Unit 6 Flashcards
Source, Purpose, Outcome of Managerial accounting
Source - internal best practices to be competitive, no legislation
Purpose - serve competitive needs to serve customer requirements
Outcome - proprietary data, confidential
Types of managerial accounting statements
Revenues by Product Line
Product Line Income statements
Product line profitability
Cost Center report
Title of person who usually prepares Managerial accounting information.
Cost Accountant/Cost Accounting Manager
3 functions of managerial accounting
Planning
Controlling
Evaluating
2 types of planning for managerial accounting info
Long run - strategic planning, capital budget
Short run - production/process prioritizing, operational budgeting (profit planning)
capital budgeting
planning for long term assets
production prioritizing
analyzing product lines and division profitability to find profit improvement opportunities
Operational budgeting, alternate names
managerial planning decisions for short term (< 1y) operations, characterized by regularity and frequency
aka profit plans
communicate daily, weekly, monthly goals (standards)
Describe Controlling function in mgr accting
tracking actual performance
measure deviation from standards (variances)
manage day to day business processes
Describe Evaluating function in mgr accting
analyze results, provide feedback, reward performance, identify problems
three types of businesses
Manufacturing - product and period costs
Service - mostly only period costs
Merchandise - product and period costs
product vs period costs
product - associated with a product, usually all costs associated with production facility
period - not directly related to a product, service, asset, charged as expense to income statement in period where it occurs.
3 different types of manufacturing costs
Direct materials - raw materials
Direct Labor - wages of employees who work directly on products
Manufacturing overhead - all other costs, ie factory supervisor, utilities
inventories in manufacturing process
raw materials
work in process
finished goods
cost of goods manufactured statement
summary of total costs of goods manufactured and transferred out of the work in process inventory
includes direct materials, direct labor, overhead
supports income statement by providing input to COGS
Cost of goods sold statement
Cost of goods manufactured, plus beginning inventory and minus ending inventory of finished goods
internal, confidential
indirect labor and materials
labor and materials not directly associated with creating the product, but are still included in GOGM
included Manufacturing Overhead
one important difference between manufacturers and service providers
service providers don’t have significant raw material costs
direct labor costs in service business
creative efforts by employees
overhead costs in service business
support infrastructure, management costs
work in process services
resources invested into a creating a service that customer has not yet received
includes materials, labor and overhead
How are inventory costs related to merchandise inventory expensed?
as a period cost
under selling and general admin expense on income statement
formula for income statement for mfgr
Net Income = Revenue - COGS - Operating expenses
formula for income statement for merchandiser
Net Income = Revenue - COGS - Operating expenses
diff between income statements for merch and mfgr
Net Purchases instead of COGM
merchandise vs goods inventories
income statement for service business
Net Income = Revenue - Operating expenses
no COGS
CVP analysis
Cost Volume Profit
seeing how changes in revenue, cost, activity level impact profits
determine what activity level is needed to make reasonable profit
classify all costs as either fixed or variable
variable costs
costs that change in direct proportion to activity level
basic concept of CVP
margin between revenue and variable costs must first be used to cover fixed costs
stepped costs
costs that change in stair step fashion in proportion to activity changes
mixed costs
costs that have both variable and fixed components
2 most important concepts of CVP
- important for planning operations and profitability
2. must identify appropriate key activity to measure and know how costs react to changes in that activity
examples of variable costs
sales commissions
materials
hourly labor
relevant range
range of operating level where changes in variable costs are proportional to activity changes
per unit variable costs are fixed within relevant range
economy of scale
decreasing costs per unit as activity increases for fixed costs
per unit fixed costs vary within relevant range
example of mixed cost
sales employee who gets salary plus commission
indirect costs are usually variable for fixed?
fixed
steps in Accounting for mfging overhead
- estimate mfg overhead at start of year
- as costs are incurred, record actual mfg overhead as debits (additions) to mfg overhead
- as activity occurs, record applied mfg overhead as credits to (subtractions) to mfg overhead
- compare actual and applied overhead balances, close out difference
Estimated mfg overhead
budgeted overhead costs for upcoming year
used to calculate overhead rate applied to production in upcoming period
unit overhead rate determined by estimated overhead cost divided by total activity (ie total labor hours)
Actual mfg overhead
mfg costs outside direct material and labor
recorded as mfg costs
Applied mfg overhead
amount of overhead applied to goods produced during upcoming period
uses predetermined rate to apply mfg overhead
used because actual overhead costs are too sporadic to be used throughout the year
underapplied vs overapplied mfg overhead
underapplied - actual > applied, leads to under charging for products, losing money
overapplied - actual < applied, leads to over charging for products, losing customers
contribution margin
difference between total sales and variable costs
used to pay fixed costs and provide profit
calculated as total and per unit
- costs separated by behavior
contribution margin in relation to fixed cost with regard to breaking even
must be equal to break even
benefit of using contribution margin
arranges income statement by behavior, easier to see affect of changes in activity volume on profit
What key values can CVP be used to determine?
Net Income
Break even number of units
number of units required to reach a given profit target
Limitation of CVP
not all costs can be neatly broken into fixed or variable
Which two costs are equal at the break even point?
Total Revenue and Total Costs
differential costs definition, alternate names
future costs that change as a result of a decision
aka incremental, relevant
identical to direct cost
sunk costs
past costs that can’t be changed as a result of a future decision
not dependent on any decision
out of pocket costs vs opportunity costs
out of pocket - costs that require an outlay of cash or other resources
opportunity - lost benefits by choosing one decision over another
contribution margin equation
Sales Revenue - Variable Costs
Break Even Point formula
Sales Revenue - Variable Costs - Fixed Costs = $0
CVP equation
Sales Revenue - Variable Costs - Fixed Costs = profit
return on sales ratio
pct net income of sales
way of setting goal in CVP as % return instead of $ amount
variable cost ratio
ratio of variable cost to sales
expresses activity in term of sales $
contribution margin ratio
ratio of contribution margin to total sales
useful for comparing profitability of various products
% sales left after variable costs are deducted
