Study Guides (238,612)
Canada (115,252)
York University (9,816)
Accounting (97)
ACTG 2020 (19)
Ben Kelly (2)


23 Pages
Unlock Document

York University
ACTG 2020
Ben Kelly

ACTG2020   Midterm  Notes   Jessica  Gahtan   Table  of  Contents   Chapter 1: Managerial Accounting And The Business Environment ...............................................2   Chapter 2: Cost Terms, Concepts, And Classifications ...................................................................7   Chapter 3: System Design: Job -Order Costing .............................................................................12   Chapter 5: ABC- A Tool to Aid Decision Making ...........................................................................15   Chapter 6: Cost Behaviour – Analysis & Use ................................................................................18   Chapter 7: Cost-Volume-Profit Relationships................................................................................20       Page  1   ACTG2020   Midterm  Notes   Jessica  Gahtan   Chapter 1: Managerial Accounting And The Business Environment The Role Of Management Accounting In Value Creation -­‐ Managerial  Accounting  is  concerned  with  providing  information  to  managers  for  use  in  planning  and   controlling  operations  and  for  decision  making   -­‐ Financial  Accounting  is  concerned  with  providing  information  to  shareholders,  creditors,  and  others   outside  the  organization   The Work Of Managers And Their Need For Managerial Accounting Information -­‐ Managers  carry  out  three  activities:   1. Planning  –  Developing  objectives  and  preparing  budgets  to  achieve  these  objectives   2. Directing  and  motivating  –  Mobilizing  people  to  carry  out  plans  and  run  routine  ops   3. Controlling  –  ensuring  that  the  plan  is  actually  carried  out  and  is  appropri ately  modified   as  circumstances  change   -­‐ Having  a  good  strategy  (aka  ‘gameplan’)  helps  companies  attract  and  retain  customers  by   distinguishing  it  from  competitors   –  focal  point  of  the  company’s  strategy  should  be  to  attract   customers     -­‐ Customer  value  proposition  basically  says  this  is  why  you  should  choose  us  over  our  competitors   Planning -­‐ Identify  alternatives  and  select  the  one  that  best  meets  the  org’s  objectives   -­‐ When  making  choices,  mgmt.  must  balance  demands  and  the  resources  that  the  company  has   -­‐ Budget  is  a  quantitative  plan  for  the  acquisition  and  use  of  financial  and  other  resources  over  a   specified  future  period   -­‐ Controller  is  the  manager  in  charge  of  the  accounting  department  in  an  org   Directing And Motivating -­‐ Managers  assign  tasks  to  employees,  arbitr ate  disputes,  answer  questions,  solve  on -­‐the-­‐spot   problems,  and  make  many  small  decisions  that  affect  customers  and  employees   -­‐ Deals  with  the  routine  and  the  here  &  now   Controlling -­‐ Control  refers  to  those  steps  taken  by  mgmt.  that  attempt  to  increase  the  li kelihood  that  the   objectives  developed  at  the  planning  stage  are  attained  at  to  ensure  that  all  parts  of  the  org   function  in  a  manner  consistent  with  org  policies   -­‐ Feedback  refers  to  the  accounting  and  other  reports  that  help  managers  monitor  performance   and  focus  on  problems  and/or  opportunities  that  might  otherwise  go  unnoticed   -­‐ Performance  report  is  a  detailed  report  comparing  budgeted  data  to  actual  data   The Planning And Control Cycle -­‐ Planning  and  control  cycle  refers  to  the  flow  of  management  activities  through  planning,   directing  and  motivating,  and  controlling,  and  then  back  to  planning  again   - Mgmt.  accounting  can  serve  the  info  needs  of  managers  at  all  phases  of  the  planning  and  control   cycle   - E.g.  detailed  reports  that  managers  need  to  make  day -­‐to-­‐day  and  long-­‐term  decisions,  prepare   budgets  to  help  direct  resources  toward  the  org’s  goals;  later,  actuals  vs.  projected  figures  can  be   compared,  and  reports  created  that  inform  mgmt.  about  significant  variances  from  the  budget     Questions  the  management  accou nting  can  answer:   - How  much  does  it  cost  to  provide  a  particular  g/s?   - How  do  costs  behave  when  the  company  operates  at  diff.  levels  of  activity?   - How  can  a  company  reduce  costs  to  help  improve  profitability?   - How  many  units  must  be  sold  to  break  even?   - What  will  the  company’s  budget  look  like  at  a  different  forecasted  level  of  activity?   - Should  the  company  add  or  drop  a  product  line?   Page  2   ACTG2020   Midterm  Notes   Jessica  Gahtan   - Should  the  company  outsource  some  of  its  ops?   - How  should  mgmt.  choose  when  selecting  among  competing  investment  proposals?   - In  what  new  projects  should  the  company  invest  and  what  projects  should  be  abandoned?   The Business Plan - It  is  how  new  businesses  often  formalize  their  strategic  planning   - Consists  of  info  about  the  company’s  basic  product  or  service,  steps  it  will  take  to  reach  it s  potential   market   - The  actual  length  of  the  business  plan  process  varies  with  the  nature  and  complexity  of  the  venture,   could  span  from  a  few  weeks  to  more  than  several  months   - Though  some  steps  clearly  come  before  others,  the  process  isn’t  entirely  linear   - Development  of  the  business  plan  is  an  interactive  process   - Today’s  dynamic  and  complex  business  environment -­‐  it  must  be  flexible  enough  to  respond  to  market   changes  that  require  new  estimates  and  forecasts   - To  be  effective-­‐  it  should  encourage  a  shared  vision  w/  clear  targets  and  well -­‐defined  performance   measures   - Knowledgeable  person  should  write  it   Comparison Of Financial And Managerial Accounting   Financial Managerial - Reports  to  those  outside  the  org  (owners,   - Reports  to  those  inside  the  org  (for  planning,   creditors,  tax  authorities,  regulators)   directing  and  motivating,  controlling,   - Emphasizes  financial  consequences  of  past   performance  evaluation)   activities   - Emphasizes  decisions  affecting  the  future   - Emphasized  objectivity  and  verifiability     - Emphasizes  relevance   - Emphasizes  precision   - Emphasizes  timeliness   - Emphasizes  summary  data  concerning  the   - Emphasizes  detailed  segment*  reports  about   entire  org   departments,  products,  and  customers   - Must  follow  GAAP   - Need  not  follow  GAAP   - Mandatory  for  external  reports   - Not  mandatory     *Segment-­‐  part  of  the  company;  any  part  of  an  org  that  can  be  evaluated  independently  of  other  parts   and  about  which  the  manager  seeks  financial  data   Organizational Structure Decentralization Decentralization  is  the  delegation  of  decision  making  throughout  an  organization  by  providing  managers   at  various  operating  levels  with  the  authority  to  make  key  decisions  relating  to  their  areas  of  responsibility   - Companies  differ  in  their  degree  of  decentralization   Organizational  chart  is  a  diagram  of  a  firm’s  organizational  structure  that  depicts  formal  lines  of   reporting,  communication,  and  responsibility  between  managers   - Informal  relationships  and  channels  of  communication  often  develop  outside  formal  reporting   relationships  on  the  org  chart  as  a  result  of  p ersonal  contacts  b/w  managers -­‐  they  don’t  appear  on   the  org  chart  but  are  vital  for  effective  ops   Line And Staff Relationships Line  position  is  a  job  position  that  is  directly  related  to  the  achievement  of  the  org’s  basic  objectives   Staff  position  is  a  job  position  that  is  only  indirectly  related  to  the  achievement  of  the  org’s  basic   objectives.  