ACCT 2120 1st EditionExam# 2 Study Guide Lectures: 4-6Lecture (February16th- 18th)Managerial Accounting Concepts and PrinciplesWhat 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 isused 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 activitiesand 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, departmentor 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 expensedManufacturer’s Costs include:o Direct Materials- these are the tangible components of a finished producto Direct Labor- this is the effort of employees who physically convert materials to finished productso 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 Reporting all direct materials used.o Reporting all direct labor costs.o Reporting all overhead costs.o Then compute and report the cost of goods manufactured.Lecture (February 23rd -25th)Job Order Cost AccountingWhat 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 job2. Negotiate price and decide whether to pursue the job3. Schedule production of the jobUnderapplied 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 OverheadUnderapplied Too LowInsurance Cost ofGoods SoldActual Overhead <Applied OverheadOverapplied Too HighDecrease Cost odGoods SoldLecture (March16nd- 18th)Process Cost AccountingHow 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:The following journal entry shows costs of direct materials used in production:Raw Materials Inventory……………..$ Accounts Payable……………………………………$Goods in Process Inventory………..$ Raw Materials Inventory…………………………$The following journal entry shows how to record indirect materials used:The following journal entry shows how to record factory wages:The following journal entry shows direct labor used in production:The following journal entry shows indirect labor as overhead:The following journal entry shows various overhead items incurred:Equivalent Units of Production (EUP):-