Acc 2023 Ch. 15

what is the management process?

(cyclical) - planning - directing - controlling - improving - decision making

materials inventory

(sometimes called raw materials inventory) consists of the costs of the direct and indirect materials that have not yet entered the manufacturing process

A direct labor cost must meet what criteria?

- an integral part of the finished product - a significant portion of the total cost of the product

to be classified as a direct materials cost, the cost must be what?

- an integral part of the finished product - a significant portion of the total cost of the product

Ex of merchandising operations: Guitar-Making Operations of Legend Guitars

- customer places order - materials - cutting - assembly - finished guitar

the statement of cost of goods manufactured is prepared using what three steps?

- determine the costs of materials used - determine the total manufacturing costs incurred - determine the costs of goods manufactured

product costs include what?

- direct materials - direct labor - factory overhead

the cost of a finished product includes what?

- direct materials cost - direct labor cost - factory overhead cost

types of financial statements

- income statement - statement of stockholders' equity - balance sheet - statement of cash flows

what falls under the controller?

- manager of the accounting function of a vertical - chief financial officer - rank within the accounting and finance function

Ex: Direct Costs of Legend Guitars

- materials - direct cost - cost object: guitar

a manufacturing business reports three types of inventory on its balance sheet as follows:

- materials inventory - work in process inventory - finished goods inventory

Ex: Indirect Costs of Legend Guitars

- project supervisor - indirect cost - cost object: guitar

period costs include what?

- selling expenses - administrative expenses

financial statements

- users of info: external users and company management - nature of info: objective - guidelines of preparation: prepared according to GAAP - timeliness of reporting: prepared at fixed intervals - focus of reporting: company as a whole

managerial accounting reports

- users of info: management - nature of info: objective and subjective - guidelines of preparation: prepared according to management needs - timeliness of reporting: prepared at fixed intervals and on an as-needed basis - focus of reporting: company as a whole or segment

what are the uses of managerial accounting?

-Managerial accounting provides information and reports for managers to use in operating the business. - The cost of manufacturing a product could be used to determine its selling price. - Comparing the costs of manufacturing products over time and can be used to monitor and control costs. - Performance reports could be used to identify any large amounts of scrap or employee downtime. - A report could analyze the potential efficiencies and savings of purchasing a new computerized equipment to speed up the production process. - A report could analyze how many units need to be sold to cover operating costs and expenses. Such information could be used to set monthly selling targets and bonuses for sales personnel

T/F: managerial accounting information is designed primarily to meet the needs of external users such as shareholders, creditors, and the general public.

False - the primary focus and design of managerial accounting information is to meet the specific needs of a company's management

T/F: different service industries will have the same names and computations used for measuring utilization rates

False. different service industries will have DIFFERENT names and computations used for measuring utilization rates

how does management use planning?

Management uses planning in developing the company's objectives (goals) and translating these objectives into courses of action

T/F: a manufacturing business makes the products it sells, using direct materials, direct labor, and factory overhead

True

T/F: the cost of a manufactured product includes the cost of converting the materials into a finished product

True

T/F: the cost of a manufactured product includes the cost of materials used in making the product

True

T/F: operational planning develops short-term actions for managing the day-to-day operations of the company.

True - operational planning develops short-term actions for managing the day-to-day operations of the company. In contrast, strategic planning develops long-term actions (strategies) to achieve the company's objectives

which is more favorable, a higher or lower utilization rate?

a higher utilization rate is considered favorable

cost

a sacrifice made to obtain some benefit

in managerial accounting, how are costs often classified?

according to the decision-making needs of management

what does the feedback from "controlling" do?

allows management to isolate areas for further investigation and possible remedial action

how are the operations of a business classified?

as service, retail, or manufacturing

why is the balance sheet and income statement for a manufacturing business more complex?

because a manufacturer makes the products that it sells and, thus, must record and report product costs

is planning strategic or operational?

both

what kind of cost is direct labor?

both a prime cost and a conversion cost

how does a retail business determines its cost of good sold?

by first adding its net purchases for the period to its beginning inventory (this determines inventory available for sale during the period. The ending inventory is then subtracted to determine the cost of good sold)

indirect cost

cannot be identified with or traced to a cost object

conversion costs

consist of direct labor and factory overhead costs

prime costs

consist of direct materials and direct labor costs

finished goods inventory

consists of completed (or finished) products that have not been sold

work in process inventory

consists of the direct materials, direct labor, and factory overhead costs for products that have entered the manufacturing process, but are not yet completed (in process)

improving

continuous process improvement is the philosophy of continually improving employees, business processes, and products.

