specific approach to identify and manage these constraints in order to achieve company goals.
   d) Enterprise Resource Planning (ERP)
   - Software programs designed to manage all major business processes.
   e) Activity-Based Costing (ABC)
   - Results in more accurate product costing and scrutiny of all activities in the value chain.
3. Balanced Scorecard
   - Evaluates operations in an integrated fashion.
   - Uses both financial and non-financial measures.
   - Links performance to overall company objectives.
4. Business Ethics
   a) Creating Proper Incentives
   - Managerial accounting helps to develop, manage and control proper incentives
   b) Code of Ethical Standards (Bsp. Sarbanes-Oxley Act (SOX))
   c) Corporate Social Responsibility