Whate requirements do the IMA's Statement on Ethical Professional Practice request of management accountants?
Maintain their professional competence.
Preserve the confidentiality of the information they handle.
Uphold their integrity.
Perform their duties with credibility.
What is the purpose of Managerial Accounting?
To help managers to plan, direct, and control business operations while making sound business decisions.
Explain the four primary facets of Managerial Accounting.
Planning: setting goals & objectives for the company.
Directing: overseeing the company's day to day operations.
Controlling: evaluating results of operations against the plan and making adjustments.
Decision Making: occurs at all stages of planning, directing & controlling.
What primary accounting information is produced?
Internal reports with much more detailed information, capturing the key areas the company is interested in. Does not follow GAAP. Report components are determined by management.
Managerial vs. Financial:
Who are the primary users of the information?
M: Internal users (managers)
F: External users (creditors, stockholders...)
Managerial vs. Financial:
What is the purpose of the information?
M: To help managers control, direct, and plan operations, as well as make informed decisions.
F: To help external users making investing and lending decisions.
Managerial vs. Financial:
What must be included in the report and who says so?
M: Management determines which reports would be beneficial and what content. Reports are done only when the benefit of preparing them exceeds the cost.
F: GAAP determines the content and formatting of financial statements.
Managerial vs. Financial:
What information characteristic is emphasized?
M: The data must be relevant.
F: The data must be reliable and objective.
Managerial vs. Financial:
How often are the reports prepared?
M: Dependent on the management's needs.
F: Annually and quarterly.
What is the focus of M. Acctg?
It uses some historical information, but generally takes past information and tries to help predict or make decisions that affect the future (budgets, forecasts, etc.)
T/F Information is not required outside the organization or required to be verified by independent auditors outside the organization.
True
What is IMA and what two certification tests?
IMA=Institute of Management Accountants: A professional organization for management accountants. It works to advance managerial accounting by certification (CMA & CFM), practice development, education and networking.
What was the Sarbanes Oxley Act of 2002?
It was designed to restore trust in publicly traded corporations and the accounting profession after several large accounting frauds (WorldCom, Enron). Basically, top dogs are held to a higher standard with a greater risk involved.
What is meant by a Shifting Economy?
Less Manufacturing, more Service oriented industries.
What is Time-Based Competition? Name the four primary examples.
ERP (Enterprise Resource Planning) Systems: Integrate all of a company's functions into one system.
E-Commerce: Assists with supply chain management (exchange info with suppliers)
Lean Production: Manufacturing without waste, which lowers a company's costs and makes them more competitive. Includes eliminating carrying large inventory, reducing time between RM and FG.
JIT (Just In Time) Management: Receive materials "just in time" to process an order, eliminates storage costs, throughput time. ex)Dell creates to order.
What are the three types of "for-profit" organizations?
Service Organizations: Sells intangible services (hair dresser, law firm)
Merchandising Organizations: Purchases products from suppliers, and then resells them to customers. (Target)
Manufacturing Companies: Convert raw materials to finished products and then sell them. (Cainas Cookies)
What three inventory accounts that are listed on the balance sheet are necessary for manufacturing companies to track? Why is it so important for manufacturing companies to understand how much it costs to make their product and get it ready to sell?
Three Inventory Accounts listed on the BALANCE SHEET:
Raw Materials
Work in Process
Finished Goods
It is important in order for the company to earn an adequate profit.
What are the elements of the Value Chain, and what is its purpose within a corporation?
Research & Development--Design--Production--Marketing--Distribution--Customer Service
Cross functional teams work on several aspects of the value chain so can determine how each component affects other components. Reminds managers to control costs over value chain as a whole. All working together to provide best possible quality product at lowest possible cost!
What is the difference between Direct & Indirect Costs?
Direct: Any cost that can be directly traced to a cost object (Trace Costs)
Indirect: Cost that relates to the cost object, but can not be directly traced. (Allocate costs)
Both Direct & Indirect Costs must be traced or allocated to each cost object!
