CH. 1

CFO

(Chief Financial Officer) - Responsiblities include: finance, accounting, protections of assets, reimbursement job.

PERIOD COSTS

*all costs that are not product costs* a) are matched with the revenue of a specific time period b) relate to nonmanufacturing costs c) include selling and administrative expenses.

PLANNING

*requires management to look ahead and establish objectives*

RAW MATERIALS

*the basic materials and parts that are to be used in the manufacturing process* - Raw materials that can be physically and directly associated with the finished product during the manufacturing process are called *direct materials*.

COST CHART

- all costs - product costs/manufacturing costs: direct materials, direct labor, manufacturing overhead (indirect materials, indirect labor, other indirect costs) - period costs/non-manufacturing costs: selling expenses, administrative expenses.

DETERMINE THE COSTS - wages payed to assembly workers - wood used to manufacture a chair - wages payed to a custodian worker

- direct labor - direct materials - manufacturing overhead (indirect labor)

WHAT are the three functions of Management?

1. planning (long term & short term ... *future*) 2. directing (implement the plans ... *current*) 3. controlling (measure performance & evaluate ... *past*)

COST OF GOODS MANUFACTURED FORMULA

Beginning Work in Process Inventory + Total Current Manufacturing Costs = Total Cost of Work in Process -----------> Total Cost of Work in Process - Ending Work in Process Inventory = Costs of Goods Manufactured

Managerial accounting provides financial information for all of the following except: a. other internal users. b. the CEO. c. the CFO. d. external users.

D. EXTERNAL USERS

Financial accounting focuses on providing information to internal users. T OR F?

FALSE (external users)

Managerial accounting applies only to merchandising and manufacturing companies. True or False

FALSE (it applies to many other aspects too)

PERIODIC INVENTORY SYSTEM

Inventory system that periodically adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand

consists of costs that are indirectly associated with the manufacture of the finished product.

MANUFACTURING OVERHEAD - They are impractical to trace to the finished product because their physical association with the finished product is too small in terms of cost - ex. rent of building, property taxes, salaries of personnel, depreciation, etc.

The balance sheet for a _______________________________ shows just one inventory category.

MERCHANDISER

Joe Delong believes that managerial accounting serves only manufacturing firms. Is his reasoning right?

NO he is not correct

Both managerial accounting and financial accounting deal with many of the same economic events. True or False

TRUE

HOW are product costs expensed (priced or taxed)?

The costs are expensed (through Cost of Goods Sold) when the items are sold (& not necessarily in the period incurred). •Direct Material (DM) •Direct Labor (DL) •Manufacturing Overhead (MOH)

TREASURER

The treasurer has custody of the corporation's funds and is responsible for maintaining the company's cash position.

DOES planning add value to a business?

YES

CEO

a chief executive officer - the highest-ranking person in a company or other institution, ultimately responsible for making managerial decisions.

MANAGERIAL ACCOUNTING (management accounting)

a field of accounting that provides economic and financial information for managers and other internal users

MANAGERIAL ACCOUNTING applies to each of the following types of business except: a. managerial accounting applies to all types of firms b. service firms c. manufacturing firms d. merchandising firms

a. applies to all types

MANUFACTURING

consists of activities and processes that convert raw materials into finished goods.

Period or Non-product Costs are expensed in....

expensed in the period incurred •Selling & Administrative Expenses

Administrative expenses.

period

Advertising expenses.

period

Selling expenses.

period cost

INTERNAL AUDIT STAFF

the department responsible for monitoring and evaluating the internal control system

COSTS OF GOODS SOLD (COGS)

the total cost of merchandise sold during the period

AREA OF ACCOUNTING CHART

*FINANCIAL ACCOUNTING AND EXTERNAL AUDITING* - USERS: investors and creditors - MANDATED: yes - FOCUS: past - EMPHASIS (RELEVANCE OR RELIABILITY): reliability *TAXATION* -USERS: taxing authorities - MANDATED: yes -FOCUS: past - EMPHASIS: reliability *INTERNAL AUDITING* - USERS: management and auditors - MANDATED: yes - FOCUS: past - EMPHASIS: reliability *MANAGERIAL ACCOUNTING* - USERS: managers - MANDATED: no - FOCUS: past, present, and future - EMPHASIS: relevance **ACCOUNTING INFORMATION SYSTEMS SUPPORT ALL OF THE ABOVE CRITERIAS*

WHAT are the main differences between managerial accounting and financial accounting?

