ACCT 2120 1st Edition Exam 2 Study Guide Lectures 4 6 Lecture February16th 18th Managerial Accounting Concepts and Principles What is managerial accounting What are the characteristics and its purpose What are cost concepts How doeseach help managers make decisions How are manufacturing activities reported Managerial Accounting This is an activity that provides financial and nonfinancial information for a manager It is used in making planning and control decisions It is also used to direct and improve business operations This can also be called management accounting Planning decisions o This is the process of setting goals and making a plan to achieve them Control decisions o This is the process of monitoring the planning decisions and evaluating the organizations employees and overall activities Characteristics of Managerial Accounting can include Managers employees and other internal decision makers use this information The information assists managers in making planning and control decisions The information may be informal no GAAP constraints Can be available quickly without needing to wait for an audit Many estimates and projections may be presented with the information There s an emphasis on the organizations specific projects and processes Most of the information is monetary may include some nonmonetary information The Purpose of Managerial Accounting is so that an organization s internal decision makers can have a current up to date look on where the company stands They take control of activities and make sure the organization is running efficiently and the future of the organization looks promising This is how any issues can be solved before investors and creditors come in and decide on whether they should invest or not Managerial Cost Concepts An organization can incur many different types of costs depending on the management s needs We can usually classify these costs on the basis of o Behavior these are the variable or fixed costs Fixed costs don t change ex rent Variable costs can very ex commission o Traceability these are the direct or indirect costs Direct costs can be traced back to a specific product process department or customer ex Equipment purchased by maintenance department With indirect costs you cant very easily trace back to a specific product process department or customer ex Factory light and heat o Controllability these are either controlled costs or not Controlled costs are costs that managers can limit ex Buying buildings equipment Costs that managers can t control can include maintenance supplies etc o Relevance these costs include sunk out of pocket and opportunity Sunk costs are already incurred and can t be avoided or changed Out of pocket costs are incurred or avoided as a result of a manager s decision An opportunity cost is what s being given up in order to get or do something else o Function these include potential costs and period costs Product costs are capitalized as inventory Period Costs are costs expensed Manufacturer s Costs include o Direct Materials these are the tangible components of a finished product o Direct Labor this is the effort of employees who physically convert materials to finished products o Factory Overhead consists of all manufacturing costs not direct materials or labor When preparing a manufacturing statement the sheet should include all materials activity production activity and sales activity There are 4 sections o o o o Reporting all direct materials used Reporting all direct labor costs Reporting all overhead costs Then compute and report the cost of goods manufactured Lecture February 23rd 25th Job Order Cost Accounting What is a cost accounting system What are the procedures used to determine costs using a job order costing system Compare over and underapplied overhead Cost Accounting System This is a way of recording manufacturing activities using a perpetual inventory system This means the records for cost of materials goods in process and finished goods inventories are always being updated Using this system the information is provided in a timely manner so that managers can use the given information on inventories and manufacturing costs per unit of product Job Order Costing System o The main goal of using this system is to determine the cost of producing each job or job lot This is because when a company does job order production they are producing special to order products so it s always different 3 Steps to determining costs using a job order costing system 1 Predict the cost to complete the job 2 Negotiate price and decide whether to pursue the job 3 Schedule production of the job Underapplied Overhead vs Overappplied Overhead Just follow the chart to know what to do when actual overapplied doesn t equal underapplied overhead Factory Overhead is Cost of Goods Sold is Adjusted will Actual Overhead Applied Overhead Underapplied Too Low Insurance Cost of Goods Sold Actual Overhead Applied Overhead Overapplied Too High Decrease Cost od Goods Sold Lecture March16nd 18th Process Cost Accounting How do we measure and account for costs in process operations How do we record material costs in operations How do we compute cost per equivalent unit for a process Process Operations This is the mass production of a product by a continuous flow of steps Characteristics of Process Operations can include Repetitive Procedures Homogeneous products and services High production volume Low product flexibility High standardization In process cost accounting systems the concept of direct and indirect costs are still used Accounting for Materials Costs journal entries The following journal entry shows materials acquired on credit for factory use Raw Materials Inventory Accounts Payable The following journal entry shows costs of direct materials used in production Goods in Process Inventory Raw Materials Inventory The following journal entry shows how to record indirect materials used Factory Overhead Raw Materials Inventory The following journal entry shows how to record factory wages Factory Payroll Cash The following journal entry shows direct labor used in production Goods in Process Inventory Factory Payroll The following journal entry shows indirect labor as overhead Factory Overhead Factory Payroll The following journal entry shows various overhead items incurred Factory Overhead Prepaid Insurance Utilities Payable Cash Accumulated Depreciation on Equipment Equivalent Units of Production EUP This refers to the number