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MSU ACC 211 - Exam 1 Study Guide

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ACC 211 1st Edition Exam # 1 Study GuideTest 1 Chapter 1-4Chapter 1 Introduction to Managerial AccountingManagers’ Responsibilities 1. Planninga. Setting goals and objectives and how to achieve themb. Example: Generate more sales via opening new stores2. Directinga. Overseeingb. Example: Using daily/weekly sales reports to adjust marketing strategies3. Controllinga. Evaluating results of operations against plans and making adjustments as neededb. Example: Comparing budgeted sales with actual sales to take corrective actionsBasic Accounting TermsInstitute of Management Accountants (IMA)- Professional association for management accountants - Functions: Certification (CMA), Networking, public education, etc.Extensible Business Reporting Language (XBRL)- Standardized tagging system for financial reportsTriple Bottom Line- Profit, People, PlanetEnterprise Resource Planning (ERP)- System that integrates a company’s functions, departments, and dataLean Operations- A philosophy and business strategy of manufacturing without wasteJust in Time (JIT)- Manufacture “just in time” to fill orders1Total Quality Management (TQM)- Goal to provide customers with superior products and servicesChapter 2 Building Blocks of Managerial AccountingThree types of companies1. Service Company- No inventorya. Example: Accountants2. Merchandisers- One inventorya. Example: Amazon.com3. Manufacturers- Three inventoriesa. Raw materials, Work in Process, Finished Goodsb. Example: Crayola CrayonsVALUE CHAINR&D Design  Production/Purchases MarketingDistributionCustomer ServiceCOST OBJECTDirect Cost: A cost that can be conveniently and easily TRACED to the cost objectEx: The wages of factory workersIndirect Cost: A cost that cannot be conveniently and easily traced to the cost object andtherefore must be ALLOCATED to the cost objectEx: The cost of National AdvertisingPRODUCT COSTCosts that are attached to the product; Inventoriable Costs Value Chain: Production/PurchasesProduct Costs for a Merchandiser:1. Purchase price from suppliers2. Cost to get ready for sale3. Freight-in4. Import duties or tariffsProduct Costs for a Manufacturer21. Direct Materials (Direct Costs)2. Direct Labor (Direct Costs)3. Manufacturing Overhead (Indirect Costs)a. Indirect Materialsi. Sand paper to smootheb. Indirect Labori. Computer techsc. Other Indirect Manufacturing Overheadi. Utilities on the factoryPERIOD COSTSConnected to a period of timeValue Chain: R&D, Design, Marketing, Distribution, Customer ServicePrime CostDirect Materials and Direct LaborConversion CostDirect Labor and Manufacturing Overhead INCOME STATEMENTSService CompanyMerchandiser Company3Service Revenues – Operating Expenses= Operating IncomeSales – Cost of goods sold= Gross Profit – Operating Expenses= Operating incomeCost of Goods Sold Calculation (Merchandiser) Manufacturer Cost of Goods Manufactured4BEGINNING INVENTORY+ PURCHASES+ IMPORT DUTIES OR TARIFFS+ FREIGHT IN= COST OF GOOD AVAILABLE FOR SALEENDING GOODS INVENTORY= Cost of goods soldBEGINNING WORK IN PROCESS INVENTORY+ DIRECT MATERIAL USED+DIRECT LABORSales – Cost of goods sold= Gross Profit – Operating expenses= Operating IncomeBeginning Work in Process InventoryDirect Materials UsedDirect LaborManufacturing Overhead= Total manufacturing costs to account for- Ending work in process inventory= Costs of good manufacturedDirect Materials Used CalculationCosts of Goods Sold (Manufacturer) Different types of costControllable costManagement CAN influence or change costUncontrollableManagement CANNOT change or influence cost in the short runRelevantFuture costs AND differential costs, which are costs that differ between alternatives5Beginning raw materials inventoryPurchases of raw materialsFreight in= Materials available for use- Ending raw materials inventory= Raw materials used- Indirect materials used= Direct Materials usedBeginning finished goods inventoryCosts of good manufactured= Costs of goods available for sale- Ending finished goods inventory= Cost of goods soldEx: The cost of insurance IrrelevantCosts which do not differ between alternatives or Sunk costs- Costs incurred in the past which cannot be changedEx: The cost of old carpet Marginal Cost of making one more unitCost behaviorVariable Cost-Per Unit is fixedFixed Cost- Per unit is fluctuatingTOTAL COST = Fixed costs / (Variable cost per unit * Number of Units)AVERAGE COSTTotal Cost / Number of units Chapter 3 Job CostingProcess CostingMass ProductionTotal costs are averaged over all unitsEx: Cereal manufacturersJob CostingUnique productsTotal costs are accumulated by jobEx: Custom home buildersFLOW OF PRODUCTION6Raw Materials  Work in Process  Finished Goods  Cost of Goods SoldStoreroom Production department Ready for Sale Sold Calculating Predetermined Manufacturing Overhead RatePOHR = Total estimated manufacturing overhead costs/ Total estimated amount of allocation baseThe best allocation base is cause/effect ALLOCATED MOH = POHR * mount of cost allocation activity usedEXAMPLEPOHR = $1,000,000 estimated overhead costs / 62500 direct labor hours= $16 per direct labor hoursUnderallocated or Overallocated Manufacturing OverheadUnderallocated (undercosted)Not enough allocated to jobsToo little expenseOverallocated (overcosting)Too much allocated to jobsToo much expenseSolutionsAdjust Cost of Goods SoldChapter 4 Activity- Based Costing, Lean Operations, and the Cost of QualityWhy refine?Mismatching resourcesNot accurateACTIVITY-BASED COSTING (ABC COSTING)7Allocates indirect costs to productionFocuses on activities and costs of activitiesSeparate allocation rate for each activityStep 1:Identify and estimate indirect costsStep 2-3:Compute cost allocation rate for each activityStep 4:Allocate some manufacturing overhead for each activity to the individual jobs that use the activities.Why Companies switch to ABC costingPricing and product mixCutting costsPlanning and


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