ACT 220 1st EditionExam # 1 Study Guide Chapters: 1,2 & 4Chapter 1: An Introduction to Managerial AccountingWho are the USERS of accounting information?External Users: Outside of the organizationa. Stockholders, potential investors, creditors, governmental taxing agencies, and regulators, suppliers, customersInternal Users: Inside the organizationa. Employees, teams, departments, regions, and top managementWhat are the differences between Managerial Accounting and Financial Accounting?Managerial Accounting includes: Internal users, provides relevant or useful data (quantitative and qualitative data), cost beneficial (helps manufacturers predict for the future to increase productivity), financial statements are Not mandatory (done as needed), these financial statements predict the future, statements are timely but less precise (you can estimate financial information but estimates are not precise), financial statements are segmented (organization is split into multiple departments to generate more accurate information).this type of accounting is done as needed (not mandatory), both quantitative and qualitative, relevant and useful today, predicts data for the future, it is quick and easy but less precise, segmented (the company is divided up into departments and information is compiled for each department).Financial Accounting includes: External users, information is objective and verifiable (the numbers in the statements are exact from the last period), measured with quantitative data, complies with GAAP (Generally Accepted Accounting Principals), statements are mandatory (legally) for publically-held firms, summarizes past information, summarizes data from the financial reporting period, less timely and more precise (you have to wait until the end of the financial period to see the data, but it is more precise because the numbers are actual rather than estimated), it is aggregate (meaning the statement summarizes for the entire firm rather than individual departments inside of the firm).What are the FOUR ways managers use Managerial accounting information?Planning: develops long-term and short-term objectives of an organization and identifiesthe resources needed to achieve objectivesOrganizing: arranging resources to achieve objectives (matching human activates and procedures with physical things)Directing: managing and monitoring day-to-day operations of a responsibility center (supervising, using financial information to authorize, adjust or troubleshooting)Controlling: Constantly motivating and monitoring of employees to keep a responsibilitycenter operating according to plan (comparing actual results with the planned and providing feedback from there); then start the process over.List the different types of department managers and think of a question they might ask concerning their productivity?Production Managers: Which products should we produce? Of those products how much should we produce?Marketing Mangers: How should products be distributed to each geographic region?Accounting/ Marketing/ Divisional Managers: Which product is most profitable annually? By region?Finance Managers: If we expanded or made a costly purchase, is this cost beneficial? How will we finance this decision?Information Systems/ Accounting Managers: What information is needed to make all these decisions?Accounting/ Production/ Marketing Managers: Should we outsource our packaging ordo it ourselves?Executive Mangers: Should we add new product lines?Economists: Do we have enough capacity to produce at optimal level or do we need to expand?Chapter 2: Managerial Accounting Concepts/ Job CostingList the three different types of companies, give an example of each, and the accounts they use.1. Manufacturing: HP, manufacturing companies use THREE different types of inventory accounts (raw materials inventory, work-in-process inventory, and finished goods inventory), because they are directly assembling the product.2. Merchandise/ Retail: Wal-Mart, they use merchandise inventory, because they sell merchandise to the public.3. Service: Any restaurant, they use labor-intensive (driven by labor) and limited inventory (food expires and also runs out quickly having to replenish constantly).****In this class we will focus on manufacturing companies (it will PRIMARILY be manufacturing companies for this test).****What is a cost?Cost: measure of resources used or given up to achieve a stated purpose. a. Costs are expensed on the income statement when they expire (meaning they lose the money at the time of the purchase)b. Costs are reported on the balance sheet when they provide a future benefit (meaning a cost is a decrease in assets so it will go on the balance sheet when we start earning that money back).Traditional costs are separated in two different categories. Describe these two categories and explain how they differ. 1. Product Costs: Product costs are defined as Manufacturing Costs (costs related to the production of goods). Product costs include: Direct Materials (DM), Direct labor (DL), and Overhead costs (OH). a. Product Costs = DM+DL+OH*** This sum helps manufacturers: decide price, determine profit margins, prepare budgets, and control internal costs***2. Period Costs: Period costs are defined as Non-Manufacturing Costs (costs NOT related to the production of goods. Period costs include: Selling, General and Administrative Costs (SGA)a. Period Costs = Selling Costs + General & Administrative Costs3. Differences: Product costs are EXPENSED on the income statement when a product is SOLD. Whereas period costs are EXPENSED on the income statement in the period they are INCURRED.Define all three product costs. Name the accounts each product cost would include.1. Direct Materials: Raw materials used in the production process that are EASILY traced back to the individual product (i.e. amount of wood to make tables). Not to be confused with smaller materials that cannot be traced (i.e. glue, nails, paint, etc.)a. Accounts: Listed as “Direct Materials expense/ costs”2. Direct Labor: Labor of workers converting raw material (DM) into finished product, where their time is easily traced back to the finished product (i.e. Typically workers whoare on the production line, NOT to be confused manager salaries because they are not the ones making the product).a. Accounts: Listed as “Direct Labor expense/ costs” or “fringe benefits”3. Overhead (Manufacturing OH, Factory OH, Indirect Manufacturing Costs):