Managerial Accounting 2362 Hampshire Exam 1

Fixed cost

A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. unlike variable costs, fixed costs are not affected by changes in activity. Consequently, as the activity level rises and falls, total fixed costs remain constant unless influenced by some outside force, such as a landlord increasing your monthly rent.

Variable cost

A cost that varies, in total, in direct proportion to changes in the level of activity cost of goods sold for a merchandising company, direct materials, direct labor, variable elements of manufacturing overhead, such as indirect materials, supplies, and power, and variable elements of selling and administrative expenses, such as commissions and shipping costs

Direct Cost

A direct cost is a cost that can be easily and conveniently traced to a specified cost object. Ex) -Fabric used to make dress - if Adidas is assigning costs to its various regional and national sales offices, then the salary of the sales manager in its Tokyo office would be a direct cost of that office - a printing company made 10,000 brochures for a specific customer, then the cost of the paper used to make the brochures would be a direct cost of that customer.

Manufacturing Overhead

All manufacturing costs except direct materials and direct labor. they cannot be readily traced to specific productsEx, Indirect materials, managers, property taxes on facility.

Contribution Format Income Statement

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories Sales Revenue Less- Variable Expenses: -Variable Cost of Goods Sold Variable Selling and Administrative Expenses =Contribution Margin Less- Fixed Expenses: -Fixed Selling and Administrative Expenses Operating Income

What is a cost object?

Anything for which cost data is desired includes- products, customers, plants office locations, departments and organizational subunits

Calculate Cost of Goods Sold

Beginning Finished Goods Inventory +Cost of Goods Manufactured -Ending Finished Goods Inventory Unadjusted Cost of Goods Sold

Cost of Good Sold (COGS)-

Beginning Merchandise Inventory + Purchases - Ending Merchandise Inventory. Cost of Goods Sold reports the product costs attached to merchandise sold.

Calculate Direct Materials

Beginning Raw Materials Inventory +Purchases of raw materials -Ending Raw Materials Inventory Direct Materials Used in Production

Calculate Cost of Goods Manufactured

Beginning WIP Inventory +Direct Materials Used in Production +Direct Labor +Manufacturing OH applied -Ending WIP Inventory Cost of Goods Manufactured

Which account is adjusted to account for the variance, and how is it adjusted?

COGS is adjusted for variance

If MOH is Overallocated

COGS is credited for the varying amount

if MOH is Underallocated

COGS is debited for the variant amount.

Credibility

Communicate information fairly and objectively. Provide all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations. Report any delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law. Communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.

Contribution Margin

Contribution Margin (CM) =Sales Revenue - Total Variable Costs The amount remaining from sales revenues after all variable expenses have been deducted.

Differential/Incremental cost

Differential cost A future cost that differs between any two alternatives. technically an incremental cost should refer only to an increase in cost from one alternative to another, whereas decreases in cost should be referred to as decremental costs. Differential cost is a broader term, encompassing both cost increases (incremental costs) and cost decreases (decremental costs) between alternatives

What are the three manufacturing(product)costs?

Direct Materials, Direct Labor and Manufacturing overhead.

Conversion Cost

Direct labor cost plus manufacturing overhead cost.

calculate the total cost/manufacturing cost of a job?

Direct materials+Direct Labor+Applied manufacturing overhead = total cost/manufacturing cost of a job

Prime Cost

Direct materials+Direct labor

Cost of Goods Sold During September, Job 102 was sold. The total cost of the job totaled $950 and it was sold for $1,500. All sales are on account.

Dr. Accounts receivable-------1,500 Cr. Sales Revenue----1,500 Dr. COGS-----950 Cr.Finished Goods Inventory---950

Raw materials purchased on account, $200,000.

Dr. Raw materials inventory—200,000 Cr.Accounts payable------------200,000

Labor Cost In September, the employee time tickets included $6,000 recorded for direct labor and $1,200 for indirect labor.

