Managerial Accounting (COMM 112) Final Exam Review

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7 Apr 2013
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Managerial Accounting Final Exam Review
Shannon Bailey
Chapter 1
Managerial accounting the provision of accounting information ffor a company’s
internal users. Not bound by GAAP or IFRS, and has three objectives:
1. Provide info for planning the organization’s actions
2. Provide info for controlling the organization’s actions
3. Provide info for making effective decisions
Financial accounting primarily concerned with producing information for
external users, including investors, creditors, customers, suppliers, gov’t agencies
etc.
Total quality Management manufacturers strive to create an environment that
will enable workers to manufacture perfect (0 defect) products
Chapter 2
Cost the amount of cash or cash equivalent sacrificed for goods/services that are
expected to bring a current or future benefit to the organization
Expenses expired costs
Price revenue per unit
Accumulating costs the way that costs are measured and recorded
Assigning costs the way that a cost is linked o some cost object
Cost object any item such as a product, customer, dept., project, plant, etc for
which costs are measured and assigned
Direct costs those costs that can be easily and accurately traced to a cost object
Indirect costs costs that cannot be easily and accurately traced to a cost object
Allocation means that an indirect cost is assigned to a cost object by using a a
reasonable and convenient method
Variable cost one that increases in total as output increases and decreases in total
as output decreases
Fixed cost a cost that does not increase in total as output increases and odes not
decrease in total as output decreases
Opportunity cost the benefit given up or sacrificed when one alternative is
chosen over another, never included in accounting records
-manufacturing organizations produce products, service organizations provide
services
Direct materials (DM) those materials that are a part of the final product and can
be directly traced to the goods being produced. Must be easily
traceable/recognizable and reflect a significant portion of the total cost of the
product. i.e. glue used to produce a TV might be so small that should be allocated as
a factory OH cost
Direct labour (DL) the labour that can be directly traced to the goods being
produced. Must be easily traced to production and reflect a significant portion of
the total cost of the product
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Manufacturing overhead (MOH) costs that cannot be traced to the cost object of
interest, such as depreciation on buildings and equipment, janitorial and
maintenance labour, plant supervision, materials handling, power for plant utilities,
and plant property taxes
-total product cost = DM + DL + MOH
Prime cost = DM + DL
Conversion cost = DL + MOH
-the cost of converting raw materials into a final product
Period cost all costs that are not product costs, like the cost of office supplies, R &
D, selling & admin, CEO’s salary, and advertisements
-if a period cost is expected to provide an economic benefit beyond the next year, it
is recorded as an asset (capitalized) and allocated to expense through depreciation
throughout its useful life
Selling cost the costs necessary to market, distribute, and service a product or
service
Administrative costs all costs associated with R&D, and general admin of the
organization that cannot reasonably be assigned to selling or production
Materials inventory consists of the costs of the direct and indirect materials that
have not entered the manufacturing process
Work-in-process (WIP) inventory consists of the direct materials, direct labour,
and factory OH costs for products that have entered the manufacturing process but
are not yet completed, regardless of level of completion
Finished goods inventory consists of completed products that have not yet been
sold
Cost of goods manufactured the total cost of making products that are available
for sale during the period
Making a Statement of Cost of Goods Manufactured:
1. Determine the cost of direct materials used:
Materials inventory, Jan 1st 2012 $65 000
Plus materials purchased 100 000
Cost of goods available for use 165 000
Less materials inventory, Dec 31 2012 (45 000)
Cost of Direct Materials used $120 000
2. Determine the total manufacturing costs incurred:
Cost of direct materials used $120 000
All direct labour 210 000
All factory overhead 70 000
Total manufacturing costs incurred $400 000
3. Determine the cost of goods manufactured:
Total manufacturing costs incurred $400 000
WIP inventory, Jan 1st 2012 50 000
Total manufacturing costs 450 000
Less WIP inventory, Dec 31st 2012 (80 000)
Cost of goods manufactured $380 000
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Statement of Cost of Goods Manufactured
For the year ended December 31st, 2012
Materials inventory, Jan 1st 2012 $65 000
Plus materials purchased 100 000
Cost of goods available for use $165 000
Less materials inventory, Dec 31 2012 (45 000)
Cost of Direct Materials used $120 000
Plus direct labour 210 000
Plus factory overhead 70 000
Total manufacturing costs incurred $400 000
Plus WIP inventory, Jan 1st 2012 50 000
Total manufacturing costs $450 000
Less WIP inventory, Dec 31st 2012 (80 000)
Cost of goods manufactured $380 000
Beginning inventory of materials + purchases direct materials used in production
= ending inventory of materials
Gross margin the difference between sales revenue and cost of goods sold (gross
margin percentage = gross margin / sales revenue)
Chapter 3 Cost Behaviour
Cost behaviour the general term for describing whether a cost changes when the
level of output changes
Cost driver a causal measurement that causes costs to change
Relevant range the range of output over which the assumed cost relationship is
valid for the normal operations of a firm
Fixed costs costs that in total are constant within the relevant range as the level of
output increases or decreases. Unit fixed cost varies inversely with changes in
activity throughout relevant range
Discretionary fixed costs fixed costs that can be changed or avoided relatively
easily at management discretion i.e. advertising cost
Committed fixed costs fixed costs that cannot be easily changed, often involving a
long term contract i.e. leasing machinery, purchase of property
Variable costs costs that in total vary in direct proportion to changes in output
within the relevant range. Variable unit cost is fixed throughout relevant range.
Total variable costs = variable rate x amount of output
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