Upgrade to remove ads
Only $2.99/month

Managerial Accounting

Terms in this set (207)

Managerial Accounting
area of accounting aimed mainly at serving the decision-making needs of internal users.
Assists in analysis, planning, and control of costs.
7 Key Differences between Managerial Accounting and Financial Accounting:
Users & Decision Makers
Purpose of Information
Flexibility of practice
Timeliness of information
Time dimension
Focus of information
Nature of information
Nonfinancial information, or nonmonetary information
includes customer and employee satisfaction data, the percentage of on-time deliveries, and product defect rates
Costs are important to managers because they
impact both the financial position and profitability of a business.
Planning
process of setting goals and preparing to achieve them
Long-term: 5-10 years
Strategic Aims
Long & Short Term
Annual Budgets
A short-term plan often covers a one-year period,
that when translated in monetary terms, is known as a budget
Control
process of monitoring planning decisions and evaluating the organization's activities and employees
Measurement
Evaluation
Oversight
Internal control system
all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies
Ethics
codes of conducts by which actions as judged as right or wrong, fair or unfair, honest or dishonest
Institute of Management Accountants
A professional association of management accountants
The Sarbanes-Oxley Act requires
each issuer of securities to disclose whether it has adopted a code of ethics for its senior officers and the content of that code.
Costs are classified based on their
behavior
traceability
controllability
relevance
function
Fixed Cost - behavior
Cost that does not change with changes in the volume of activity
Variable Cost - behavior
Cost that changes in proportion to changes in the volume of activity
Cost Object - traceability
A product, process, department, or customer to which costs are assigned
Direct Costs - traceability
are those traceable to a single cost object
Indirect Costs - traceability
are those that cannot be easily and cost-beneficially traced to a single cost object
Controlled Costs - controllability
Cost that a manager has the power to control or strongly influence
Not Controlled Costs - controllability
Costs that a manager does not have the power to control or strongly influence
A sunk cost - relevance
has already been incorrect and cannot be avoided or changed
An Out-of-pocket cost - relevance
requires a future outlay of cash and is relevant for decision making
An opportunity cost - relevance
is the potential benefit lost be choosing a specific action from two or more alternatives
Product Costs - function
Costs that are capitalized as inventory because they produce benefits expected to have future value; include direct materials, direct labor, and overhead
Period Costs - function
Expendatures identified more with a time period that with finished products costs; includes selling and general administrative expenses
Product costs are either in the income statement as part of cost of good sold or in the balance sheet as inventory.
Period costs appear only on the income statement under operating expenses.
Manufacturers usually have three inventories listed in the current asset section of the balance sheet
Raw materials
Goods in Process
Finished Goods
Raw Materials Inventory
Good a company acquires to use in making products
Indirect Materials
Material used to support the production process but not clearly identified with products or batches of products
Goods in Process Inventory
Account in which costs are accumulated for products that are in the process of being produced but are not yet complete; also called work in process inventory
Finished Goods Inventory
Account that controls the finished goods files, which acts as a subsidiary ledger (of the Inventory account) in which the costs of finished goods that are ready for sale are recorded
Direct materials
Raw materials that physically becomes part of the product and is clearly identified with specific products or batches of product
Direct material costs
Expenditures for direct material that are separately and readily traced through the production process to finished goods
Direct Labor
Efforts of employees who physically convert materials to finished product
Direct Labor Costs
Wages and salaries for direct labor that are separately and readily traced through the production process to finished goods
Indirect Labor
Efforts of production employees who do not work specifically on converting direct materials into finished products and who are not clearly identified with specific units or batches of product
Indirect Labor Costs
Labor costs that cannot be physically traced to production of a product or service; included as part of overhead
Factory Overhead
Factory activities supporting the production process that are not direct material or direct labor; also called overhead and manufacturing overhead
Factory Overhead Costs
Expenditures for factory overhead that cannot be separately or readily traced to finished goods; also called overhead costs
Prime Costs
Direct Materials + Direct Labor
Expenditures directly identified with the production of finished goods; include direct material costs and direct labor costs
Conversion Costs
Direct Labor + Factory Overhead
Expenditures incurred in converting raw materials to finished goods; includes direct labor costs and overhead costs
Manufacturing Statement
Report that summarizes the types and amounts of costs incurred in a company's production process for a period; also called cost of goods manufacturing statement
The manufacturing statement begins
by computing direct materials used.