*FINANCIAL ACCOUNTING*: - external users: creditors, stockholders, and regulators. - types and frequency of reports: financial statements / quarterly and annually - purpose of reports: general-purpose - content of reports: pertains to business as a whole, highly aggregated (condensed), limited to double-entry accounting and cost data, G.A.A.P standards - verification process: audited by a CPA *MANAGERIAL ACCOUNTING*: - internal users: officers and managers - types and frequency of reports: internal reports / as frequently as needed - purpose of reports: special-purpose for a specific reason - content of reports: pertains to the subunits of a business, very detailed, extends beyond double-entry accounting to any relevant data, standards they go by is relevance to decisions being made. - verification process: no independent audits

INDIRECT MATERIALS

*Some raw materials cannot be easily associated with the finished product. These are considered indirect materials.* - Indirect Materials do not physically become part of the finished product. - They cannot be traced because their physical association with the finished product is too small in terms of cost. - Indirect materials are accounted for as part of manufacturing overhead. ex. glue, oil, tape

MANUFACTURING COSTS

1. direct materials 2. direct labor 3. manufacturing overhead.

Manufacturing overhead includes:

1. indirect materials 2. indirect labor 3. depreciation on factory buildings and machines 4. insurance, taxes, and maintenance on factory facilities.

INCOME STATEMENT

A financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time.

FORMULA FOR SCHEDULE OF COGS

Beginning Inventory of Finished Goods + Cost of Goods Manufactured = Goods Available for Sale - Ending Inventory of Finished Goods = Cost of Goods Sold

FORMULA FOR COGS MANUFACTURED

Beginning Work In Process + Mfg. Costs Incurred This Period: + Direct Materials Used + Direct Labor + Manufacturing Overhead Incurred = Total Manufacturing Costs Incurred = Total Costs in Work in Process - Ending Work In Process = Cost of Goods Manufactured

To perform the three management functions effectively, management needs information. One very important type of information is related to _________________.

COSTS - The following questions need answering: 1. What costs are involved in making the product or performing a service? 2. If production volume is decreased, will costs decrease? 3. What impact will automation have on total costs 4. How can we best control costs?

Managerial accountants have a single role within an organization: collecting and reporting costs to management. T OR F?

FALSE - Managerial accountants do determine product costs, but they are also responsible for evaluating how well the company employs its resources. - As a result, when the company makes critical strategic decisions, managerial accountants serve as team members alongside personnel from production, marketing, and engineering.

Managerial accounting reports must now comply with generally accepted accounting principles (GAAP).

FALSE - Managerial accounting reports are for internal use and thus do not have to comply with GAAP.

Managerial accounting reports must comply with generally accepted accounting principles. True or False

FALSE (they comply with internal rules, not G.A.A.P.)

The company treasurer reports directly to the vice president of operations. True or False

FALSE (they report to CFO or vice president of finance)

INCOME STATEMENT: COSTS OF GOODS SOLD CHART

MERCHANDISER - Beginning Inventory + Cost Of Goods *purchased* - Ending inventory = COGs MANUFACTURER -Beginning Finished Goods Inventory + Cost of Goods *manufactured* - Ending Finished Goods Inventory = COGs

Managerial accounting reports pertain to subunits of the business. True or False

TRUE

CONTROLLER

The controller's responsibilities include: (1) maintaining the accounting records (2) ensuring an adequate system of internal control (3) preparing financial statements, tax returns, and internal reports.

A key modern management objective is to add _________________ to the business under its control.

VALUE - Value is usually measured by the trading price of the company's stock and the potential selling price of the company.

When is depreciation not immediately expensed?

When it occurs in the factory (and is inventoried as a part of work-in-process or finished goods).

