Chapter 1: Managerial Accounting Introduction

Question 1

Managerial accounting

Answer 1

provides economic and financial info for managers and other internal users

Question 2

Managerial vs Financial Acct

Answer 2

SIMILARITIES:
-> Economic events in both

DIFFERENCES:
-> What you do with economic events

E.G.: Determining unit cost (Managerial), Reporting unit cost (Financial)

MANAGERIAL: FOCUSES ON THE PRESENT/FUTURE
FINANCIAL: FOCUSES ON THE PAST

Question 3

3 Management Functions

Answer 3

1. Planning: Determining objectives that add value to the business
2. Directing & Motivating: Coordinating company activities to produce operation [They do most of this on their own]
3. Controlling: ensuring company stays on track

Question 4

Differences in Financial & Mgmt Acct
-> Primary Users of Reports
-> Types & Frequency of Reports
-> Purpose of Reports
-> Content of Reports
-> Verification Process

Answer 4

Financial:
-> External users (sh, creds, regs)
-> FS issued quarterly/annually
-> General Purpose
-> Pertains to business as a whole, cindensed, doubly entry accounting, GAAP
-> Audited by CPA

Managerial:
-> Internal users (officers, managers)
-> As frequently as needed
-> Specific purpose for specific decisions
-> Often about subunits of business, VERY detailed, standards vary
-> NO AUDITS

Question 5

Organizational Structure

Answer 5

Shareholders ELECT board of directors HIRES CEO HIRES employees

2 types of employees:
-> Line Position: Directly involved iwth company’s primary revenue generation (VP’S)
-> Staff Position: Support Line Position (FNCE, HR, LEGAL, etc)

Question 6

CFO, Treasurer, Controller

Answer 6

CFO does accounting and finance (Line Position)

Supported by Staff Positions (Treasurer) (Controller)

Controller: maintains acct records, adequate system of internal control, makes FS

Question 7

What does internal audit staff (Staff positions) do?

Answer 7

Ensure internal control systems are functioning properly to protect assets

Question 8

business ethics: what is Sarbanes Oxley

Answer 8

help prevent lapses in internal control (response to corp scandals)

RESULT: clarify top management responsibility for the company’s financial statements; companies now pay attention to Board of Directors & audit committee must be independant; increased penalties for misconduct

Question 9

Manufacturing Costs

Answer 9

Processes converting raw materials into finsihed goods

Direct Materials, Direct Labor, Manufacturing Overhead

Question 10

Direct Materials

Answer 10

Raw Materials acquisition

Indirect Materials: do not physically become part of the finished product OR are impractical to trace to finished product because they are too small in terms of cost [These become part of manufacturing overhead]

Question 11

Direct Labor

Answer 11

The work of factory employees that is physically and directly associated with converting raw materials into finished goods is Direct Labor

Indirect Labor: Manufacturing Overhead [Work of employees that has no physical association with finished product (e.g. factory time keepers/supervisors/maintenance)]

Question 12

Manufacturing Overhead

Answer 12

Costs indirectly associated with manufacture of finished product (e.g. indirect materials, indirect labor, depreciation, insurance, taxes, etc)

Question 13

Direct Labor < Manufacturing overhead < Direct Materials

Answer 13

THIS IS THE COST DISTRIBUTION GENERALLY

Question 14

Product costs

Answer 14

Direct Materials
Direct Labor
Manufacturing Overhead

Costs that do not become expenses until the company sells the finished goods inveentory (These become COGS)\ also called Inventoriable costs

Question 15

Period Costs

Answer 15

Costs that are matched with the revenue of a specific time period rather than included as part of the cost of a product (non manufacturing costs)

When calc NI, companies deduct Period Costs from revenues

TWO TYPES: Selling expenses & Admin expenses

Question 16

Period Costs + Product Costs = ?

Answer 16

All Costs

Question 17

Merchandiser vs Manufacturer

Answer 17

Stores items, vs makes items

Question 18

Merchandiser COGS in Income Statement

Answer 18

Beginning Inventory + COG purchased - Ending Merchandise Inventory = COGS

Question 19

Manufacturer COGS Income Statement

Answer 19

Beginning Finished goods inventory + COG manufactured - ending finished goods inventory = COGS

Question 20

So do manufacturers show calculations of COGmanufactured in Income Statement?

Answer 20

No only the final numbers, a COG manufactured schedule shows the details

Question 21

How to determine COG Manufactured?

Answer 21

Begin Work in Process Inventory + Total Manufacturing Costs = Total Cost of Work in Process

Total Cost of Work in process - Ending Work in Process Inventory = COG manufactured

Question 22

COGmanufactured Schedule

Answer 22

Illustration 1-7

Question 23

Balance Sheet for Merchandiser

Answer 23

1 category: Inventory

Question 24

Balance Sheet for Manufacturer

Answer 24

Raw Materials Inv, WiP inv, Finished Goods Inv

Question 25

Value Chain

Answer 25

Refers to all business processes associated with providing a product or service

Question 26

Lean Manufacturing

Answer 26

Reviews all business processes in an efort to increase productivity and eliminate waste

Question 27

JIT inventory

Answer 27

Lowered inventory levels & costs for many GOODS ARE MANUFACTURED OR PURCHASED JUST IN TIME FOR SALE increased emphasis on product quality, the companies dont have excess inventory on hand they cant afford to stop production because of defects

