ACG2071 Final Study Guide Chapter 1 1 Question Financial Mainly for external users Managerial Mainly for internal users Helps external users make financial Helps managers make decisions plan decisions Driven by GAAP direct and control Not driven by GAAP not regulated the Looks at previous year Only worry about financial data Not just financial data e g quality manager is in charge Looks to the future Prepared quarterly or annually Measurement done in dollars Verifiability opportunity cost Prepared anytime for any purpose Can measure anything in anyway Relevance Focuses on company as a whole Focuses on operating segments Not very detailed Extremely detailed Managerial is not very regulated Chapter 2 5 Questions Product Costs inventory manufacturing Cost involved in making actual product DM DL MOH Direct Materials Cost of materials directly used in the production of a good Direct Labor Cost of labor directly used towards the production of a good Manufacturing Factory Overhead Other costs within a factory Indirect Materials can t be traced to one item tape used to package boxes for shipping Indirect Labor Supervisors maintenance within factory security late night strippers ect Other Costs Rent depreciation on equipment ect Period Costs non manufacturing non inventory Cost NOT involved in making actual product Expensed on Income Statement in time they are incurred S A G Selling Administrative and General Anything not mentioned in DM DL or MOH Basically anything not directly within the factory rent on Sales Office or Headquarters commission supplies within offices ect Prime Costs Cost of labor and material needed to make a product DM DL Conversion Cost Cost of converting raw material into a product DL MOH Balance Sheets Manufacturing Company Cash Accounts Receivable Raw Materials INV 3 types of inventory Work in Process INV Finished Goods INV Merchandising Company Cash Accounts Receivable Inventory Pre paid Expenses Service Company Cash Accounts Receivable Pre paid expenses Raw materials 10k 10k Flow of Costs Work in Process BB 0k COGM 30k DM 10k DL 30k OH 50k 60k 30k Finished Goods COGS BB 0k 15k 15k 30k 0k 10k 15k 15k 15k Despite my poor Microsoft Word skills this chart shows the flow cost through inventories When a RawMaterial is used credit that cost becomes the DirectMaterial debit that will go towards making a product The Cost of Goods Manufactured credit becomes a FinishedGood debit When a product is sold it makes its way out of the Finished Good inventory and into the Cost of Goods Sold inventory Chapter 3 2 Questions Manufacturing factory Overhead cannot be directly traced to jobs products So we have to estimate this number Pre determined plantwide overheard rate Estimated Overhead Cost Estimated Cost Driver Amount Once the bill for overhead comes in we determine if we over or under applied our overhead Manufacturing OH Control Actual OH Applied OH guessed Under applied Over applied Debit Credit Under applied If there is too much in the overhead account debit balance we take it out of the OH account credit and put it into the COGS account debit Over applied If there is too little in the overhead account credit balance we take it out of the COGS account credit and put it into the overhead account debit Chapter 4 1 Question Cost Distortion difference between plant wide allocation rate and departmental overhead rate Cost using plant wide rate cost using departmental rate OVERCOSTED Cost using plant wide rate cost using departmental rate UNDERCOSTED Departmental rate is more precise Departmental Overhead Rate equation is the same as plant wide but it will be used for each individual division Departmental Overheard Rate Estimated Overhead Cost of Division Estimated Cost Driver Amount of Division How to allocate costs using Activity Based Costing Step 1 Distinguish between the cost drivers and the activities themselves Step 2 Total the values per cost driver Step 3 For each of the area s compute Activity Driver Total to get the cost driver Step 4 Multiply the cost per driver by the cost driver quantity to get the cost allocated Chapter 6 2 Questions Price what s on the price tag Consumer pays this Cost What we the company pay to make a product Fixed Costs Costs that do not change as more units are produced rent Variable Costs Cost that do change increase as you produce more units Cost goes up with activity Step Cost A cost that is fixed during a certain range of values but then increases at a certain point after activity increases Ex We want to pop off tonight so we re buying a shit ton of alcohol The store manager tells us that the first 10 bottles will be 10 each After the 10th bottle every bottle we buy will be 20 After the 20th bottle every bottle we buy will be 30 So for every 10 bottles the prices goes up 10 Graph literally looks like steps but I m not tech savy enough to make one Mixed Cost A cost which has both fixed and variable components This graph starts at a fixed cost then rises by the slope VC per unit Ex We didn t pop off hard enough last night and we re all sickos so we re going for a 2 night bender The manager tells us that every bottle we buy will be 10 but there will be a fixed cost of 20 to support his gambling addiction Variable Cost per unit Change in cost Change in units Units 20 40 60 Total Costs 1 200 2 200 3 000 We are trying to determine whether this company is using A Solely Fixed Cost B Solely Variable Cost C Mixed Cost D Step Cost First get the VC 1 000 50 20 Now multiply by any of the units used in the chart 50 20 1 000 Because we didn t get the same number this company is using a D Mixed Cost structure If the number had been the same it would have been Solely Variable Cost High low Method uses two points with lowest highest activity level units Step 1 Find the highest and lowest points based off of activity Step 2 Find the slope m Y2 Y1 or Change in Cost X2 X1 Change in acitivity Step 3 Find the intercept by plugging in X or Y into y mx b Step 4 The slope will be equal to the variable cost per unit and the y intercept will be the fixed cost y and x activity Operating Income Sales Variable Costs Fixed Costs Formula w total sales VC Chapter 7 4 Questions Operating Income Sales Price x VC per unit x FC Formula w per unit sales VC For breakeven point set equation 0 If they give you the Operating Income plug that in and solve for one of the variables Margin of Safety difference between their current or target sales and their breakeven sales Margin of
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