what is inherent in each of the preceding management processes?

decision making

horizontals

departments within the company that are not responsible for developing products

managerial accounting

designed to meet the specific needs of a company's management

strategic planning

developing long-term actions to achieve the company's objectives

operational planning

develops short-term actions for managing the day-to-day operations of the company

if the cost can be identified with and traced to the cost object, then it is a __________ cost.

direct

all of the following are examples of what?: - the wages of employees who cut guitars out of raw lumber and assemble them - mechanics' wages for repairing an automobile - machine operators' wages for manufacturing tools - assemblers' wages for assembling a laptop computer

direct labor costs

the cost of employee wages that is an integral part of the finished product is classified as what?

direct labor costs

all of the following are examples of what?: - the cost of the wood used in producing a guitar - the cost of electronic components for a television - silicon wafers for microcomputer chips - tires for an automobile

direct materials costs

When must a manufacturing business determine its cost of goods manufactured?

during the manufacturing period

costs identified with cost objects are what?

either direct or indirect costs

most manufacturing processes use what to convert materials into finished products?

employees

costs other than direct materials cost and direct labor that are incurred in the manufacturing process are combined and classified as what?

factory overhead cost (sometimes called manufacturing overhead or factory burden)

the following are all examples of what?: - heating and lighting the factory - repairing and maintaining factory equipment property taxes on factory buildings and land - insurance on factory buildings - depreciation of factory plant and equipment

factory overhead costs

T/F: managerial accounting reports must be prepared for the business as a whole.

false - managerial accounting reports do not have to be prepared for the business as a whole. Most management reports are prepared for products, projects, sales territories, or other segments of the company

types of accounting info

financial accounting and managerial accounting

types of managerial accounting

historical data and estimated data

direct cost

identified with and can be traced to a cost object

how are most large companies ordered?

in terms of "verticals" and "horizontals"

period costs are reported as expenses on the _________________ ___________________ in the period in which they are incurred, and, thus, they never appear on the balance sheet

income statement

all factory overhead costs are _________ costs of the product

indirect

if the cost cannot be identified with and traced to the cost object, then it is a __________ cost.

indirect

financial accounting

info is reported at fixed intervals (monthly, quarterly, yearly) in general-purpose finance statements

as product costs are incurred, they are recorded and reported on the balance sheet as what?

inventory

cost objective

may be a product, a sales territory, a department, or an activity, such as research and development

utilization rate

measures the use of a fixed asset in serving customers relative to the asset's capacity

controlling

monitoring operating results and comparing actual results with the expected results

Matching: three phases of the management process are planning, controlling, and improving. Match the following descriptions to the proper phase: words: planning, controlling, improving definitions: a) monitoring the operating results and comparing the actual results with expected results b) rejects solving problems with temporary solutions that fail to address the root cause of the problem c) used by management to develop the company's objectives

planning - C controlling - A improving - B

Direct materials, direct labor, and factory overhead costs may be grouped together for analysis and reporting. What are the two common groupings?

prime costs and conversion costs

what do verticals develop?

products that are sold directly to customers

historical data

provides objective measures of past operations

most of the managerial accounting concepts that apply to manufacturing businesses also apply to what?

service and merchandising businesses

the statement of stockholders' equity and statement of cash flows for a manufacturing business are similar to those for what?

service and retail businesses

what do horizontals provide?

services to the various verticals and other horizontals

verticals

sometimes referred to as business units, because they are often structured as separate businesses within the parent company

the cost of goods manufactured is determined by preparing a what?

statement of cost of goods manufactured (this statement summarizes the cost of goods manufactured during the period)

When the inventory is sold, the cost of the manufactured product sold is reported as cost of goods sold on what?

the income statement

management by exception

the philosophy of controlling by comparing actual and expected results

directing

the process by which managers run day-to-day operations

the income statements for retail and manufacturing businesses differ primarily in what?

the reporting of the cost of goods (merchandise) available for sale and sold during the period

what is the objective of continuous process improvement?

to eliminate the source of problems in a process

differences between managerial and financial accoutning

unlike the financial statements prepared in financial accounting, managerial accounting reports DO NOT always have to be: - Prepared according to generally accepted accounting principles (GAAP). - Only the company's management uses the information. - In many cases, GAAP are not relevant to the specific decision-making needs of management. -Prepared at fixed intervals (monthly, quarterly, yearly). - Although some management reports are prepared at fixed intervals, most reports are prepared as management needs the information. -Prepared for the business as a whole. - Most management reports are prepared for products, projects, sales territories, or other segments of the company.