The second part of the manufacturing statement reports
direct labor costs.
The third part of the manufacturing statement reports
overhead costs
The final section of the manufacturing statement computes and reports
the cost of goods manufactured.
Customer Orientation
Company position that its managers and employees be in tune with the changing wants and needs of consumers
Lean Business Model
Practice of eliminating waste while meeting customer needs and yielding positive company returns
Continuous Improvement
Concept requiring every manager and employee continually to look to improve operations
Total Quality management
Concept calling for all managers and employees at all stages of operations to strive toward higher standards and reduce number of defects
Just-in-time Manufacturing
Process of acquiring or producing inventory only when needed
Value Chain
Sequential activities that add value to an entity's products or services; includes design, production, marketing, distribution, and service
The balanced scorecard aids continuous improvement by augmenting financial measures with information on the "drivers" (indicators) of future financial performance along four dimensions:
(1) financial—profitability and risk,
(2) customer—value creation and product and service differentiation,
(3) internal business processes—business activities that create customer and owner satisfaction, and (4) learning and growth—organizational change, innovation, and growth
Cycle Time (CT)
A measure of the time to produce a product or service, which is the sum of process time, inspection time, move time, and wait time; also called throughput time
Value-added Time
The portion of cycle time that is directed at producing a product or service; equals process time
Non-value-added time
The portion of cycle time that is not directed at producing a product or service; equals the sum of inspection time, move time, and wait time
Cycle Efficiency (CE)
A measure of production efficiency, which is defined as value-added(process) time divided by total cycle time
Cost Accounting System
Accounting system for manufacturing activities based on the perpetual inventory system
General Accounting System
Accounting system for manufacturing activities based on the periodic inventory system
Job Order Production
Production of special-order products; also called customized production
Job
Production of a customized product or service
Job Lot
Production of more than one unit of a customized product or service
Target Cost
Selling price − Desired profit
Maximum allowable cost for a product or service; defined as expected selling price less the desired profit
Job Order Cost Accounting System
Cost accounting system to determine the cost of producing each job or job lot
Job Cost Sheet
Separate record maintained for each job
Goods In Process Inventory
Account in which costs are accumulated for products that are in the process of being produced but are not yet complete; also called work in process inventory
Finished Goods Inventory Account
Account that controls the finished goods files, which acts as a subsidiary ledger (of the Inventory account) in which the costs of finished goods that are ready for sale are recorded
Materials Ledger Cards
Perpetual record updated each time units are purchased or issued for production use
Materials Requisition
Source document production managers use to request materials for production; used to assign material costs to specific jobs or overhead
Clock Cards
Source document used to record the number of hours an employee works and to determine the total labor cost for each pay period
Time Tickets
Source document used to report the time an employee spent working on a job or on overhead activities and then to determine the amount of direct labor to charge to the job or the amount of indirect labor to charge to overhead
Predetermined Overhead Rate
Rate established prior to the beginning of a period that relates estimated overhead to another variable, such as estimated direct labor, and is used to assign overhead cost to production
Underapplied Overhead
Amount by which overhead incurred in a period exceeds the overhead applied to that period's production using the predetermined overhead rate
Overapplied Overhead
Amount by which overhead applied to production in a period using the predetermined overhead rate exceeds the actual overhead incurred in a period
Process Operations
Processing of products in a continuous (sequential) flow of steps; also called process manufacturing or process production
Process Cost Accounting System
System of assigning direct materials, direct labor, and overhead to specific processes; total costs associated with each process are then divided by the number of units passing through that process to determine the cost per equivalent unit
Materials Consumption Report
Document that summarizes the materials a department uses during a reporting period; replaces materials requisitions
If a process has no beginning and no ending goods in process inventory, the unit cost of goods transferred out of a process is computed as follows.
