Chapter 1:Financial vs. Managerial Accounting● Financial: for external purposes, emphasis on historical perspectives, company wide, must follow GAAP/IFRS formats, mandatory● Managerial: for managers to use, focuses on the future and relevance, segments, not bound by any formats, not mandatoryChapter 2: All definitionalProduct Costs: manufacturing● prime costs-direct materials and direct labor● conversion-direct labor and manufacturing overheadPeriod Costs: selling and administrativeDirect materials: raw materials that become an integral part of the product and can be conveniently traced directly to it ● ex. radio installed in autoDirect labor: can be easily traced to individual units of a product ● ex. wages to auto assembly workersManufacturing overhead● Indirect materials: materials used to support the production process ○ ex. cleaning products used in the plant● Indirect labor: wages paid to employees who are not directly involved in production work ○ ex. maintenance workers, janitors, security guardsCost Behaviors: how a cost will react to changes in the level of activity● Fixed: total remains constant, per unit cost varies○ ex. monthly fee remains constant despite number of calls, cost of calls increase/decrease dependent on how many, straight line depr., insurance, rent, salaries■ committed (long-term: ex. real estate taxes, depreciation on buildings)■ discretionary (may be altered in the short-term ex. advertising, R&D)● Variable: total changes, per unit cost remains constant○ ex. total texting bill increases/decreases based on how many texts you send (5 cents/message is constant), COGS, direct materials, labor■ cost driver/activity base-what causes the incurrence of a variable cost ex. machine hours, labor hours, units produced, miles driven● Mixed: semivariable, contains both variable and fixed elementsHigh-Low Method CalculationVariable Cost = Cost at high activity - cost at low activityhigh activity units - low activity units● find variable cost● pick either high or low● find fixed cost (TC = VC + FC)● = cost equationChapter 3: 1 definitional, 4 calculationsJob Costs: used when many different products are produced in each period, products are manufactured toorder, the unique nature of each order requires tracing or allocation costs to each job, and maintaining cost records for each job ex. wedding photography● charge direct material and direct labor costs to each job as work is performed● manufacturing overhead, including indirect materials and indirect labor are allocated to all jobs rather than directly traced to each job● some companies determine revenue at beginning - must control costs● some companies base revenue on costPredetermined Overhead Rate: Used to assign manufacturing overhead to individuals jobs○ Why? Impossible or difficult to trace overhead costs to particular jobs, manufacturing overhead consists of many different items, many types of manufacturing overhead costs are fixed even though output fluctuates during the periodPOHR = estimated total manufacturing overhead cost for the coming periodestimated total units in the allocation base for the coming perioda. Estimate total amount of allocation baseb. Estimate total fixed manufacturing overhead cost for the coming period and the variable manufacturing overhead cost per unit of the allocation basec. Estimate total amount of manufacturing overhead= est. fixed MOH + (est. var. MOH cost/unit allocation base)(est. total amt allocation base)d. Compute predetermined overhead rate○ Using POHR makes it possible to estimate total job costs sooner○ actual overhead for the period is unknown until the end of the period○ computed before the period beginsApplying OverheadOverhead applied = predetermined overhead rate x actual direct labor-hoursOver/Underapplied OverheadIf manufacturing overhead is... Alternative 1: close to costs of goods soldAlternative 2: allocationUnder applied increase COGS increase: work in process, finished goods, COGSover applied decrease COGS decrease: work in process, finished goods, COGSChapter 5: 6 calculationsContribution Marginprofit = (sales - variable) - fixed expensesprofit = (unit CM x quantity) - fixed expensesContribution Margin per unitContribution Margin RatioBreakeven PointDesired Net Incomeunit sales to attain target profit = target profit + fixed expensesCM per unitProfit CalculationChapter 6: 2 definitional, 3 calculationsVariable Costing: ● product costs include direct materials, direct labor, variable manufacturing overhead● period costs include fixed manufacturing overhead, variable s&a, fixed s&a● net income only affected by changes in unit sales○ as sales increase, net operating income increases● analyzes costs as fixed and variable, assigned to units produced and some remains in inventory when units remain unsold● identifies the additional variable costs incurred to make one more unit and emphasizes the impact of total fixed costs on profits○ costs will be incurred even if nothing is producedAbsorption Costing (used for the GAAP):● product costs include direct materials, direct labor, variable and fixed manufacturing overhead-fixed OH becomes variable-increases ending inventory or lowers COGS● period costs include variable s&a expenses and fixed s&a expenses-highest values for WIP and finished goods inventories-higher inventory, higher cost● net income influenced by changes in unit sales and units of production○ net operating income increases when more units are produced (even if unsold)● assigns manufacturing overhead costs to units produced and gives the impression that fixed manufacturing overhead is variable with respect to the number of units produced (but it’s not)○ can result in inappropriate pricing decisions and product discontinuation decisions○ costs must be assigned to products to properly match revenues and costsSegment ReportingUse contribution format○ Traceable Fixed Costs: arise because of the existence of a particular segment and woulddisappear over time if the segment itself disappeared■ ex. no computer division no computer division manager■ can be fixed costs of another segment○ Common fixed costs: arise because of the overall operation of the company and would not disappear if any particular segment were eliminated■ ex. no computer division still have company president■ common costs should not be arbitrarily allocated to segments based on the