Such  positions  are  supportive  in  nature  in  that  they  provide  service  or  assistance  to  line   positions  or  to  other  staff  positions   - Both  line  and  staff  managers  have  a uthority  over  the  employees  in  their  own  departments   Page  3   ACTG2020   Midterm  Notes   Jessica  Gahtan     The Controller - Manager  in  charge  of  the  accounting  department   - Reports  to  the  CFO   - CFO  and  controller  both  have  staff  positions   - CFO  is  the  member  of  top  mgmt.  team  who  is  given  the  responsibility  of  provi ding  relevant  and  timely   data  to  support  planning  and  control  activities  and  of  preparing  financial  statements  for  external   users   - Controller  is  responsible  for  the  technical  details  of  actg.  and  finance,  provides  leadership  to  other   professionals  in  his  or  her  dept.,  and  analyzes  new  and  evolving  situations;  an  effective  controller  is   able  to  work  well  with  top  managers  from  other  disciplines  and  can  communicate  technical  info  in  a   simple  and  clear  manner;  much  of  their  responsibility  involves  consulting  an d  business  analysis     The Professional Management Accountant - Management  accounting  isn’t  subject  to  the  type  of  regulation  that’s  evident  for  financial  accounting   - CMA  Canada  issues  management  accounting  guidelines  and  management  accounting  practice   statements  on  fundamental  areas  of  practice -­‐  adherence  is  voluntary  but  widely  accepted   - There  are  78  guidelines  and  49  management  actg.  practice  statements;  the  difference  between   practice  statements  and  guidelines  is  that  practice  statements  are  more  prescriptive  in  nature  and   contain  less  background  discussion  and  research  than  guidelines   Professional Ethics - Ethics  are  important  because  they  help  keep  economies  operating  efficiently   - In  the  long  run,  business  ethics  should  be  taken  seriously  because  the  survival  o f  the  company  may   depend  on  the  level  of  trust  held  by  its  stakeholders   - Accounting  groups  must  operate  according  to  the  laws  of  the  country,  using  its  code  of  ethics  as  an   operating  guideline-­‐  typically  these  codes  contain  details  about  how  members  should   conduct   themselves  (in  dealings  with  the  public,  their  association,  and  other  members) -­‐  i.e.  competence,   integrity,  confidentiality,  objectivity   - Informal  relationships  and  activities  must  be  focused  on  the  achievement  of  the  objectives  of  a  wide   group  of  people  known  as  stakeholders   Stakeholders  are  people  within  and  outside  the  organization  who  have  an  interest  in  the  activities  of  the   org   - An  organization’s  code  of  ethics  reflects  its  values  and  moral  system   Corporate Governance Corporate  governance  is  the  system  by  which  a  company  is  directed  and  controlled   - If  it’s  effective,  it  will  enhance  shareholders’  confidence  that  the  company  is  being  run  in  their  best   interests  rather  than  in  the  interests  of  top  managers;  should  also  protect  the  interests  of  other   stakeholders-­‐  customers,  suppliers,  employees,  communities  in  which  it  operates   - The  Sarbanes-­‐Oxley  Act  of  2002  was  the  U.S.  responding  to  the  accounting  scandals  and  trying  to   reform  the  existing  corporate  governance  system   Corporate Social Responsibility Corporate  Social  Responsibility  (CSR)  is  a  concept  whereby  orgs  consider  the  needs  of  all  stakeholders   when  making  decisions   - Company’s  social  performance  can  impact  its  financial  performance   Process Management - Companies  are  realizing  that  they  must  comple ment  the  functional  view  of  their  ops  with  a  cross -­‐ functional  orientation  that  seeks  to  improve  the  business  processes  that  deliver  customer  value   Business  process  is  a  series  of  steps  that  are  followed  in  order  to  carry  out  some  task  in  a  