Dr. WIP Inventory—6000 Dr. MOH---------------1,200 Cr. Salaries and wages payable-----7,200

Cost of Goods Manufactured During September, Job 104 was completed. The total cost of the job totaled $1,800. Total Cost=DM+DL+Allpcated/Applied OH

Dr.Finished Goods----1,800 Cr. WIP Inventory----1,800

Actual Manufacturing OH Costs During September $4,000 in manufacturing overhead costs which includes $1,500 for rent (paid in cash), $1,000 for utilities (on account), and $1,500 for miscellaneous overhead costs (on account).

Dr.MOH—4000 Cr.Cash---1,500 Cr.Accounts payable--- 2,500

Nonmanufacturing Costs During September, $2,100 was incurred in selling and administrative costs. (period cost)

Dr.Selling&Admin expense----2,100 Cr. Accounts payable----2,100

Raw materials were used in production (direct materials, 170,000; indirect materials, $15,000).

Dr.WIP Inventory-- 170,000 Dr.Manfacturing OH—15,000 Cr.Raw materials inventory----185,000

Issuance of Direct and Indirect Materials During September, materials requisition forms were prepared to authorize withdrawing $4,000 in raw materials from the storeroom for use in production. $3,500 was for direct materials and $500 was for indirect materials.

Dr.WIP Inventory---3,500 Dr. MOH-------------500 Cr. Raw Materials Inventory--------4,000

Financial differs from managerial by-

External users- Stockholders, creditors, Taxing authorities, investors Info emphasized- past financial information Characteristics emphasized- Objective and verifiable Importance about information reported-Precise Tyepes of reports emphasized- companywide reports Must follow GAAP/IFRS rules Mandatory reporting

Direct labor

Factory labor costs that can be easily traced to individual units of product. Also called touch labor. Ex) Assembly line workers

Differential revenue

Future revenue that differs between any two alternatives.

Controlling

Gathering feedback to ensure a plan is being properly executed or modified as circumstances change. It would also include evaluating the feedback

Confidentiality

Keep information confidential except when disclosure is authorized or legally required. Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure compliance. Refrain from using confidential information for unethical or illegal advantage

Competence

Maintain an appropriate level of professional leadership and expertise by enhancing knowledge and skills. Perform professional duties in accordance with relevant laws, regulations, and technical standards. Provide decision support information and recommendations that are accurate, clear, concise, and timely. Recognize and help manage risk.

Integrity

Mitigate actual conflicts of interest. Regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts of interest. Refrain from engaging in any conduct that would prejudice carrying out duties ethically. Abstain from engaging in or supporting any activity that might discredit the profession. Contribute to a positive ethical culture and place integrity of the profession above personal interests.

• What are manager's 3 main responsibilities?

Planning, controlling, decision making

What are the 4 standards of the IMA Statement of Ethical Professional Practice?

Professional competence Confidentiality Integrity Credibility

Raw Materials

Raw Materials-Any materials that go into the final product

Which steps for applying overhead are performed at the beginning of the year, and which are performed throughout the year?

Step 1- Estimated total OH- Beginning Step 2-select allocation base- Beginning Step 3- Calculate Predetermined OH-Beginning Step 4-Allocate MOH to each job- End

opportunity cost

The potential benefit that is given up when one alternative is selected over another.

Relevant Range

The range of activity within which assumptions about variable and fixed cost behavior are valid.

Cost Behavior

The way in which a cost reacts to changes in the level of activity.

Discretionary fixed cost

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research

Unit cost/manufacturing cost?

Total cost/manufacturing cost/units of goods=Total unit cost/manufacturing

Job Order Costing

Used where many different products, with individual and unique features, are produced. Ex custom home builder, wedding planner

Behavior cost

how a cost will change as activity level changes. Categorized as fixed, mixed and variable.

Period Costs

include all costs that are not product costs, Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued. All selling and administrative expenses are treated as period costs.

Traditional Income Statement

income statement that organizes costs into two categories - cost of goods sold and administrative expenses.(product and period cost) Selling and Administrative Costs report all period costs that have been expensed as incurred. Sales Revenue Less:- Cost of Goods Sold =Gross Margin Less: -Selling and Administrative Expenses =Operating Income

Sunk cost

is a cost that has already been incurred and that cannot be changed by any decision made now or in the future. Because sunk costs cannot be changed by any decision, they are not differential costs. sunk costs are irrelevant costs that should always be ignored.

