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Exam #1 (full amount)

WHAT IS THE PRIMARY PURPOSE OF MANAGERIAL ACCOUNTING?

provide information that helps managers plan, direct, control operations, and make decisions

WHAT IS THE PRIMARY FOCUS OF MANAGERIAL ACCOUNTING?

focus on the relevance to business decisions

PLANNING

involves setting goals and objectives for the company and determining how to achieve

DIRECTING

overseeing the company's day-to-day operations

CONTROLLING

evaluating the results of business operations against the plan and making adjustments

MAKING DECISIONS

such as opening a new business

WHO ARE THE PRIMARY USERS OF INFORMATION? (MANAGERIAL ACCOUNTING)

internal users (managers)

WHO ARE THE PRIMARY USERS OF INFORMATION? (FINANCIAL ACCOUNTING)

external users (creditors, stockholders)

WHAT IS THE PRIMARY ACCOUNTING PRODUCT? (MANAGERIAL ACCOUNTING)

any internal accounting deemed important by management

WHAT IS THE PRIMARY ACCOUNTING PRODUCT? (FINANCIAL ACCOUNTING)

financial statements

WHAT IS THE PURPOSE OF INFORMATION IN FINANCIAL ACCOUNTING?

to help external users make investing and loaning decisions

WHAT IS THE PURPOSE OF INFORMATION IN MANAGERIAL ACCOUNTING?

to help managers plan, direct, control business operations, and make decisions

WHAT IS THE PRIMARY ACCOUNTING PRODUCT? (MANAGERIAL ACCOUNTING)

any internal accounting deemed important by management

WHAT MUST BE INCLUDED IN THE REPORT AND HOW MUST IT BE FORMATTED? (MANAGERIAL ACCOUNTING)

management determines what is wants in a report

WHAT MUST BE INCLUDED IN THE REPORT AND HOW MUST IT BE FORMATTED? (FINANCIAL ACCOUNTING)

GAAP determines the content and format of financial statements

WHAT IS THE UNDERLYING BASIS OF THE INFORMATION? (MANAGERIAL ACCOUNTING)

provides information on both external and internal transactions

WHAT IS THE UNDERLYING BASIS OF THE INFORMATION? (FINANCIAL ACCOUNTING)

the information is based on historical transactions with external parties

WHAT INFORMATION CHARACTERISTIC IS EMPHASIZED? (MANAGERIAL ACCOUNTING)

data must be RELEVANT

WHAT INFORMATION CHARACTERISTIC IS EMPHASIZED? (FINANCIAL ACCOUNTING)

data must be RELIABLE and OBJECTIVE

WHAT BUSINESS "UNIT" IS THE REPORT ABOUT? (MANAGERIAL ACCOUNTING)

segments of the business (such as products, customers, geographical regions,etc.)

WHAT BUSINESS "UNIT" IS THE REPORT ABOUT? (FINANCIAL ACCOUNTING)

the company as a whole (data is put in footnotes)

HOW OFTEN ARE THE REPORTS PREPARED? (MANAGERIAL ACCOUNTING)

depends on management's needs; some daily, some only once

HOW OFTEN ARE THE REPORTS PREPARED? (FINANCIAL ACCOUNTING)

annually and quarterly

IS THE INFORMATION REQUIRED BY AN OUTSIDE GROUP/GOVERNMENT AGENCY? (MANAGERIAL ACCOUNTING)

no authoritative body requires managerial accounting reports

IS THE INFORMATION REQUIRED BY AN OUTSIDE GROUP/GOVERNMENT AGENCY? (FINANCIAL ACCOUNTING)

yes the SEC requires publicly traded companies to issue annual audited

IS THERE ANY CONCERN OVER HOW THE REPORTS WILL AFFECT EMPLOYEE BEHAVIOR? (MANAGERIAL ACCOUNTING)

management carefully considers behavioral implications, when designing the managerial accounting system

IS THERE ANY CONCERN OVER HOW THE REPORTS WILL AFFECT EMPLOYEE BEHAVIOR? (FINANCIAL ACCOUNTING)

the concern is about adequacy of disclosure; behavioral implications are secondary

ETHICS

refers to the standards of conduct for judging right from wrong, honest from dishonest, fair and unfair

IMAs STATEMENT OF ETHICAL PROFESSIONAL STANDARDS:

1. maintain professional COMPETENCE
2. Preserve CONFIDENTIALITY of information
3. uphold their INTEGRITY
4. perform duties with CREDIBILITY

MANAGERIAL ACCOUNTING

focuses primarily on the needs of personnel within the organizations

MIDDLE-LEVEL MANAGERS

considered an internal user of accounting information rather than an external user

