Chapter 1 Flashcards
Financial Accounting
- Reports to outside organizations
- Emphasis is on summaries of financial consequences of past activities
- Objectiveness and verifiability of data are emphasized
- Precision of information is required
- Only summarized data for entire organization are prepared
- Must follow GAAP
- Mandatory for external reports
Managerial Accounting
- Reports to those inside the organization (planning, directing and motivating, controlling, and performance evaluation)
- Emphasis on decisions impacting the future
- Relevance is emphasized
- Timeliness of information is required
- Detailed segment reports are prepared
- Need not follow GAAP
- Not mandatory
Planning
Budgeting, allocating resources, for most profitable areas
Measuring performance
Development of performance dashboards
Performance analysis
Comparing actual results with benchmarking
Purpose of Cost Classification: Preparing Financial Statements
Separate cost by function:
- Product cost
- Period cost
Purpose of Cost Classification: Assigning cost to cost objective
Cost objective: anything for which cost data is desired
- Direct costs
- Indirect costs
Common costs: supports more than one cost objective and are allocated when computing product cost but not for decision making
Predicting costs
Separate cost by behavior
- Variable cost
- Fixed cost
Committed fixed costs: investment in property, plant and equipment and basic administrative structure
Discretionary fixed costs: arise from annual decisions by management to spend in certain areas
Decision making
Differential costs: vary in part or whole when one alternative is selected over another
Sunk costs: already incurred and cannot be changes
Opportunity costs: revenue forgone when selecting one alternative over another
Period (manufacturing) costs
- Direct materials (prime)
- Direct labor (prime & conversion)
- Manufacturing overhead (prime)
Period (non-manufacturing) costs
- Marketing & selling costs
- Administrative costs
Variable costs
Increase (vary) in total as activity increases
Fixed costs
Remain constant (fixed) in total as activity (volume) changes
Activity base (cost driver)
A measure of what causes the variable cost
Mixed cost
Contain elements of both fixed and variable costs