Total cost assigned to the process (direct materials, direct labor, and overhead) divided by \
Total number of units started and finished in the period
Equivalent Units of Production
Number of units that would be completed if all effort during a period had been applied to units that were started and finished
Weighted-average method
Method to assign inventory cost to sales; the cost of available-for-sale units is divided by the number of units available to determine per unit cost prior to each sale that is then multiplied by the units sold to yield the cost of that sale
Process Cost Summary
Report of costs charged to a department, its equivalent units of production achieved, and the costs assigned to its output
Cost of Goods Manufactured
Total manufacturing costs (direct materials, direct labor, and factory overhead) for the period plus beginning goods in process less ending goods in process; also called net cost of goods manufactured and cost of goods completed
Conversion costs per equivalent unit
The combines costs of direct labor and factory overhead per equivalent unit
Activity
An event that causes the consumption of overhead resources in an entity
Activity-based Cost (ABC)
Cost allocation method that focuses on activities performed; traces costs to activities then assigns them to cost objects
Activity-based Management
A management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defectsd
Activity Cost Driver
Variable that causes an activity's cost to go up or down; a causal factor
Activity cost pool
Temporary account that accumulates costs a company incurs to support an activity
Activity overhead (pool) rate
A predetermined overhead rate in activity-based costing; each activity cost pool has its own activity rate that is used to apply overhead to products and services
Batch Level Activities
Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in a batch; the amount of resources used depends on the number of batches run rather than on the number of units in the batch
Cost Object
Product, process, department, or customer to which costs are assigned
Facility Level Activities
Activities that relate to overall production and cannot be traced to specific products; costs associated with these activities pertain to a plant's general manufacturing process
Lean Accounting
System designed to eliminate waste in the accounting process and better reflect the benefits of lean manufacturing techniques
Product Level Activities
Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run
Unit Level Activities
Activities that arises as a result of the total volume of goods and services that are produced, and that are performed each time a unit is produced.
Value-added Activities
Its value-added activities include machining, assembly, and the cost of engineering design changes
Break-even Point
Output level at which sales equals fixed plus variable costs; where income equals zero
Composite Unit
Which consists of a specific number of units of each product in proportion to their expected sales mix
Contribution margin per unit
Amount that the sale of one unit contributes toward recovering fixed costs and earning profit; defined as sales prices per unit minus variable expense per unit
Contribution margin Ration
Product's contribution margin divided by its sale price
Cost-volume-profit (CVP) analysis
Planning method that includes predicting the volume of activity, the costs incurred, sales earned, and profits received
Cost-volume-profit (CVP) Chart
Graphic representation of cost-volume-profit relations
Curvilinear cost
Cost that changes with volume but not at a constant rate
Degree of operating leverage (DOL)
Ratio of contribution margin divided by pretax income; used to assess the effect on income of changes in sales
Estimated list of cost behavior
Line drawn on a graph to visually fit the relation between cost and sales
High-low Method
Procedure that yields an estimated line of cost behavior by graphically connecting costs associated with the highest and lowest sales volume
Least-squares regression
Statistical method for deriving an estimated line of cost behavior that more precise than the high-low method and the scatter diagram
Margin of Safety
Excess of expected sales over the level of break-even sales
Mixed Cost
Cost that behaves like a combination of fixed and variable costs
Operating leverage
Extent, or relative size, of fixed costs in the total cost structure
Relevant range of operation
Company's normal operating range; excludes extremely high and low volumes not likely to occur
Sales mix
Ratio of sales volume for the various products sold by a company
Scatter Diagram
Graph used to display data about past cost behavior and sales as points on a diagram
Step-wise cost
Cost that remains fixed over limited ranges of volumes but changes by a lump sum when volume changes occur outside these limited ranges
Variable costing income statement
An income statement which reports variable costs and fixed costs separately; also called a contribution margin income statement
Weighted-average contribution margin
Contribution margin for a multiproduct company; computed based on each products' percentage of the company's sales mix
Activity-based Budgeting (ABB)
Budget system based on expected activities
Budget
Formal statement of future plans, usually expressed in monetary terms
Budgeted Balance Sheet
Accounting report that presents predicted amounts of the company's assets, liabilities, and equity balance as of the end of the budget period
Budgeted income statement
Accounting report that presents predicted amounts of the company's revenues and expenses for the budgeted period
Budgeting
Process of planning future business actions and expressing them as formal plans
Capital Expenditures Budget
