Managerial Accounting

Why is cost classification important to managers?

1) availability of financing 2)management motivation 3) income tax consideration

How are Managerial and Financial Different?

Financial accounting deals with regulated, historical, financial information that pertains to the whole company and is designed primarily to meet the information needs of outsiders. Managerial accounting is concerned with unregulated financial, economic, and nonfinancial data, which pertains more to the sub-units of the organization, that is current and future oriented, and that is designed primarily to meet the information needs of insiders.

What do both financial and managerial accountants need?

accountants need cost information about the company's products and services.

Costs

are assets used in the process of earning revenue but not all costs of the earning process are used in the same period in which they are incurred.

Managerial accounting

concerned with unregulated financial, economic, and nonfinancial data, which pertains more to the sub-units of the organization, that is current and future oriented, and that is designed primarily to meet the information needs of insiders.

What is used in the process of earning revenue and recorded as an expense?

cost

what is an indirect cost

cost cannot be easily or economically traced to a specific product.

Product cost

costs are all costs incurred to obtain a product or provide a service.

period costs

costs are all costs not associated with a product. They are associated with the general, selling, and administrative functions of the business and most are expensed in the period in which the associated economic sacrifice is made.

Financial accounting

deals with regulated, historical, financial information that pertains to the whole company and is designed primarily to meet the information needs of outsiders.

What is the just in time inventory system?

is a reengineering principle where inventory is made available for customer consumption at the time of customer demand.

cost allocation

is the process of dividing a total cost into parts and assigning the parts to relevant objects.

How has the management accountants responded to the need for high standards of ethical conduct in accounting?

issued a Statement of Ethical Professional Conduct.

What costs should be considered in determine sales price?

must include all costs associated with the product.

Products considered to be indirect?

production supplies, salaries of production supervisors, and depreciation, rent, and utilities on factory facilities.

value-added principle

that management accountants are free to engage in any information gathering and reporting activity so long as the activity adds value in excess of its cost. Estimates of future product costs are permissible in managerial accounting reports for budgeting and product costing but would not be allowed by financial regulations in financial accounting.

Common ethical conflicts in accounting?

(1) Pressure to perform duties for which they are not competently trained. (2) Pressure to disclose confidential information. (3) Pressure to engage in falsification, embezzlement, and bribery. (4) Pressure to issue misleading or incomplete reports.

The two dimensions of the TQM program are:

(1) management should follow a continuous, systematic problem solving philosophy that encourages achievement of zero defects in production and engages all employees to eliminate waste and errors and to simplify the design and delivery of products and services to customers, and (2) organizations need a strong commitment to customer satisfaction. TQM is being used in business to maintain profitability in an increasingly competitive global market. In this environment, profit margins are tight, and therefore, inefficiencies can more easily erode business profits. To eliminate waste, errors, and dissatisfied customers, information must be timely and relevant in order to prevent or discover and correct mistakes immediately.

How do product costs affect the financial statmetns?

Product costs associated with goods that have not been sold are recorded in the account called inventory. Inventory cost is shown on the balance sheet as an asset. The amount of total assets and net income will be higher if a product cost is classified as an asset than if it is expensed. Product cost associated with goods that have been sold should be recorded in the account called cost of goods sold. Cost of goods sold is an expense shown on the income statement. The amount of total assets and net income will be lower if a product cost is classified as an expense as opposed to being classified as an asset.

Why are salaries of production workers accumulated in an inventory account instead of being expensed on the income statment?

The cash paid to production workers has not been used to produce revenue but to produce inventory. The revenue is earned when the inventory is sold at which time the cost of salaries associated with those products sold should be expensed as cost of goods sold.