What is OH, and what does it include?
Overhead includes all manufacturing costs other than direct materials and direct labor, but still required for the manufacturing process. Includes things like: indirect labor, indirect materials, electricity, property taxes, depreciation on equipment...
It MUST INDIRECTLY RELATE TO THE MANUFACTURING PROCESS!
Basic format for the Income Statement?
Sales
Less: COGS
Gross Profit
Less: S,G,A(Selling, General & Admin Expenses)
NI
What are the two components of Prime Costs?
Of Conversion Costs?
Prime Costs=Direct Materials + Direct Labor
Conversion Costs=Direct Labor + Manufacturing OH
What is the equation for Predetermined Overhead Rate?
Estimated $$ amt to spend on OH for yr= OH Rate/base
Ttl estimated allocation base for the year
What are Actual and Applied Expenses with relation to Overhead?
Actual Expenses: debit-IM, IL, Rent, Depreciation...
Applied Expenses: credit-applied per job depending on predetermined OH rate.
What does it mean when we say the OH has been over applied? Under applied?
Over applied: more was applied to account for OH than was actually spent. Debit: OH, Credit: COGS
Under applied: actual expenses are higher than your applied expenses. Debit: COGS, Credit: COGS
What are the three types of costs and how do they differ?
Variable costs: Change in direct proportion to a change in volume. Cost per unit remains unchanged.
Fixed costs: Costs that do not change regardless of changes in volume. Cost per unit decreases as volume increases (Think like Rent-More ppl living there the lower the rent each pays)
Mixed costs: Costs that change in total, but NOT in direct proportion to changes in volume. Has both fixed & variable cost components (ex. Cell bill-Talk time vs. texts)
What is the cost equation and what each value stands for in accounting?
Y=MX+B
Y= Total Costs
M= Variable cost per unit
X= # of units
B= Fixed costs
What is the equation for the High Low Method and why is it useful?
First find highest & lowest PRODUCTION VOLUME.
Then,
High $ Costs - Low $ Costs
High Level of Activity - Low Level of Activity
*Easy way to estimate the variable and fixed cost components of a mixed cost.
What is a Regression Analysis, and how is it done?
A regression analysis helps determine the "best fitting line" by taking into account all of the data points. *Most exact calculation!!!
R2 : Determines how well the line fits, or, how strong the relationship between cost and volume. 0 would be NO CORRELATION, 1.0 would be PERFECT CORRELATION.
Y intercept: The fixed cost
X intercept: The variable cost per unit.
What is the format for a Contribution Margin Income Statement Approach?
Sales Revenue
Less: Variable costs
Contribution Margin
Less: Fixed Costs
Net Income
What is a Contribution Margin?
The amount of sales revenue remaining after covering all the variable costs incurred to make the product. Amount leftover help to contribute to covering the fixed costs a company has incurred, and hopefully earn a profit.
What is the most important difference when considering Absorption vs. Variable costing?
The TIMING of how FOH is treated!!!
Abosorption = Inventory until sold
Variable = Fixed OH is expensed as a period cost as incurred.
How do you reconcile Net Income?
# Units Produced - # Units in Ending Inventory = X
X($/unit for Fixed OH) = Difference in Net Income
What is the difference between Discretionary & Committed expenses?
Discretionary: more annually (advertising)
Committed: long term (5 yr lease)
Where would we find a higher Net Income if...
Inventory levels were rising?
Inventory levels were falling?
Rising: Higher NI in Absorption Income Statement
Falling: Higher NI in Variable Income Statement
Where could we look to determine how much one job costs?
WIP
What is debited and what is credited in our OH account?
Debit: Actual
Credit: Applied
Is Depreciation a Debit or a Credit to OH?
Debit
Is JIT an example of a Push or Pull Inventory method?