WHICH OF the following is not a separate management function: a. decision-making b. directing c. controlling d. planning

a. decision-making

THE MANAGERIAL function of controlling: a. is concerned mainly with operating a manufacturing segment b. includes performance evaluation by management c. is only applicable when the company sustains a loss d. is performed only by the controller of a company

b. includes performance evaluation by management

TOTAL COST OF WORK IN PROCESS

beginning work in process inventory + total manufacturing costs

WHICH OF THE FOLLOWING is considered apart of the controlling process? a. looking ahead and establishing objectives b. coordinating activities and human resources to produce a smooth running operation c. keeping the companies activities on track d. implementing planned objectives

c. keeping the companies activities on track *past*

IN DETERMINING whether planned goals are met, a manager is performing the function of: a. follow-up b. planning c. directing d. controlling

d. controlling *past*

FINANCIAL AND MANAGERIAL accounting are similar in that both: a. have the same primary users b. produce general-purpose reports c. have reports that are prepared quarterly and annually d. deal with the economic events of an enterprise

d. deal with the economic events of an enterprise

Product or Inventoriable Costs are...

costs associated with units held for resale - The costs are expensed (through Cost of Goods Sold) when the items are sold (& not necessarily in the period incurred). •Direct Material (DM) •Direct Labor (DL) •Manufacturing Overhead (MOH)

WORK IN PROCESS INVENTORY

inventory that is in the production process

Direct labor.

product cost

Direct material.

product cost

the balance sheet of a manufacturer may have ______________________ inventory accounts:

*3* 1. Finished Goods Inventory - shows the cost of completed goods on hand 2. Work in Process inventory - shows the cost applicable to units that have been started into production but are only partially completed 3. Raw Materials Inventory - shows the cost of raw materials on hand.

INDIRECT LABOR

*The wages of maintenance people, timekeepers, and supervisors are usually identified as indirect labor. Their efforts have no physical association with the finished product.* - Like indirect materials, indirect labor is part of manufacturing overhead. - ex. security guards, supervisors, etc.

PRODUCT COSTS

*include each of the manufacturing cost elements (direct materials, direct labor, and manufacturing overhead). They are costs that are a necessary and integral part of producing the finished product.* - These costs do not become expenses until the company sells the finished goods inventory.

DIRECTING

*involves coordinating diverse activities and human resources to produce a smooth-running operation* - This function relates to implementing planned objectives. - Involves selecting executives, appointing managers and supervisors, and hiring and training employees.

CONTROLLING

*is the process of keeping the firm's activities on track* - In controlling operations, managers determine: 1. whether planned goals are being met 2. when there are deviations from targeted objectives, they decide what changes are needed to get back on track

DIRECT MATERIALS

*raw materials* that become an integral part of the product and that can be conveniently traced directly to it - ex. wood, flour, vegetable, etc.

HOW is COGS calculated by the merchandiser and the manufacturer?

- For a merchandiser, cost of goods sold is computed by adding the beginning inventory to the cost of goods *purchased* and subtracting the ending inventory. - For a manufacturer, cost of goods sold is computed by adding the beginning finished goods inventory to the cost of goods *manufactured* and subtracting the ending finished goods inventory.

CORPORATION ORGANIZATION CHART

- stockholders - board of directors - C.E.O. and president - general counsel and secretary, vice president of marketing, vice president of finance/ C.F.O. , vice president of operations, vice president of human resources - treasurer, controller

CLASSIFY EACH SITUATION AS A PRODUCT OR PERIOD COST - wages for production workers - wages for supervisor - wages for accounting department workers

-product cost -product cost -period cost

University Company produces collegiate apparel. From its accounting records, it prepares the following schedule and financial statements on a yearly basis: (a)Cost of goods manufactured schedule. (b)Income statement. (c)Balance sheet. The following items are found in its ledger and accompanying data. For each item, indicate the schedule and/or financial statement(s) in which the item will appear. 1.Direct labor 2.Raw materials inventory, 1/1 3.Work in process inventory, 12/31 4.Finished goods inventory, 1/1 5.Indirect labor 6.Depreciation on factory machinery 7.Work in process, 1/1 8.Finished goods inventory, 12/31 9.Factory maintenance salaries 10.Cost of goods manufactured 11.Depreciation on delivery equipment 12.Cost of goods available for sale 13.Direct materials used 14.Heat and electricity for factory 15.Repairs to roof of factory building 16.Cost of raw materials purchases

