ACG2071 Exam 1 Study Guide Chapter 1 3 Questions all conceptual Differences between financial and managerial accounting Sustainability Chapter 2 18 Questions 7 conceptual Flow of costs through the balance sheet inventory accounts to the income statement Identification and calculation of product costs period costs prime costs and conversion costs Cost behavior fixed costs versus variable costs Chapter 3 7 Questions 1 conceptual Calculation of product costs using a predetermined MOH rate to allocate MOH Calculation of over underallocation MOH Disposal of over underallocated MOH Chapter 4 7 Questions 3 conceptual Calculation of product costs using departmental rates to allocate MOH Calculation of product costs using activity based costing to allocation MOH Cost of quality I still suggest you look over Holly s notes and do the practice problems This is a study guide to help you decide what you should focus on more and what is isn t important Good luck to everyone Feel free to email me if you guys have any questions Chapter 1 Financial Accounting vs Managerial Accounting Characteristic Primary Product Users of information Purpose of Financial Accounting Financial Statements External users Help external users make investing Managerial Accounting Variety of useful internal reports Internal users Help managers plan direct control information Reporting format Focus basis of information Characteristic of information Reporting unit Reporting frequency Requirement of information Verifitcation of information Sustainability lending decision GAAP Historical focus operations make decisions Whatever is useful Future focus Reliable objective Relevant Company as a whole Annually and quarterly Required by SEC CPAs audit the data Segments divisions As needed Not required No formal audit The company s internal audit team may review as defined by the UN is the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs o The triple bottom line recognizes that a company s performance should be viewed in The Three Pillars of Sustainability 1 Social 2 Environmental 3 Economic terms of the following Profits economic People social Planet environmental Chapter 2 Product costs COGS production purchases The costs are treated as an asset part of inventory on the Balance Sheet until it is sold o Product Costs for Manufacturing Direct Materials DM the primary materials that become a physical part of the Direct Labor DL compensation for employees who physically convert raw Manufacturing Overhead MOH all manufacturing costs other than direct finished product materials into a finished product materials and direct labor Prime Costs DM DL Conversion Costs DL MOH Period costs operating expenses Research Development Design Marketing Distribution Customer Service The costs are expensed in the period incurred Period costs are comprised of the operating expenses or selling administrative expenses incurred by a company Merchandising company have only one category of inventory on the Balance Sheet Income Statement Service Company No product costs Income Statement Revenues Operating Expenses Operating income Merchandising Cost of Goods Sold Sales Revenue Costs of Goods Sold Gross Profit Gross Margin Operating Expenses Operating Income Beginning Inventory Purchases Available for Sale Ending Inventory Sold sale Manufacturing Three types of inventory o Raw Materials Inventory o Work in Process Inventory o Finished goods inventory Income Statement Sales Revenue Costs of Goods Sold Gross Profit Gross Margin Operating Expenses Operating Income Cost of Goods Sold o Step 1 Raw Materials Inventory Calculate DM used Beginning Raw Materials Inventory o Sometimes you have to find product cost and multiply by amount sold if Cost of Goods Sold is for amount rather than the dollar value Inventoriable Product Cost o Cost of Merchandise Freight in Customs duties Cost of getting product ready for o Step 2 Work In Process Inventory Calculate Cost of Goods Manufactured Purchases of Direct Material Raw Materials Available for Use Ending Raw Materials Inventory Direct Materials Used Beginning Work in Process Inventory Direct Materials Used Direct Labor Used MOH Total Manufacturing Costs to Account For Ending Work in Process Inventory Costs of Goods Manufactured Beginning Finished Goods Inventory Cost of Goods Manufactured Cost of Goods Available for Sale Ending Finished Goods Inventory Cost of Goods Sold o Step 3 Finished Goods Inventory Calculate the Cost of Goods Sold Raw Materials Inventory Beg Balance purchases End Balance DM used Work in Process Inventory Beg Balance DM DL MOH COG Manufact ured End Balance Finished Goods Beg Balance Inventory COG Manuf COG acture S d End Balance Cost Behavior Fixed Costs o Constant in total o Varies on a per unit bases o Variable Costs o Constant per unit o Changes in total in direct proportion to changes in volume o Example Total Costs Fixed Costs All the same Total Costs Fixed Variable Cost per muffler Variable cost All the same Average Cost Fixed Variable 500 mufflers 600 mufflers 700 mufflers 42 000 42 000 42 000 Variable Costs 500 x 50 25 000 30 000 700 x 50 35 000 67 000 72 000 77000 Fixed cost 42 000 500 84 42 000 600 70 42 000 700 60 50 134 30 000 600 50 120 50 110 Chapter 3 Job Costing used for unique or custom ordered products services that differ in the amount of DM DL and MOH used Also used for small batches and trades Process Costing used for a large number of identical units that typically go through a uniform production process Used for mass manufacturing Manufacturing Overhead MOH Before the year begins manufacturers calculate a Predetermined MOH Rate to allocate some MOH to each job o Estimated Total MOH Costs Estimated Total Allocation Base Predetermined MOH Rate o Most common allocation bases are DL Hours and DL Costs o Allocation base should be whatever drives the cost the cost driver During the year manufactures allocate some MOH to each job o Predetermined MOH Rate x Actual Use of Allocation Base MOH Allocated to Job At the end of the year manufactures must calculate and dispose over underallocated MOH Underallocated overhead Overallocated overhead Actual Allocated Not enough MOH was allocated COGS is understated Allocated Actual Too much MOH allocated COGS is overstated MOH Actual Allocated 1 950 000 2 100 000 150 000 overallocated Journal Entry to dispose MOH 150 000 COGS 150 000 MOH Actual Allocated 1 950 000 1 940 000 10
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