business   Value  chain  consists  of  the  major  business  functions  that  add  value  to  a  company’s  products  and  services     Page  4   ACTG2020   Midterm  Notes   Jessica  Gahtan   Business  Functions  Making  up  the  Value  Chain:   Product Customer R & D▯ Design▯ Manufacturing▯ Marketing▯ Distribution▯ Service▯   Lean Production - Traditionally  manufacturing  companies  have  sought  to  maximize  production   –  so  that  they  can   spread  the  costs  of  investments  in  equipment  over  as  many  units  as  possible;  work  is  pushed  through   as  system  in  order  to  product  as  much  as  possible  and  to  keep  everyone  busy -­‐  even  if  products  can’t   be  sold  immediately;  if  finished  goods  are  produced  faste r  than  the  market  will  absorb  them-­‐  the   result  is  high  levels  of  finished  goods  inventories   Raw  materials  are  materials  that  are  used  to  make  a  product   Work-­‐in-­‐progress  are  inventories  consisting  of  units  of  product  that  are  only  partially  complete  and  wil l   require  further  work  before  they’re  ready  for  sale  to  a  customer   Finished  goods  are  inventories  consisting  of  units  of  product  that  have  been  completed  but  haven’t  been   sold  to  customers  yet     Cons  to  maintaining  large  inventories   - Ties  up  money   - Encourages  inefficient  and  sloppy  work-­‐  Results  in  too  many  defects   - Increases  the  amount  of  time  required  to  complete  a  product  (units  may  be  obsolete  or  out  of   fashion  by  the  time  they’re  completed)       THE LEAN THINKING MODEL Lean  thinking  model  is  a  five-­‐step  management  approach  that  organizes  resources  around  the  flow  of   business  processes  and  pulls  units  through  in  response  to  customer  orders   - Results  in:  lower  inventories,  fewer  defects,  less  wasted  effort,  quicker  customer  response  times   Step 3: Organize Step 4: Create a pull Step 5: Step 1: Identify value in business processesthe around the flow of system that Continuously pursue specific products/ services▯ that deliver value▯ the business responds to perfection in the process▯ customer orders▯ business process▯   - Step  3  if  often  accomplished  by  creating  a  manufacturing  cell-­‐  the  cellular  approach  takes  employees   and  equipment  from  departments  that  were  previously  separated  from  one  another  and  places  them   side  by  side  in  a  work  space  called  a  cell.  The  equipment  within  a  cell  is  aligned   in  a  sequential   manner  that  follows  the  steps  of  the  business  process -­‐  each  employee  is  trained  to  perform  all  the   steps  within  his  or  her  own  manufacturing  cell   Just-­‐in-­‐time  (JIT)  production  is  a  pull  system  in  the  lean  thinking  model  where  production  is   not  initiated   until  a  customer  has  ordered  a  product   - Profound  change  from  push  to  pull -­‐  means  workers  might  be  idle  whenever  demand  falls  below  the   company’s  production  capacity-­‐  difficult  cultural  change  for  an  org -­‐  it  challenges  the  core  beliefs  of   many  managers  and  raises  anxieties  in  workers  who  have  become  accustomed  to  being  kept  busy  all   the  time   - The  company’s  suppliers  are  responsible  for  the  quality  of  incoming  parts  and  materials -­‐  the   company’s  production  workers  are  directly  responsible  for  spott ing  defects-­‐  a  worker  who  discovers  a   defect  immediately  stops  the  flow  of  production -­‐  and  supervisors  go  to  the  cell  to  determine  the   cause  of  the  problem-­‐  &  correct  if  before  any  further  defective  units  are  produced   Supply  chain  management  is  the  coordination  of  business  processes  across  companies  to  better  serve   end  consumers   Page  5   ACTG2020   Midterm  Notes   Jessica  Gahtan   Six Sigma Six  sigma  is  a  process  improvement  method  that  relies  on  customer  feedback  and  fact -­‐based  data   gathering  and  analysis  