Plan that lists dollar amounts to be both received from disposal of plant assets and spent to purchase plant assets
Cash Budget
Plan that shows expected cash inflows and outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans
Continuous Budgeting
Practice of preparing budgets for a selected number of future periods and revising those budgets as each period is completed
General and Administrative Expense Budget
Plan that shows predicted operating expenses not included in the selling expenses budget
manufacturing budget
Plan that shows the predicted costs for direct material, direct labor, and overhead to be incurred in manufacturing units in the production budget
Master Budget
Comprehensive business plan that includes specific plans for expected sales, product units to be produced, merchandise (or materials) to be purchased, expenses to be incurred, plant assets to be purchased, and amounts of case to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet
Merchandise Purchases Budget
Plan that shows the units or costs of merchandise to be purchased by a merchandising company during the budget period
Production Budget
Plan that shows the units to be produced each period
Rolling Budgets
New set of budgets a firm adds for the next period (with revisions) to replace the ones that have lapsed
Safety Stock
Quantity of inventory or materials over the minimum needed to satisfy budgeted demand
Sales Budget
Plan showing the units of goods to be sold or services to be provided; the starting point in the budgeting process for most departments
Selling Expense Budget
Plan that lists the types and amounts of selling expenses expected in the budget period
Benchmarking
Practice of comparing and analyzing company financial performance or position with other companies or standards
Budget Report
Report Comparing actual results to planned objectives; sometimes used as a progress reports
Budgetary Control
Management use of budgets to monitor and control company operations
Controlled Variance
Combination of both overhead spending variances (variable and fixed) and the variable overhead efficiency variance
Cost variance
Difference between the actual incurred cost and the standard cost
Efficiency variance
Difference between the actual quantity of an input and the standard quantity of that input
Favorable variance
Difference in actual revenues or expenses from the budgeted amount that contributes to a higher income
Fixed Budget
Planning budget based on a single predicted amount of volume; unstable for evaluations if the actual volume differs from predicted volume
Fixed Budget Performance Report
Report that compares actual revenues and costs with fixed budgeted amounts and identifies the differences as favorable or unfavorable variances
Flexible Budget
Budget prepared (using actual volume) once a period in complete that helps managers evaluate past performance; uses fixed and variance costs in determining total costs
Flexible Budget Performance Report
Report that compares actual revenues and costs with their variable budgeted amounts based on actual sales volume (or other level of activity) and identifies the differences as variances
Unfavorable Variance
Difference in revenues or cost, when the actual amount is compared to the budgeted amount, that contributes to a lower income
Price Variance
Difference between actual and budgeted revenue or cost caused by the difference between the actual price per unit and the budgeted price per unit
Quantity Variance
Difference between actual and budgeted revenue or cost caused by the difference between the actual number of units and the budgeted number of units
Variance Analysis
Process of examining difference between actual and budgeted or costs and describing them in terms of price and quantity differences
Standard Costs
Costs that should be incurred under normal conditions to produce a product or component or to perform a service
Management by Exception
Management process to focus on significant variances and give less attention to areas where performance is close to the standard
Cost Variance
Difference between the actual incurred cost and the standard cost
Volume Variance
Occurs when there is a difference between the actual volume of productions and the standard volume of production
Relevant Benefits
the actual or incremental revenue generated by selecting a particular course of action over another
Incremental Costs
Additional costs incurred only if a company pursues a specific course of action
Avoidable Expenses
Expense or cost that is relevant for decision making; expense that is not incurred if a department, product, or service is eliminated
Unavoidable Expenses
Expense or cost that is not relevant for business decisions; an expense that would continue even if a department, product, or service is eliminated
Capital Budgeting
Process of analyzing alternative investments and deciding which assets to acquire or sell
Payback Period (PBP)
The expected time period to recover the initial investment amount
Accounting Rate of Return
Rate used to evaluate the acceptability of an investment; equals the after-tax periodic income from a project divided by the average investment in the asset; also called rate of return on average investment
Net Present Value (NPV)
Dollar estimate of an asset's value that is used to evaluate the acceptability of an investment;
Cost of Capital
Rate the company must pay to its long-term creditors and shareholders; also called hurdle rate
Profitability Index
A measure of the relation between the expected benefits of a project and its investment, computed as the present value of expected future cash flows from the investment divides by the cost of the investment; a higher value indicates a more desirable investment and a value below 1 indicates an unacceptable project