1. COGs manufactured 2. COGs manufactured 3.COGs manufactured / Balance Sheet 4. Income Statements 5. COGs manufactured / Balance Sheet 6. Income Statements/ Balance Sheets 7. COGs manufactured 8. Income/ Balance Sheet 9. COGs manufactured 10. COGs manufactured and Income Statement 11. Income Statement 12. Income Statement 13. COGs manufactured 14. COGs manufactured 15. COGs manufactured 16. COGs manufactured

Cepeda Corporation has the following cost records for June 2020. Indirect factory labor $4,500 Factory utilities $400 Direct materials used 20,000 Depreciation, factory equipment 1,400 Work in process, 6/1/20, 3,000 Direct labor 40,000 Work in process, 6/30/20, 3,800 Maintenance, factory equipment 1,800 Finished goods, 6/1/20, 5,000 Indirect materials 2,200 Finished goods, 6/30/20, 7,500 Factory manager's salary 3,000 a.) Prepare a cost of goods manufactured schedule for June 2020. b.) Prepare an income statement through gross profit for June 2020 assuming sales revenue is $92,100.

1. a. FOR THE MONTH ENDED JUNE 30, 2020 - Work In Process (June !) *given* - Direct Materials Used *given* - Direct Labor *given* b. MANUFACTURING OVERHEAD - indirect labor *given* - factory managers salary *given* - indirect materials *given* - maintenance, factory equipment *given* - factory utilities *given* - *TOTAL MANUFACTURING OVERHEAD: DIRECT MATERIALS - DIRECT LABOR* - *TOTAL MANUFACTURING COSTS: TOTAL MANUFACTURING OVERHEAD + WORK IN PROCESS (june 1)* - *TOTAL WORK IN PROCESS: SUM OF TOTAL WORK IN PROCESS MINUS WORK IN PROCESS INVENTORY (JUNE 30)* - COST OF GOODS MANUFACTURED: *total cost of work in process - work in process inventory June 30* 2. INCOME STATEMENT FROM MONTH ENDED IN JUNE 30 a. SALES REVENUE *given* - COGs - Finished Goods Inventory : given - COGs manufactured: given in previous ex - COGs available *add COGs manufactured and finished goods* - SUBTRACT COGs available and finished goods inventory (june 30) to get COGs sold - SUBTRACT sales revenue and COGs to get Gross Profit

the process of identifying, measuring & communicating economic information to permit informed judgments & decisions by users of financial information.

ACCOUNTING

WHICH TYPES OF COMPANIES could benefit from managerial accounting? a.)Manufacturers b.)Retailers c.)All of these answer choices d.)Service providers

C. ALL OF THE ABOVE

ALL ACCOUNTING INFORMATION must comply with GAAP. T OR F?

FALSE

Preparation of budgets is part of financial accounting. True or False

FALSE

THE REPORTS prepared for managerial accounting purposes are less detailed than those of financial accounting purposes. T OR F?

FALSE

Managers' activities and responsibilities can be classified into three broad functions: cost accounting, budgeting, and internal control.

FALSE - Managers' activities are classified into three broad functions: planning, directing, and controlling. - Planning requires managers to look ahead to establish objectives. - Directing involves coordinating a company's diverse activities and human resources to produce a smooth-running operation. - Controlling keeps the company's activities on track.

Staff positions are directly involved in the company's primary revenue-generating activities. True or False

FALSE (line positions)

Managerial accounting reports are prepared only quarterly and annually. True or False

FALSE (prepared whenever needed)

MANAGERIAL ACCOUNTING is a field that provides economic information for all interested parties. T OR F?

FALSE *not all parties but some, mostly inside parties*

Decision-making is management's most important function. T OR F?

FALSE. they have to do many other things not just make decisions.

Under a _________ _________ ___________ , the income statements of a merchandiser and a manufacturer differ in the cost of goods sold section.

PERIODIC INVENTORY SYSTEM

INCOME STATEMENT EQUATION

Revenues - Expenses = Net Income/Net Loss

INCOME STATEMENT OUTLINE

Sales Revenue - Cost of Goods Sold (product costs) = Gross Profit or Gross Margin - Operating Expenses (Selling & Administrative) (period costs) = Net Operating Income

Financial accounting reports are general-purpose and intended for external users.