techniques  to  drive  process  improvement   - Generates  no  more  than  3.4  defects  per  million  opportunities       Stage   Goals   Define   Establish  the  scope  and  purpose  of  the  project   Diagram  the  flow  of  current  process   Establish  the  customer’s  requirements  for  the  process   Measure   Gather  base-­‐line  performance  data  related  to  the  existing  process   Narrow  the  scope  of  the  project  to  the  most  important  problems   Analyze   Identify  the  root  cause(s)  of  the  problems  identified  in  the  Measure  stage   Improve   Develop,  evaluate,  and  implement  solutions  to  the  problems   Control   Ensure  that  problems  remain  fixed   Seek  to  improve  the  new  methods  over  time     - Managers  must  be  careful  when  attempting  to  translate  six  sigma  improvements  into  financial   benefits-­‐  there  are  only  two  ways  to  increase  profits -­‐  decrease  costs  or  increase  sales   - Should  use  six  sigma  to  generate  more  business  rather  than  to  cut  the  workforce   Enterprise Systems Enterprise  system  is  a  software  system  designed  to  overcome  problems  in  data  inconsistency  and   duplication  by  integrating  data  across  an  org  into  a  single  softwa re  system   Two keys to the data integration inherent in an enterprise system: 1. All  data  are  recorded  only  once  in  the  company’s  centralized  digital  data  repository  known  as  a   database.  When  data  are  added/  changed,  the  new  info  is  simultaneously  and  immediat ely   available  to  everyone  across  the  org   2. Unique  data  elements  contained  within  the  database  can  be  linked  together;  the  ability  to  forge   such  relationships  among  data  elements  explains  why  this  type  of  database  is  called  a   relational   database     - Data  integration  helps  employees  communicate  with  one  another  and  it  also  helps  them   communicate  with  their  suppliers  and  customers   - Although  data  integration  is  risky  and  expensive  to  install -­‐  the  benefits  of  data  integration  have   led  many  companies  to  invest  in  enterprise  systems   Enterprise Risk Management - Some  risks  are  foreseeable  and  others  aren’t   Enterprise  risk  management  is  a  process  used  by  a  company  to  proactively  identify  and  manage   foreseeable  risks   IDENTIFYING AND CONTROLLING BUSINESS RISKS - Companies  should  identify  foreseeable  risks  before  they  occur  rather  than  react  to  unfortunate   events  that  have  already  happened   - If  the  risks  are  not  managed  effectively,  they  can  impair  a  company’s  ability  to  meet  its  goals   - Once  a  company  identifies  its  risks,  it  can  res pond  to  them  in  various  ways -­‐  like  accepting,   avoiding,  sharing  or  reducing  the  risk   - Even  sophisticated  enterprise  risk  management  can’t  guarantee  that  ALL  risks  are  eliminated   See  page  22  for  a  table  identifying  business  risks  and  ways  to  control  them           Page  6   ACTG2020   Midterm  Notes   Jessica  Gahtan   Chapter 2: Cost Terms, Concepts, And Classifications General Cost Classifications Manufacturing - Companies  generally  classify  manufacturing  costs  into  3  categories:  Direct  materials,  Direct   labour,  Manufacturing  overhead   Direct Materials Direct  materials  are  those  materials  that  become  an  integral  part  of  a  finished  product  and  can  be   conveniently  traced  to  it   - Raw  materials  (=  any  materials  used  in  the  final  product,  and  the  finished  product  of  one   company  can  be  the  raw  materials  of  another;  includes  direc t  and  indirect  materials)   Indirect  materials  are  small  items  of  material  such  as  glue  and  nails  that  may  become  an  integral  part  of  a   finished  product  but  the  costs  of  tracing  them  exceed  the  benefits   Direct Labour Direct  labour  is  that  factory  labour  costs  that  can  be  traced  easily  to  individual  units  of  product -­‐  also   