Internal Rate of Return (IRR)
Rate used to evaluate the acceptability of an investment; equals the rate that yields a net present value of zero for an investment
Break-even Time (BET)
TIme-based measure used to evaluate a capital investment's acceptability
Departmental Accounting System
Accounting system that provides information useful in evaluating the profitability or cost-effectiveness of a department
Responsibility Accounting System
System that provides information that management can use to evaluate the performance of a department's manager
Profit Center
Business unit that incurs costs and generates revenue
Cost Center
Department that incurs costs but generates no revenue
Investment Center
Center of which a manager is responsible for revenues, costs, and asset investments
Direct Expenses
Costs readily traced to a department because they are incurred for that department's sole benefit
Indirect Expenses
Costs that are incurred for the joint benefit of more than one department and cannot be readily traced to only one department
Departmental Contribution to Overhead
Amount by which a department's revenues exceed its direct expenses
Controllable Costs
Costs that a manager has the power to control or at least strongly influence
Uncontrollable Costs
Costs that a manager does not have the power to determine or strongly influence
Responsibility Accounting Budgets
Report of expected costs and expenses under a manager's control
Responsibility Accounting Performance Report
Report that compares actual costs and expenses for a department with budgeted amounts
Statement of Cash Flows
A financial statement that lists cash inflows and cash outflows during a period; arranged by operating, investing, and financing
Direct Method
A reporting method that separately lists each major item of operating cash receipts (such as cash received from customers) and each major item of operating cash payments (such as cash paid for merchandise).
Indirect Method
A reporting method that reports net income and then adjusts it for items necessary to obtain net cash provided or used by operating activities
Cash flow on total assets
Ratio of operating cash flows to average total assets; not sensitive to income recognition and measurement; partly reflects earnings quality
Financial Statement of Analysis
applies analytical tools to general-purpose financial statements and related data for making business decisions
Liquidity
Availability of resources to meet short-term cash requirements
Efficiency
Company's productivity in using its assets; usually measured relative to how much revenue a certain level of assets generates
Solvency
ability to generate future revenues and meet long-term obligations.
Profitability
ability to provide financial rewards sufficient to attract and retain financing.
Market Prospects
ability to generate positive market expectations.
General-purpose financial statements
Statements published periodically for use by a variety of interested parties
General-purpose financial statements includes
(1) income statement, (2) balance sheet, (3) statement of stockholders' equity (or statement of retained earnings), (4) statement of cash flows, and (5) notes to these statements.
Financial Reporting
refers to the communication of financial information useful for making investment, credit, and other business decisions
Horizontal Analysis
Comparison of a company's financial condition and performance across time.
Vertical Analysis
Comparison of a company's financial condition and performance to a base amount.
Ratio Analysis
Measurement of key relations between financial statement items.
Comparative Financial Statements
Statement with data for two or more successive periods placed in side-by-side columns, often with changes shown in dollar amounts and percents
Common-size financial statements
Statements that expresses each amount as a percentage of a base amount.
Working Capital
The amount of current assets less current liabilities
Equity Ratio
portion of total assets provided by equity, computed as total equity divided by total assets
What does the Institute of Management Accountants require of management accountants in its Statement of Ethical Professional Practice?
Communicate information in a fair and credible manner
What would be included on a job cost sheet?
Applied manufacturing overhead
Why would an activity-based costing system be useful for a manager in determining accurate product costs?
Improves overhead cost allocation to products by using relevant cost drivers
Management wants to assess how many units must be sold to earn a profit. The most useful analysis will separate costs into which categories?
Fixed and variable
For a merchandiser, what does budgeted cost of sales plus budgeted ending inventory minus beginning inventory equal?
Budgeted inventory purchases
Which type of budget would facilitate an attempt to reduce costs by eliminating non-value added activities?
Activity-based budget
Which statement is true when comparing activity-based flexible budgeting to traditional flexible budgeting?
Activity-based flexible budgeting is preferable when a company has a diverse set of products
What is a characteristic of a sunk cost?
It is an irrelevant cost in decision-making
What is the final step in the decision making process?
Analyze and assess decision
Which statement is true regarding the concept of management by exception and how it focuses on performance standards in cost management?
It investigates the most significant differences between actual costs and standard costs
What allows managers to compare statements as a percent of a base amount?
Common-size statements
Which of the following items appears only in a manufacturing company's financial statements?
Cost of goods manufactured
YOU MIGHT ALSO LIKE...