THE DAY-TO-DAY WORK OF MANAGEMENT TEAMS WILL TYPICALLY COMPROMISE ALL ACTIVITIES EXCEPT:

cost minimizing

PRIMARY OUTPUT OF SERVICE COMPANIES:

intangible services

PRIMARY OUTPUT OF MERCHANDISING COMPANIES:

tangible products purchased from supplies

PRIMARY OUTPUT OF MANUFACTURING COMPANIES:

new tangible products made as workers and equipment

TYPE(S) OF INVENTORY OF SERVICE COMPANIES:

none

TYPE(S) OF INVENTORY OF MERCHANDISING COMPANIES:

inventory

TYPE(S) OF INVENTORY OF MANUFACTURING COMPANIES:

raw material inventory, work in process inventory, finished goods inventory

SIGNIFICANT COSTS OF SERVICES COMPANIES:

70% = salaries and benefits

SIGNIFICANT COSTS OF MANUFACTURING COMPANIES:

sell products at high prices to cover its costs

VALUE CHAIN:

1. research and development
2. design
3. production or purchases
4. marketing
5. distribution
6. customer service

RESEARCH AND DEVELOPMENT

new or improved products or services and the processes for producing them

DESIGN

detailed engineering of products and services and the processes for producing them

PRODUCTION OR PURCHASES

resources used to produce a product or service or to purchase finished merchandise intended for resale

MARKETING

promotion and advertising of products and services

DISTRIBUTION

Delivery of products or services to customers

CUSTOMER SERVICE

support provided for customers after the sale

COST OBJECT

anything for which managers want a separate measurement of cost

DIRECT COST

a cost that can be traced to the cost object

INDIRECT COST

a cost that relates to the cost to run a manufacturing plant; this includes utilities, property taxes, depreciation

TOTAL COST

include the cost of all resources used throughout the VALUE CHAIN

WHAT ARE THE COMPONENTS OF INVENTORIABLE PRODUCT COSTS?

1. direct materials
2. direct labor
3. manufacturing overhead

DEPRECIATION ON THE COMPANY'S RETAIL OUTLETS

NOT an example of product costs

CLASSIFYING A COST AS EITHER DIRECT OR INDIRECT DEPENDS UPON:

the ease for which the cost can be attached to a particular cost object

COSTS ARE SUBDIVIDED INTO WHAT 2 MAJOR FUNCTIONAL CATEGORIES?

prime and conversion

CONTROLLABLE COST

management is able to influence or change costs

UNCONTROLLABLE COST

management CANNOT change or influence cost in the short-run

WHAT TYPE OF COSTS ARE RELEVANT TO BUSINESS DECISIONS?

costs that differ between alternatives (Differential cost)

OUTPUTS OF JOB COSTING

unique products and services, such as custom ships

OUTPUTS OF PROCESS COSTING

homogenous products and services such as cans of soda

MANUFACTURING APPROACH OF JOB COSTING:

customized to the needs of the customer

COST ACCUMULATION OF PROCESS COSTING:

cost accumulated by process

MANUFACTURING APPROACH OF PROCESS COSTING:

mass-production of products in series of standardized processes

COST ACCUMULATION OF JOB COSTING:

cost accumulated by job or customer

MAJOR COST REPORT OF JOB COSTING

job cost sheet for each unique unit, customer, or job

MAJOR COST REPORT OF PROCESS COSTING

production report for each major production process

PROCESS COSTING:

averages manufacturing costs across all unit so that each identical unit bears the same cost
USED BY COMPANIES THAT PRODUCE EXTREMELY LARGE NUMBERS OF IDENTICAL UNITS (soda company)

JOB COSTING

a system for assigning cost to products or services that differ in the amount, material, labor, and overhead required (custom products)

WHAT ARE THE 3 STEPS FOR ALLOCATING MANUFACTURING OVERHEAD?

1. compute predetermined overhead rate
2. apply manufacturing overhead rate to products
3. find the difference between actual and applied

COST DISTORTION:

occurs when some products are over-costed while other products are undercosted by the cost allocation system

WHEN WOULD WE USE A DEPARTMENTAL OVERHEAD RATE INSTEAD OF A PLANTWIDE RATE?

1. each department incurs different types and amounts of manufacturing
2. each product, or job, uses the departments to a different extent

WHAT ARE THE BENEFITS OF ABC?

more accurate product cost information
more detailed information on costs of activities and associated cost drivers help managers control costs

COST HIERARCHY

unit level, batch level, product level, customer level, facility level

QUALITY MANAGEMENT

its purpose is to provide customers with superior products and services

4 TYPES OF QUALITY COSTS

1. prevention cost
2. appraisal cost
3. internal failure costs
4. external failure costs

PREVENTION COST:

costs incurred to AVOID producing poor-quality goods or services
*COMPANIES TRY USING MORE AUTOMATED TECHNOLOGY FOR AS MUCH AS POSSIBLE

APPRAISAL COST:

costs incurred to DETECT poor-quality goods or services

INTERNAL FAILURE COSTS:

costs incurred on defective units BEFORE delivery to customers

EXTERNAL FAILURE COSTS

costs incurred because the defective goods or services are not detected until AFTER delivery is made to the customers

VALUE-ADDED ACTIVITIES

activities for which the customer is willing to pay because these activities ADD VALUE to the final product

NON-VALUE-ADDED ACTIVITIES

activities that neither enhance the customer's image of the product or service nor provide a competitive advantage

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