called  touch  labor   Indirect  labour  is  the  labor  costs  of  janitors,  supervisors,  materials  for  handlers,  and  other  factory  workers   that  can’t  be  conveniently  traced  directly  to  particular  pro ducts   Manufacturing Overhead Manufacturing  overhead  (aka  indirect  manufacturing  cost,  factory  overhead,  factory  burden)  all  costs   associated  with  manufacturing  except  direct  materials  and  direct  labour;  includes  items  like  indirect   materials,  indirect  labo ur,  maintenance  and  repairs  on  production  equipment,  head  and  lighting,  property   taxes,  depreciation,  insurance  on  manufacturing  facilities     Conversion  cost  =  Direct  labour  +  manufacturing  overhead   Prime  cost  =  Direct  materials  +  direct  labour     - Proportion  of  labour  to  overhead  varies  from  company  to  company  and  even  across  companies   within  the  same  industry   - How  orgs  determine  their  relative  proportions  of  materials,  direct  labor,  and  overhead  is  a   significant  component  of  strategic  cost  management   Classification Of Labor Costs Of Manufacturing - Classifying  direct  and  indirect  labor  costs  is  pretty  straightforward   - More  difficult  to  appropriately  classify  idle  time  and  overtime  premiums  of  production  workers     Overtime  premium  is  the  extra  hourly  wage  rate  paid  to  workers  who  must  work  above  their  normal  time   requirements     - Classification  of  the  overtime  as  direct  labor  or  overhead  depends  on  the  cause  of  the  overtime -­‐   a  job-­‐specific  reason  (e.g.,  a  rush  order)  would  dictate  a  direct  job  cost;  a  normal  overtime  co st   resulting  from  general  conditions  (i.e.  peak  production  needs)  would  dictate  an  overhead   (indirect)  charge  to  all  jobs  completed  during  that  period   Non-Manufacturing Costs Marketing  or  selling  costs  (aka  order-­‐getting  and  order-­‐filling  costs)  are  all  costs  necessary  to  secure   customer  orders,  and  get  the  finished  product  or  service  to  the  customer     - Order-­‐getting  examples:  advertising,  sales  travel  and  sales  salaries   - Order-­‐filling  cost  examples:  shipping,  sales  commissions,  costs  of  finished  goods  warehou ses   Administrative  costs  are  all  executive,  organizational,  and  clerical  costs  associated  with  the  general   management  of  an  org  rather  than  with  marketing,  manufacturing  or  selling   - Executive  compensation,  accounting,  secretarial,  public  relations,  and  simi lar  costs  involved  in   the  overall,  general  administration  of  the  org  as  a   whole   Page  7   ACTG2020   Midterm  Notes   Jessica  Gahtan     - Service  orgs  are  making  increased  use  of  cost  concepts  in  analyzing  and  costing  their  services   Product Costs Vs. Period Costs - The  matching  principle  is  based  on  the  accrual  co ncept  and  states  that  costs  incurred  to  generate   a  particular  revenue  should  be  recognized  in  the  same  period  that  the  revenue  is  recognized   Product Costs Product  costs  (or  Inventoriable  costs)  are  all  costs  that  are  involved  in  the  purchase  or  manufacture  of   goods-­‐  in  the  case  of  manufactured  goods,  these  costs  consist  of  direct  materials,  direct  labour,  and   manufacturing  overhead   - They  ‘attach’  to  units  of  product   - Product  costs  aren’t  necessarily  treated  as  expenses  in  the  period  in  which  they’re  incurred -­‐   they’re  treated  as  expenses  in  the  period  in  which  the  related  products  are  sold   Period Costs Period  costs  are  those  costs  that  are  taken  directly  to  the  I/S  as  expenses  in  the  period  in  which  they’re   incurred  or  accrued;  such  costs  consist  of  selling  (ma rketing)  and  administrative  expenses   - Like  advertising,  executive  salaries,  public  relations,  other  non -­‐manufacturing  costs   - Careful  analysis  of  the  purpose  of  a  cost -­‐  necessary  to  separate  period  