Accounting Exam ch1&2

  1. Chapter 1
  2. Financial accounting
    Information designed to help obtain resources to use to achieve an organization’s goals
  3. Managerial accounting
    Information designed to help determine how those resources are used to achieve those goals
  4. Types of use for accounting
    • Decision facilitating (planning)
    • Decision influencing (control)
  5. Types of Use: Decision facilitating (planning)
    Trying to make a decision on the basis of financial information
  6. Types of Use: Decision influencing (control)
    Using accounting information to direct actions such as hiring/firing/selling/creating incentives, etc
  7. Conflicts
    • Among parties within the org
    • Among uses
  8. Conflicts: Among parties within the organization
    Everyone's actions and jobs effect eachothers within an org
  9. Conflicts: Among uses
    Financial info (especially with forecasting) is influenced by different incentives b/c it is used in different, varying, and conflicting ways
  10. Multiple Systems
    One system for each function (decision making, performance evaluation, external reporting)
  11. Problems with Multiple Systems
    • Additional processing cost
    • Confusion cost
  12. Additional Processing Cost problem with multiple systems
    Additional costs of writing and maintaining contracts based on accounting numbers, book-keeping costs arise from the extra system
  13. Confusion cost problem with multiple systems
    Running two different systems in order to achieve different ends - systems report different numbers for the same concept
  14. Economic darwinism
    • •Concept
    • explains persistence of use of accounting practices that may not be optimal or seem logical
    • –A system that currently “works” will usually not be changed
    • –Cost of changing system may outweigh benefits derived from change
    • –Because the organization does not know why the system works,
    • the existing system may not be optimal
    • •Because the organization does not know why the system works, it may be unsure how to change the system when conditions change so that it no longer works
  15. Example of use conflicts
    Sales people get a bonus if they exceed the forecast. This may cause salespeopl to low-ball the forecast. This unsureness and the differences in used of forecasting info causes conflict
  16. Example of Economic Darwinism
    Tell the insurance company you need money. Show the company the costs they incurred with the old system. You submit a diagnosis related group to the government (a report that became required) and this has costs. Each DRG shows where your costs are coming from. You can make decisions on budget based on this report to make budgeting more effective. They had to change their accounting practices.
  17. Chapter 2
    The Nature of Costs
  18. Financial Statements—differences b/t two systems
    Manufacturer versus Merchandise
  19. Balance Sheet types of inventories
    • 1) Merch- Merchandise inventories
    • 2) Manufacturing Inventories - finished goods, raw materials, work in process
  20. Income Statement
    determination of cost of goods sold
  21. Balance Sheet—
    Types of Manufacturing Inventories (3)
    • Finished Goods
    • Raw Materials Inventory
    • Work in Process
  22. Finished Goods
    Ready to sell
  23. Raw materials
    Used to manufacture your product
  24. Work in Process
    What you're currently manufacturing- when you get them done, then they're finished goods
  25. Income Statement
    Cost of Goods Manufactured
  26. Manufacturing Costs
    • –Direct Material
    • •Versus Indirect Material
    • –Direct Labor
    • •Versus Indirect Labor
    • –Manufacturing Overhead
  27. Direct Material
    Becomes physically part of the product (paper and ink for a textbook)
  28. Indirect Material
    Essential in the making of the product (oil for the printing press machine) but is not physically part of the product
  29. Direct Labor
    People who are physically making the product (people running the printing press)
  30. Indirect Labor
    Part of the production process but not physically making the product (inventory handlers)
  31. Manufacturing Overhead
    Tends to be capacity related (depreciation, property taxes, etc)
  32. Income statement
    1) non-manufacturing costs-administrative 2)product/period costs 3)Variable Costs 4)Fixed Cost- discretionary and committed 5)Total cost per unit 6)Cost-volume profit analysis-BTNI, ATNI 7)opportunity cost 8) historical cost
  33. Income statement: Non-manufacturing Costs
    –Selling and Administrative
  34. Income Statement—
    Product versus Period Costs
    • •Product Costs
    • –All Manufacturing Costs
    • –Become Expense Only When Units Are Sold
    • •Period Costs
    • –All Non-manufacturing Costs
    • –Become Expense When Incurred
  35. Income statement: Cost--What Are Common Patterns?
    • •Variable Cost
    • •Fixed Cost
    • •Total Cost and Per Unit Cost
    • •Implications for Predicting--Example
  36. Income statement: Variable costs and fixed costs
    Refer to whats going on with total costs
  37. Income statement: Variable costs
    Change directly with volume - double what you produce, double the labor
  38. Income statement: Fixed costs
    Don't change/changes very little in total $ compared to activity. Don't change in total amount in response to changes in volume.Can change on the basis of mgmt decisions (discretionary fixed costs). An example of committed fixed costs is deciding to advertise
  39. Income statement: Cost-Volume Profit Analysis
    • •Representation of Before Tax Net Income based
    • on Unit Volume
    • •Adjusting After Tax Net Income to Before Tax
    • Net Income
    • •Representation of Before Tax Net Income based
    • on Dollar Sales Volume
  40. What's going to happen to profit if taxes go up, variable costs increase, quantity changes
  41. BTNI (profit) =
    • =PQ-VQ-F
    • P= Price per unit
    • V=Variable cost per unit
    • F=Total fixed costs
  42. ATNI =
    = BTNI (1-TR)
  43. Contribution Margin
    Price per unit - Variable cost per unit
  44. Break-even point
    When BTNI = 0
  45. Opportunity Cost
    • •Figure one wishes to use for decision
    • facilitating
    • –Unknown Amount
    • –Unknown Transaction
  46. Historical Cost
    • •Figure available for decision facilitating
    • –Known Transaction
    • –Known Amount
    • * Use this for opportunity cost when predicting b/c you'll never know the opportunity cost
  47. Historical Cost as a Substitute for Opportunity Cost
    • •In decision facilitating applications, sometimes historical cost is a good approximation of opportunity cost; sometimes it isn’t
    • •Historical cost is appropriate for decision
    • influencing uses because one wishes to evaluate performance based on what did happen
  48. Is it period or product cost??
    • 1) manufacturing (product costs: expense only when units are sold)
    • 2) non-manufacturing (non-manufacturing: expense when incurred)
  49. What type of product cost?
    • Direct labor
    • direct materials
    • overhead
  50. When given 3 alternatives (rework & sell to a corporation, convert to a standard, or sell as is) decide which on will result in the highest revenue. =
    = Revenue - commission - direct materials - direct labor - variable manufacturing overhead
  51. Overtime paid to assemby workers - product or period cost?
    Product Cost - It is overhead because it was the company's choice
Card Set
Accounting Exam ch1&2
Accounting Exam ch1&2