accounting 1b ch15
management accounting provides?
information to help mangers plan and control operations as they lead the business. including the company's plant, equipment, and human resources.
accountability is created through
measuring results. therefore, employees do well on the parts of their jobs that the accounting system measures.
management accounting is not
required to meet external reporting requirements such as GAAP
mangers are?
the employees of the owners.
what does the budget show?
the expected financial impact of decisions and helps identify the resources needed to achieve goals
cost of good sold section of the income statement shows?
the flow of the product costs through the inventory.
inventoriable product costs
are products held in inventory until sold.
similarities of management accounting and financial accounting
-use the accrual basis of accounting.
service companies seek to provide services with the following three characteristics
1. high quality. 2. reasonable prices. 3. timely delivery.
financial accounting satisfies management's accountability to
1. owners and creditors for their investment decisions. 2. regulatory agencies, such as the SEC[securities exchange commission], and the FTC[federal trade commission, and the IRS[internal revenue service]. 3. customers and society to ensure that the company acts responsibly.
companies have developed the following three time saving responses
1.advanced information systems 2. e-commerce 3. just in time management. 4. total quality management
what is different on the merchandiser's income statement compared to a service company's income statement?
COGS is noted as a major expense
behavioral
MA concerns about how reports will affect employee behavior FA concern about adequacy of disclosures; behavioral implications are secondary.
scope of information
MA detailed reports on parts of the company (products, departments, territories), often on a daily or weekly basis. FA summary reports primarily on the company as a whole, usually on a quarterly or annual basis.
purpose of information
MA help managers plan and control operations FA help investors and creditors make investment and credit decisions
type of report
MA internal reports are restricted only by cost/benefit analysis;no audit required FA financial statements are restricted by GAAP and audited by independent CPAs
focus and time dimension of the information
MA relevance of the information and focus on the future. ex- 2011 budget prepared in 2010 FA relevance and reliability of the information and focus on the past ex - 2010 actual performance reported in 2011
in contrast with service and merchandising companies, manufacturing companies have?
a broad range of production activities that requires tracking costs on 3 kinds of inventory: materials inven, work in progress inven, and finished goods inven.
direct cost
a cost that can be directly traced to a cost object, such as a product. ex. direct materials and direct labor
budget is
a mathematical expression of the plan that managers use to coordinate the business's activities.
total quality management (TQM) is
a philosophy designed to provide customers with superior products and services. companies achieve this goal by continuously improving quality and reducing or eliminating defects and waste. in TQM each business function sets higher and higher goals.
managers may want to know the cost of
a product, a department, a sales territory, or an activity.
financial statements from chapters 1-14 were focused on
accounting and reporting on the company as a whole.
the completed product in finished goods inventory is
an inventoriable product cost.
merchandisers keep
an inventory of products and managers are accountable for the purchasing, storage, and sale of the product.
cost object
anything for which managers what a separate measurement of cost.
knowing the unit cost per product helps managers to set?
appropriate selling pries.
why are they called stakeholders of a company?
because each group has an interest of some sort in the business.
to remain in service, the management accounting system must have
benefits exceeding its costs.
in manufacturing companies, product costs include
both direct and indirect costs.
how do service companies know which services are most profitable?
by evaluating both revenues and costs.
planning means
choosing goals and deciding how to achieve them.
total quality management.
companies must deliver high quality goods and services in order to be successful
e-commerce
companies use the internet in everyday operations of selling and customer service. the internet sells to thousands of customers around the world by providing every product the company offers 24/7
indirect costs
cost cannot be traced directly to a cost object. ex. manufacturing overhead
managers are responsible to
external stakeholders, so they must plan and control operations carefully.
management accountability requires 2 forms of accounting
financial accounting for external reporting and management accounting for internal planning and control
financial accounting provides
financial statements that report results of operations, financial position, and cash flows both to managers and to external stakeholders: owners, creditors, suppliers, customers, the government, and society.
management accounting
focus to the accounting tools that managers use to run a business.
management accounting often requires
forward-looking information because of the futuristic nature of business decisions.
stakeholders with actions that affect society
governments and communities
stakeholders
groups to whom managers must answer.
managers must consider
how their decisions will motivate company employees and if that motivation will achieve the overall results the company desires.
on a day-to-day basis, managers
identify ways to cut costs, set prices, and evaluate employee performance.
controlling means
implementing the plans and evaluating operations by comparing actual results to the budget.
finished goods inventory
includes completed goods that have not yet been sold. finished goods are the products that t
work in process inventory
includes goods that are in the manufacturing process but not yet complete. some production activities have transformed the raw materials but the product is not yet finished or ready for sale.
materials inven
includes raw materials used in making a product.
periods costs are the expenses that are not part of?