and  product  costs     Cost Classifications On Financial Statemen ts - The  production  process  in  a  manufacturing  company  makes  their  financial  statements  more   complex  than  those  of  merchandising  companies   The Balance Sheet - Or  statement  of  financial  position   - There  are  differences  in  the  inventory  accounts  (between  manufact uring  and  merchandising   companies)   - Merchandising  company -­‐  one  class  of  inventory-­‐  goods  purchased  from  suppliers  that  are   awaiting  resale   - Manufacturing  company -­‐  3  class-­‐  raw  (direct)  materials,  work-­‐in-­‐progress,  finished  goods   - Typically  only  the  sum  of  the  3  categories  of  inventory  is  shown  on  the  b/s  of  external  reports -­‐   however,  footnotes  to  the  f/s  often  provide  more  detail  about  the  amounts  in  each  category   The Income Statement Basic equation for inventory accounts: 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔  𝐵𝑎𝑙𝑎𝑛𝑐𝑒 + 𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑠  𝑡𝑜  𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝑒𝑛𝑑𝑖𝑛𝑔  𝑏𝑎𝑙𝑎𝑛𝑐𝑒 + 𝑤𝑖𝑡ℎ𝑑𝑟𝑎𝑤𝑎𝑙𝑠  𝑓𝑟𝑜𝑚  𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦   Cost of Goods Sold in a Merchandising Company: 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔  𝑏𝑎𝑙𝑎𝑛𝑐𝑒  𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 = 𝑒𝑛𝑑𝑖𝑛𝑔  𝑚𝑒𝑟𝑐ℎ𝑎𝑛𝑑𝑖𝑠𝑒  𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑐𝑜𝑠𝑡  𝑜𝑓  𝑔𝑜𝑜𝑑𝑠  𝑠𝑜𝑙𝑑   OR   𝐶𝑜𝑠𝑡  𝑜𝑓  𝐺𝑜𝑜𝑑𝑠  𝑠𝑜𝑙𝑑 = 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔  𝑚𝑒𝑟𝑐ℎ𝑎𝑛𝑑𝑖𝑠𝑒  𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 − 𝑒𝑛𝑑𝑖𝑛𝑔  𝑚𝑒𝑟𝑐ℎ𝑎𝑛𝑑𝑖𝑠𝑒  𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦   Cost of Goods Sold in a Manufacturing Company: 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔  𝑓𝑖𝑛𝑖𝑠ℎ𝑒𝑑  𝑔𝑜𝑜𝑑𝑠  𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑐𝑜𝑠𝑡  𝑜𝑓  𝑔𝑜𝑜𝑑𝑠  𝑚𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑒𝑑 = 𝑒𝑛𝑑𝑖𝑛𝑔  𝑓𝑖𝑛𝑖𝑠ℎ𝑒𝑑  𝑔𝑜𝑜𝑑𝑠  𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑐𝑜𝑠𝑡  𝑜𝑓  𝑔𝑜𝑜𝑑𝑠  𝑠𝑜𝑙𝑑   OR   𝐶𝑜𝑠𝑡  𝑜𝑓  𝑔𝑜𝑜𝑑𝑠  𝑠𝑜𝑙𝑑 = 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔  𝑓𝑖𝑛𝑖𝑠ℎ𝑒𝑑  𝑔𝑜𝑜𝑑𝑠  𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑐𝑜𝑠𝑡  𝑜𝑓  𝑔𝑜𝑜𝑑𝑠  𝑚𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑒𝑑 − 𝑒𝑛𝑑𝑖𝑛𝑔  𝑓𝑖𝑛𝑖𝑠ℎ𝑒𝑑  𝑔𝑜𝑜𝑑𝑠  𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦   Page  8   ACTG2020   Midterm  Notes   Jessica  Gahtan   Cost  of  goods  manufactured   is  the  costs  that  include  the  direct  materials,  direct  labour,  and   manufacturing  overhead  used  for  the  products  finished  during  the  period  (E.g.  schedule  on  page  39)   Schedule Of Cost Of Goods Manufactured Schedule  of  cost  of  goods  manufactured  is  a  schedule  showing  the  direct  materials,  direct  labour,  and   manufacturing  overhead  costs  incurred  for  a  period  and  assigned  to  work  in  process  and  completed  goods   Total  manufacturing  costs  are  costs  that  represent  the  direct  materials,  direct  labour,  and  manufacturi ng   overhead  used  to  perform  the  production  work  for  finished  or  unfinished  products  for  the  period   - Subtle  difference  between  total  manufacturing  cost  and  the  cost  of  goods  manufactured  is  very   easy  to  miss-­‐  some  of  the  materials,  direct  labor,  and  manufact uring  overhead  costs  incurred   during  the  period  relate  to  goods  that  are  not  yet  completed -­‐  consequently  adjustments  need  to   be  made  to  the  total  manufacturing  costs  of  the  period  for  the  partially  completed  goods  that   were  in  process  at  the  beginning  and   at  the  end  of  the  period   Product Costs – A Closer Look                                   Inventoriable Costs - These  costs  go  directly  into  inventory  accounts  as  they’re  incurred,  rather  than  going  into   expense  accounts   - Such  costs  can  end  up  on  the  b/s  as  assets  if  goods  a re  only  partially  completed  or  are  unsold  at   the  end  of  the  period     Summary  of  Cost  Classifications:                           Page  9   ACTG2020   Midterm  Notes   Jessica  Gahtan     Cost Classifications For Predicting Cost Behavior Cost  behavior  is  the  way  in  which  a  cost  reacts  or  responds  to  changes  in  the  level  of  activ ity                               Variable Cost Variable  cost  is  a  cost  that  varies,  in  total,  in  direct  proportion  to  changes  in  the  level  of  activity.  