TRUE

Financial accounting reports are general-purpose reports. True or False

TRUE

MANAGERIAL AND FINANCIAL accounting both deal with the economic events of a company. T OR F?

TRUE

Managerial accounting reports are special-purpose and issued as frequently as needed.

TRUE

BOARD OF DIRECTORS

a group of persons elected by the stockholders to manage a corporation

Ohno Company specializes in manufacturing a unique model of bicycle helmet. The model is well accepted by consumers, and the company has enough orders to keep the factory production at 10,000 helmets per month (80% of its full capacity). Ohno's monthly manufacturing cost and other expense data are as follows. Rent on factory equipment $11,000 Insurance on factory building 1,500 Raw materials (plastics, polystyrene, etc.) 75,000 Utility costs for factory 900 Supplies for general office 300 Wages for assembly line workers 58,000 Depreciation on office equipment 800 Miscellaneous materials (glue, thread, etc.) 1,100 Factory manager's salary 5,700 Property taxes on factory building 400 Advertising for helmets 14,000 Sales commissions 10,000 Depreciation on factory building 1,500

a.) direct materials- raw materials b.) direct labor- wages for assembly line workers c.) manufacturing overhead- rent on factory building, insurance on factory building, utility costs, misc. materials, property taxes on factory building, salary of factory manager, depreciation of factory building d.) period costs- supplies for office, depreciation on office equipment, advertising, sales commisions f.) compute the cost to produce one helmet: 15.51 *add together totals from direct materials, direct labor, and manufacturing overhead, divide that total by 10,000, get answer and round to two decimal points*

Knight Company reports the following costs and expenses in May: Factory utilities$15,500 Direct labor$69,100 Depreciation on factory equipment $12,650 Sales salaries $46,400 Depreciation on delivery trucks $3,800 Property taxes on factory building $2,500 Indirect factory labor $48,900 Repairs to office equipment $1,300 Indirect materials $80,800 Factory repairs $2,000 Direct materials used $137,600 Advertising $15,000 Factory manager's salary $8,000 Office supplies used $2,640

a.) manufacturing over head: 170350 *factory utilities+ depreciation on factory equipment + property taxes on factory builidng + indirect labor + indirect materials + factory repairs + factory managers salary* b.) product costs: 377050 *direct materials + direct labor + manufacturing overhead* c.) period costs: 69140 *sales salaries + depreciation on trucks + repairs to office equipment + advertising + office supplies used *

FINANCIAL ACCOUNTING

accounting information and analyses prepared for people outside the organization

MANUFACTURING OVERHEAD

all manufacturing costs except direct materials and direct labor

COSTS OF GOODS SOLD EQUATION

beginning inventory + purchases - ending inventory

MANAGERIAL ACCOUNTING is generally prepared for: a. creditors b. stockholders c. managers d. regulatory agencies

c. managers

FINISHED GOODS INVENTORY

completed goods that have not yet been sold

The CFO is supported by the _______________________ and the _______________________.

controller and the treasurer - Also serving the CFO is the internal audit staff.

A manager that is establishing objectives is performing which management function? a. constraining b. controlling c. directing d. planning

d. planning *future*

RAW MATERIALS INVENTORY

goods a company acquires to use in making products

TRACEABILITY

how to determine costs another way - Direct costs of a cost object are related to the cost object and can be physically & economically traced to that cost object. - Indirect costs of a cost object are related to the cost object but cannot be economically traced to the object. Instead, indirect costs are allocated to the cost object using a systematic and rational method.

The Purpose of Managerial Accounting is to....

is to provide information to improve managerial decision making

STAFF POSITIONS

jobs that support the efforts of line employees - finance, legal, and human resources have staff positions.

DIRECT LABOR

labor costs that can be easily traced to individual units of product

ACCOUNTING

planning, recording, analyzing, and interpreting financial information

LINE POSITIONS

positions that have direct responsibility for the basic objectives of an organization, directly involved in the company's primary revenue-generating operating activities. - Examples of line positions include the vice president of operations, vice president of marketing, plant managers, supervisors, and production personnel.

Manufacturing overhead. product or period cost?

product