inventoriable product cost.
just in time management
inventory held too long becomes obsolete. storing goods takes space and must be insured--that costs money. this helps managers cut costs by speeding the transformation of raw material into finished products
manufacturing companies use
labor,equipment,supplies, and facilities to convert raw materials into finished products.
primary users
management accounting (MA) internal - the company's managers. financial accounting (FA) external-investors, creditors, and government authorities.
scope of information indicates that
management accounting provides more detailed and timely information than financial accounting
behavioral reminds us that
management accounting reports affect people's behavior.
what happens when management accounting does not need to follow GAAP?
managers have more leeway in preparing management accounting reports
cost data help who?
managers make these type of decisions. [ controlling and planning.]
how od ou earn the stakeholders' trust?
managers provide information about their decisions and the results of those decisions.
knowing the cost per service helps
managers to set the price of each and then to calculate operating income.
advanced information systems
many companies use enterprise resource planning(ERP) systems to integrate all their worldwide functions, departments, and data.
just in time (JIT)
means producing just in time to satisfy needs. supplies deliver materials for today's production in exactly the right quantities just in time to begin production and finished units are completed just in time for delivery to customers.
while detailed information is important to managers, summary information is
more valuable to external users of financial data.
how to find company profit margin
net income / net sales revenue
stakeholders in financing activities
owners and creditors
in management accounting we distinguish inventoriable product costs from
period costs.
all of service company costs are
period costs; costs that are incurred and expensed in the same accounting period.
to highlight the roles of beinning inven, purchases, and ending inven, we use what system?
periodic inventory system.
finished goods
products that the manufacturer sells to a merchandiser or to other customers.
customers
provide cash and management is accountable for providing products and services for a reasonable price
creditors
provide cash management is accountable for repaying principal and interest
owners
provide cash or other assets management is accountable for providing a return on the owners' investment
communities
provide human and physical resources management is accountable for providing jobs and operating in an ethical manner to support the community.
suppliers
provide long-term assets management is accountable for purchasing the most productive assets.
government
provide permission to operate management is accountable for obeying laws and paying taxes.
employees
provide time and expertise. and management is accountable for providing a safe and productive work environment
in order to be successful, managers of both large corporations and mom and pop businesses must consider
recent business trends such as 1. shirt toward a service economy 2. global competition 3. time based competition 4. total quality management
what do merchandising companies do?
resell products they buy from suppliers
what is accountability
responsibility for one's action
income statement for merchandise company
sales revenue - sales returns and allowances - sales discount = net sales revenue -cost of goods sold = gross profit -total operating expenses =operating income -other income and expenses = net income
shift toward a service economy
service companies provide health-care, communication, banking, and other important benefits to society.
stakeholders in investing activities
suppliers
stakeholders in operating activities
suppliers, employees, and customers.
type of stakeholders
suppliers, government, owners, creditors, customers
a large decrease in the gross profit percentage may indicate
that the company has a problem with inventory theft or shrinkage or a problem with retail pricing of the products.
managers weigh
the benefits of the system(better information lead to higher profits) against the costs to develop and run the system.
what is freight in?
the cost to get the goods in the warehouse.
merchandising companies' inventoriable product costs include only what?
the cost to purchase the goods plus freight in
the activity in the inventory account provides
the information for the cost-of-goods-sold section of the income statement as: beginning inven + purchases + freight in - ending inven = COGS.
time-based competition
the internet, electronic commerce, and express delivery speed the pace of business. customers who instant message around the world will not wait two weeks to receive items purchased online. time is a new competitive turf for world class business.
management accountability
the manger's responsibility to the various stakeholders of the company.
income statement for service company.
the title: company income statement month ended xxxxx 2010 then revenue : state all revenues in outer column expenses: state all expenses, total to outer column = net income. on the side, is the vertical analysis
managers tailor their management accounting system to help
them make wise decisions
service companies have the simplest accounting since
they carry no inventories of products for sale.
suppliers
they provide products and services. management is accountable for using the goods and services to earn a profit.
global competition
to be competitive, many companies are moving operations to other countries to be closer to new markets. other companies are partnering with foreign companies to meet local needs.
erp systems help
to streamline operations, and that enables companies to respond quickly to changes in the market.
for external reporting, GAAP requires companies to?
treat inventoriable product costs as an asset until the product is sold, at which time the costs are expensed.
formula to find unit cost per item
unit cost per item = total cost of goods sold / total number of items sold.
formula to calculate the unit cost
unit cost per service=total service costs / total number of services provided.
managers in manufacturing companies must
use these resources to create a product that customers what. they are responsible for generating profits and maintaining positive cash flows.
cost/benefit analysis.
weighting the costs against the benefits is called