ACCT 102 5th Addition Exam 3 Study Guide Lecture 22 29 Lecture 22 Choices in business form Sole Proprietorship one owner usually a small business o Advantages Easily formed tax advantages controlled by owner o Disadvantages Personal Liability Limited life Partnership more than one owner can be 2 owners or a whole bunch of owners o Advantages Access to the skill and resources of each owner tax advantages o Disadvantages shared control personal liability limited life Corporation more than one owner separate legal entity o Advantages easier to raise money easier to transfer ownership limited liability o Disadvantages more complex to organize higher taxes Shares 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 issue o Issued how many shared we actually sold o 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 vote o Right to share in distributions of earnings o Right to share in assets on liquidation Common stock o Each share has equal rights o Each share has voting rights Preferred Stock o Has preference rights over common stock o Dividend rights stated in momentary terms or of par o 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 Capital Lecture 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 dividend o Payment date date on which the dividend will actually be paid o Stock Dividends Distribution of stock to stockholders o The requirements are sufficient retained earnings and formal action by the board of 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 product o Selling price o And is the product worth making Types 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 product o 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 finish o Value added time you are actively working on product o 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 management Lecture 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 same o Break Even in units Fixed Costs Contribution margin per unit Lecture 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 breakeven 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 units o Margin of safety in dollars sales in dollars break even sales in dollars o Margin of Safety Sales break even sales sales Lecture 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 objects