CSU ACT 220 - Chapter 1 - Managerial Accounting: An Overview

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Chapter 1 - Managerial Accounting: An Overview● Differences in Financial and 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 mandatory● Work of Management (applies to all business majors)○ Planning: establish goals, specify how goals will be achieved, develop budgets○ Controlling○ Decision Making● Certified Management Accountant (CMA): management accountant who has the necessary qualifications and who passes a rigorous professional exam● Strategic managements skills: gameplan that enables a company to attract customers by distinguishing itself from competitors● Customer Value Propositions:○ customer intimacy strategy: understand and respond to individual customer needs○ operational excellence strategy: deliver products and services faster, more conveniently, and at lower prices○ product leadership strategy: offer high quality products● Enterprise risk management: a process used by a company to proactively identify and manage risk● Lean production (just in time production)● Theory of Constraints: based on the observation that effectively managing the constraint is the key to success1. identify the weakest link2. allow the weakest link to set the tempo3. focus on improving the weakest link4. recognize that the weakest link is stronger○ constraint: anything that prevents you from getting more of what you want■ determined by the step that has the smallest capacity● Measurement Skills: good manager complements an understanding of strategy, risks, and business processes with data-driven analysis○ Key to effective analysis is to understand that the question you are addressing defines what you measure and how you analyze the data○ planning, controlling, decision making● IMA Guidlines for Ethical Behavior○ confidentiality: do not disclose confidential info unless legally obligated, do not use confidential info for unethical or illegal advantage, ensure that subordinates do not disclose confidential info○ integrity: mitigate conflicts of interest and advise others of potential conflicts, refrain from conduct that would prejudice carrying out duties ethically, abstain from activities that might discredit the profession○ credibility: communicate info fairly and objectively, disclose delays or deficiencies in info timeliness, processing or internal controls, disclose all relevant info that couldinfluence a user’s understanding of reports and recommendations● IMA Guidelines for Resolution of an Ethical Conflict○ follow employer’s established policies○ for an unresolved ethical conflict:■ discuss the conflict with an immediate supervisor or next highest uninvolved managerial level● if CEO consider the board of directors or audit committee■ contact with levels above should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved■ maintain confidentiality, except where legally perscribed■ clarify issues in a confidential discussion w/ an objective advisor■ consult an attorney as to legal obligatios● Why have Ethical Standards○ essential for smooth functioning economy■ economy, everyone who depend on it would suffer○ without ethical standards, lower quality of life w/ less desirable goods and services at higher prices● Corporate Social Responsibility: organizations consider the needs of all stakeholders when making decisions○ extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectationsChapter 2 - Managerial Accounting and Cost ConceptsI. Manufacturing Cost Categories, controlling costs leads to a higher profit ● 1. Direct Materials: raw materials that become an integral part of the product and that can be conveniently traced directly to it○ ex. radio installed in an auto● 2. Direct Labor: labor costs that can be easily traced to individual units of product○ ex. wages paid to auto assembly workers● 3. Manufacturing Overhead: cannot be easily traced directly to specific units produced○ indirect materials: materials used to support the production process■ ex. lubricants and cleaning supplies used in the automobile assembly plant○ indirect labor: wages paid to employees who are not directly involved in production work■ ex. maintenance workers, janitors, security guards, supervisors● non manufacturing costs (nothing to do w/ production): selling (to secure the order and deliver the product) and administrative costs (executive, organizational, clerical)II. Product Costs and Period Costs● Product: manufacturing○ prime costs: direct materials and direct labor○ conversion costs: direct labor and manufacturing overhead● Period: selling and administrativeIII. **Cost Behavior Patterns: how a cost will react to changes in the level of activity○ Cost Driver (The Activity Base): what causes the incurrence of a variable cost■ machine hours, labor hours, units produced, miles driven○ Variable: total changes, per unit cost remains constant■ ex. total texting bill increases/decreases based on how many texts you send, 5 cents per message○ Fixed: total remains constant, per unit cost varies■ ex. monthly fee is remains constant despite number of calls, cost of calls increase/decrease depending on how many● rent not contingent on sales■ Types of Fixed Costs● committed: long term, cannot be significantly reduced in short term, not easily avoidable ex. depreciation on buildings and equipment, real estate taxes● discretionary: may be altered in the short-term by current managerial decisions, easily avoidable ex. advertising and research and development○ Linearity Assumption and the Relevant Range○ Mixed (semivariable): contains both variable and fixed elements○ Y = a + bXY = total mixed costa = total fixed cost (vertical intercept)b = variable cost per unit (slop)X = level of activityIV. High-Low Method for mixed costs● line through high and low points, any other point is an estimate○ Variable Cost = Cost at high activity - Cost at low activity High activity units - low activity units○ Find variable cost○ Pick either high or low○ Find fixed cost (TC = VC + FC)○ = Cost Equation● Least-Squares Regression Method: incorporates all points, requires computer knowledge, find line of best


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CSU ACT 220 - Chapter 1 - Managerial Accounting: An Overview

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