A   Variable  cost  is  constant  per  unit.   - When  we  say  a  cost  is  variable,  we  usually  mean  that  it’s  variable  with  respect   to  the  products   and  services  the  org  produces;  costs  can  be  variable  with  respect  to  other  activities  (i.e.  hours  of   operation)   Fixed Cost Fixed  cost  is  a  cost  that  remains  constant,  in  total,  regardless  of  changes  in  the  level  of  activity  within  the   relevant  range.  If  a  fixed  cost  is  expressed  on  a  per  unit  basis -­‐  it  varies  inversely  with  the  level  of  activity   (e.g.  straight-­‐line  depreciation,  insurance,  property  taxes,  rent,  supervisory  salaries,  administrative   salaries  and  advertising)   Relevant  range  is  the  range  of  activity  within  which  the  assumptions  about  variable  and  fixed  costs  are   valid     - Fixed  costs  can  create  confusion  if  they’re  expressed  on  a  per  unit  basis  b/c  the  average  fixed   cost  per  unit  increases  and  decreases  inversely  with  changes  in  act ivity   Mixed  cost  is  a  cost  that  contains  both  variable  and  fixed  cost  elements                   Cost Classifications For Assigning Costs To Cost Objects Cost  object  is  anything  for  which  cost  data  are  desired   Direct Cost Direct  cost  is  a  cost  that  can  be  easily  and  conveniently  traced  to  the  particular  cost  object  under   consideration   Indirect Cost Indirect  cost  is  a  cost  that  can’t  be  easily  and  conveniently  traced  to  the  particular  cost  object  under   consideration     Page  10   ACTG2020   Midterm  Notes   Jessica  Gahtan   Common  cost  is  a  cost  that  is  incurred  to  support  a  number  of  cost  objects  but  can’t  be  traced  to  them   individually   - A  cost  may  be  direct  or  indirect,  depending  on  the  cost  object   Cost Classifications For Decision Making Differential Cost And Revenue Differential  cost  is  a  difference  in  cost  b/w  any  two  alternatives   Differential  revenue  is  a  difference  in  revenue  b/w  any  two  alternatives   Incremental  cost  is  an  increase  in  cost  between  any  two  alternatives  (decreases  in  cost  should  be  called  a   decremental  cost)     - Differential  cost  is  a  broader  term  than  incre mental  cost,  it  encompasses  both  cost  increases   (incremental  costs)  and  cost  decreases  (decremental  costs)  between  two  alternatives   - Marginal  revenue-­‐  revenue  obtained  from  producing  one  more  unit  of  a  product   - Marginal  cost-­‐  cost  associated  with  producing  one  more  unit  of  a  product   - Economist’s  marginal  concept  is  basically  the  same  as  the  accountant’s  differential  concept   applied  to  a  single  unit  of  output   - Differential  costs  can  be  either  fixed  or  variable   - Only  differences  b/w  alternatives  are  relevant  in  de cisions-­‐  items  that  are  the  same  under  all   alternatives  and  that  aren’t  affected  by  the  decisions  can  be  ignored   Opportunity Cost Opportunity  cost  is  the  potential  benefit  that  is  given  up  when  one  alternative  is  selected  over  another   - Not  entered  into  accounting  records  of  an  org,  but  they  are  costs  that  must  be  explicitly   considered  in  every  decision  that  a  manager  makes   Sunk Cost Sunk  cost  is  any  cost  that  has  already  been  incurred  and  that  can’t  be  changed  by  any  decision  made  now   or  in  the  future                     Page  11   ACTG2020   Midterm  Notes  
More Less

Related notes for ACTG 2020

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.