Question 28

TQM

Answer 28

total quality management reduces defects in finished products

Question 29

ABC

Answer 29

Activity based costing allocates overhead based on each products use of particular activities in making the product

Question 30

Role of managerial accounting

Answer 30

to assist manager make relevant deciisons

Question 31

mgmt functions PLANNING

Answer 31

Looking ahead!!1 you have to establish objective and ADD value to the business!! (increase the share price)

Question 32

Directing

Answer 32

Cooridante diverse activities and HR implement planned objectives Provide incrntives to motive employes hire and train

Question 33

CONTROLLING

Answer 33

Keep activities on track! determine whether goals are met decide on the changes needed to get back on track usually about evaluating the system

Question 34

GOOD DECISION MAKING IS THE OUTCOME OF GOOD JUDGEMENT IN PLANNING DIRECTING AND CONTROLLING

Question 35

CEO

Answer 35

highest position or office in an org -> makes corp strat decisions -> manages operations and resources -> main POC between Borad of Directors/Shareholders and corporate operaitons FACE OF COMPANY

Question 36

CFO

Answer 36

Responsible for all accounting and finance concerns SUPPORTED BY: -> controller: responsible for acct records and internal control system and preparing all financial reports -> Treasurer: cash position, manages cash flows and short term investments

Question 37

Result is a greater emphasis on the importance of ethical behavior in organizations and the role of the management accountant in effecting this.

Question 38

Financial accounting information is geared towards external users; hence stricter accounting and reporting principles and standards o Sarbanes-Oxley Act of 2002 (SOX) o IFRS; ASPE

Question 39

Managerial accounting information is geared strictly for internal users; ethical standards and practices are just as important o CPA Canada: CPA Code of Conduct Ethical conduct in its highest sense, however, is a product of personal character — an acknowledgement by the individual that the standard to be observed goes beyond that of simply conforming to the letter of a list of prohibitions https:/media.cpaontario.ca/stewardship-of-the-profession/pdfs/CPA-On tario-Code-of-professional-conduct.pdf )

Question 40

Managerial Accounting Today: Service Industry Trends

Answer 40

* In general the North American economy has shifted towards more service industries o Trend is expected to continue in the future * New operating controls have been designed to improve the quality and efficiency of specific services * Many of the techniques developed for manufacturing firms have been applied to service companies

Question 41

Managerial Accounting Today: Value Chain

Answer 41

Value Chain: All activities associated with providing a product or service, that add value to the product or service. An example of a manufacturing firm value chain

Question 42

Managerial Accounting Today: Technological Change

Answer 42

o Enterprise resource planning (ERP) o Software systems that manage the value chain o In large companies, an ERP system might replace as many as 200 individual software packages * Computer-integrated manufacturing (CIM) o Makes products untouched by human hands * Business-to-business (B2B) e-commerce via internet

Question 43

Managerial Accounting Today: JIT

Answer 43

Just-In-Time (JIT) Inventory Methods o Inventory system where goods are manufactured or purchased just in time for use o Advantage is reduced inventory cost o Requires close relationship with supplier(s) to ensure delivery and quality

Question 44

Managerial Accounting Today: TQM

Answer 44

Quality/TQM o Total Quality Management (TQM) - a philosophy of zero defects; all employees participate in managing quality o Requires timely reporting on defective units, rework costs and warranty costs * Also non-financial information such as customer satisfaction, service calls o Ultimately leads to product or process redesign to reduce or eliminate defects

Question 45

Managerial Accounting Today: ABC

Answer 45

Activity-Based Costing (ABC) o Traditionally, overhead allocated to a product or service unit based on labor or machine hours o As production methods have evolved, overhead allocation needed to change as well o With ABC, overhead is allocated based on each product's use of economic resources as it undergoes various activities (number of orders or number of machine set ups) * Underlying concept: activities, rather than units, cause or drive overhead o Results in more accurate product costing and scrutiny of all activities in the value chain

Question 46

Managerial Accounting Today: Theory of Constraints

Answer 46

Theory of constraints (TOC): process used to identify and manage constraints within the production system o Constraint: something that prevents a company from producing as many units of product or service units as they wish; puts a limit on profitability * TOC helps to identify ‘bottlenecks’: constraints within the value chain that limit a company’s profitability * Helps achieve overall goals of the company, particularly profits

Question 47

Managerial Accounting Today: Lean Manufacturing (1 of 2)

Answer 47

* Today most products require little direct labour to complete, due in large part to advancements in automation. * Customers now dictate requirements to suppliers and often look for smaller quantities of individualized products. * Lean manufacturing was developed in response to this changing manufacturing environment. * Goal of lean manufacturing: eliminate waste and concentrate on meeting customer needs

Question 48

Managerial Accounting Today: Lean Manufacturing (2 of 2)

Answer 48

* Researchers have highlighted five basic principles that are crucial to the lean thinking process: 1. Define value 2. Identify the value stream 3. Make the value stream flow 4. Implement a pull system 5. Strive for perfection

Question 49

Managerial Accounting Today: Balanced Scorecard

Answer 49

* A performance-measurement approach to evaluate operations in an integrated fashion o Uses both financial and non-financial measures * Balanced scorecard metrics: Financial; Internal Business Process; Customer; Learning and Growth * Links performance measures to overall company objectives

Question 50

Explain the difference between a merchandising and a manufacturing income statement.

Answer 50

he difference between a merchandising and a manufacturing income statement is in the cost of goods sold section. A manufacturing cost of goods sold section shows beginning and ending fi nished g