Bill of materials

is a document that lists the quantity of each type of direct material needed to complete a unit of product. Ex) Like a recipe card.

Materials requisition form

is a document that specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of the materials.

• Identify and apply the four steps to applying overhead using the Activity Based approach.

o 1.Find estimated OH costs for each activity. Numerator- Total estimated OH Costs ex)purchasing, processing, shipping o 2.Identify the allocation base, and the estimated amount of the allocation base for each activity. Denominator-expected activity ex)Purchase orders issued, machine hours,shippments o 3.Calculate the activity cost allocation rate for each activity. Estimated OH cost for each activity (step1)/estimated allocation base for each activity(step2) o Apply overhead by multiplying the rate by actual amount of the allocation base for each activity.

• Identify and apply the four steps to applying overhead using the departmental approach.

o 1.Find estimated OH costs for each department. Find the estimated total MOH cost for the coming year in each department o 2.Identify the allocation base, and the estimated amount of the allocation base for each department.ex) cost driver, machine hours, direct labor hours. o 3.Calculate the predetermined OH rate for each department. Estimated departmental overhead cost (step1)/ estimated allocation base for each department(step2) o Apply overhead by multiplying the rate by actual amount of the allocation base for each department.

• Identify and apply the four steps to applying overhead using one plantwide overhead rate.

o 1.Find estimated OH costs. Nummerator- is the estimated manufacturing overhead costs o 2.Identify the allocation base, and the estimated amount of the allocation base.- Denominator-Allocation base- direct labor hours, direct labor cost or machine hours. o 3.Calculate the predetermined OH rate.- Estimated OH cost/estimated allocation base o 4.Apply overhead by multiplying the rate by actual amount of the allocation base.

job cost sheet

records the direct materials, labor, and manufacturing overhead costs charged to that job.

Direct Materials

refers to raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. example, the seats that Airbus purchases from subcontractors to install in its commercial aircraft, the electronic components that Samsung uses in its cell phones, and the doors that Whirlpool installs on its refrigerators. Steering wheel for a car, battery for a cell phone.

Hampshire Furniture uses a predetermined overhead rate of $20/direct labor hour. During September, 300 direct labor hours were worked.

see TChart

Product Cost (aka Inventoriable Cost)

-All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead.

If MOH Allocated> Actual MOH

-MOH is Overapplied w/credit balance

If MOH allocated< Actual MOH

-MOH is underapplied w/debit balance

Indirect Cost

A cost that cannot be easily and conveniently traced to a specified cost object. Ex) Campbell Soup factory may produce dozens of varieties of canned soups. The factory manager's salary would be an indirect cost of a particular variety, such as chicken noodle soup. The reason is that the factory manager's salary is incurred as a consequence of running the entire factory—it is not incurred to produce any one soup variety. To be traced to a cost object such as a particular product, the cost must be caused by the cost object. -Glue used in manufacturing a piece of furniture -nails, thread, and ink

Mixed cost

A cost that contains both variable and fixed cost elements. Y= a+b(x) Y= total mixed cost A=total fixed cost B= variable cost per unit of activity X= level of activity

Planning

1. establishes goals and specifies how to achieve them Plans are often accompanied by a budget. A budget is a detailed plan for the future that is usually expressed in formal quantitative term

Decision Making

1. selecting a course of action from competing alternatives. The most basic managerial skill. revolve around the following three questions. What should we be selling? Who should we be serving? How should we execute?

• Identify the three inventory accounts for a manufacturer, and the flow of costs through the inventory accounts.

1.Raw materials inventory-Asset on balance sheet 2.Work in Process inventory/WIP- Inventory, Direct labor, Direct materials, OH-Asset 3.Finished Goods inventory-Asset 4.Cost Of Goods Sold- Expense on income statement

Managerial differs from financial by

Internal users- Managers Information emphasized- Future focused, future financial decisions Characteristics emphasized- relevance What is important about the information reported-Timely Types of reports emphasized- Segment reports- Any part or activity of an organization about which managers seek cost, revenue, or profit data. All info stays withing the company therefore GAAP/IFRS rules are not applicable Reports not mandatory

committed fixed costs

Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.Property taxes and insurance premiums.