ACCT 102 5th AdditionExam # 3 Study Guide: Lecture 22-29Lecture 22:Choices in business form:- Sole Proprietorship: one owner, usually a small businesso Advantages: Easily formed, tax advantages, controlled by ownero Disadvantages: Personal Liability, Limited life- Partnership: more than one owner, can be 2 owners or a whole bunch of ownerso Advantages: Access to the skill and resources of each owner, tax advantageso Disadvantages: shared control, personal liability, limited life- Corporation: more than one owner, separate legal entityo Advantages: easier to raise money, easier to transfer ownership, limited liabilityo Disadvantages: more complex to organize, higher taxesShares of Stock: can be issued with or without assigning a monetary amount and doesn’t need a stock certificate.- Par: randomly assigned number the corporation assigned, nothing to do with how much people pay for it.- Stock Shares:o Authorized: how many shares we can issueo Issued: how many shared we actually soldo Outstanding: how many shares that are out right now.o Issued= outstanding if you don’t buy any stock back.- Stock rights:o Right to voteo Right to share in distributions of earningso Right to share in assets on liquidation- Common stock:o Each share has equal rightso Each share has voting rights- Preferred Stock:o Has preference rights over common stocko Dividend rights stated in momentary terms or % of paro Can’t vote- Issuance of Stock: The price at which stock sells- Treasury Stock: Balance at year-end is reported as a reduction of stockholders equity, contra account.Public Offerings: Offering stock on a publicly traded market- Can generate a large amount of capital quickly- Tons of paperwork, takes years for approval.- Paid in Capital: Amount of money received when issuing a stock.o Par Value + APIC= Total Paid in CapitalLecture 23:Cash Dividends: cash distribution of earnings by a corporation to its shareholders- To give cash dividends company much have sufficient retained earnings, sufficient cash and formal action by the board of directors.- Dividend Announcement Dates: o Declaration Date: date on which the corporation announced when they pay their dividends.o Date of Record: stockholder as of this date received the dividendo Payment date: date on which the dividend will actually be paid.o- Stock Dividends: Distribution of stock to stockholderso The requirements are sufficient retained earnings and formal action by the boardof directors.- Preferred Dividends: always have the dividend preference and you get the dividends first.Lecture 24 and 25:Managerial Accounting:- Not subject to GAAP- Helps the management to make decisions such as:o Cost of manufacturing a producto Selling price o And is the product worth makingTypes of Costs:- Direct material costs: cost of materials that is an integral part of the finished product.- Direct Labor Costs: cost of employee wages who are directly involved in converting materials into finished products.- Job Order Cost system: cost accumulated by the job, used for custom products. Used by a lot of service firms.- Work-in-Process: recorded materials and time worked on a job/ finished product-- Factory Overhead: all factory and production costs other than direct materials and direct labor. Recorded separately with the total recorded as an increase to factory overhead.o Allocating: overhead gets assigned to jobs Lecture 26:Sales and Cost of Goods Sold: - Product Costs: related to manufacturing a product- Period Costs: related to selling a product or administering the business.o Selling expenses: anything that has to do with selling the producto Administrative Expenses: anything else that doesn’t have a category.Just in time Practices: focuses on reducing time, cost and eliminating poor quality within manufacturing processes.- Reducing inventory- Reducing Lead Times: amount of time it takes to manufacture a product from start to finisho Value added: time you are actively working on producto Non value added: product just sitting waiting for the next station- Reducing setup time:- Emphasizing product oriented layout- Emphasizing Employee Involvement- Pull vs. Push Manufacturing: driven by actual customers orders vs. estimates what demand will be.- Emphasizing Zero Defects: reduce unnecessary expenses- Emphasizing supply chain managementLecture #27:Cost Behavior: manner in which a cost changes as related activity changes- Variable costs: costs that vary in relation to changes in activity level- Fixed Costs: costs in total remain the same, but costs per unit change with activity level- Mixed Costs: share characteristics of both a variable and fixed cost- Total cost = fixed costs + (Variable Cost per unit x # of units)Contribution Margin: identifies revenue available to cover fixed costs and provide income after variable costs have been covered.- Contribution margin = Sales – Variable Costs - Contribution Margin Per unit = Sales Price Per unit – variable Cost Per unit- Break even Point: Level of operations where revenues and costs are the sameo Break-Even in units = Fixed Costs/ Contribution margin per unitLecture 28:Break Even Point: - Changes in Fixed Costs: direct relationship between total fixed costs and break even units- Change in unit variable costs: direct relationship between unit variable cost and break even units- Change in Unit selling Price: inverse relationship between unit selling price and break-even units.- Desired Profit: find how many units needed to attain a certain desired profit.o Sales in Units = (Fixed Costs + Desired Profit)/ Contribution Margin- Margin of Safety: measures how much sales revenue can drop before an operating loss occurs.o Margin of safety in units = Sales in units – break even sales in unitso Margin of safety in dollars = sales in dollars – break even sales in dollarso Margin of Safety % = (Sales – break even sales)/ salesLecture 29:Operating Leverage: measure of the extent to which fixed costs are being used in an organization. - Cost accumulation: process of determining the cost of an item- Cost objects: processes or things that have cost associated with them- Cost drivers: what cause the cost of an object to change- Common costs: support multiple cost objects- Controllable costs: cost that can be influenced by a manager’s decision and actions.- Cost allocation dividing a total cost into parts and assigning the parts to designated cost