CHAPTER 14: Managerial Accounting Concepts and Principles

Question 1

What is Managerial Accounting?

Answer 1

It provides financial and non-financial information for managers

Question 2

What *purpose *does managerial accounting serve?

Answer 2

1. To help plan and control decisions
2. Determine cost of goods sold

Question 3

Define Planning

Answer 3

Process of setting goals and making plans to achieve them

Question 4

Define Control

Answer 4

Process of monitoring and evaluating an organization’s activties and employees

Question 5

What is a Fraud Triangle?

Answer 5

List of factors that pushes a person to commit fraud

Question 6

What is an Internal Control System? What is it used for?

Answer 6

It is to help prevent fraud, managers uses it to…
1. Ensure reliable accounting
2. Protect assets
3. Uphold company policies
4. Promote efficiency

Question 7

Why are costs important to managers

Answer 7

It impacts financial position and profitability of a business

Question 8

Users of Managerial accounting are Internal users, such as managerial and executive employees. TRUE or FALSE

Answer 8

TRUE

Question 9

There are no GAAP rules in Managerial accountign when it comes to reporting. TRUE or FALSE

Answer 9

TRUE

Question 10

Managerial Accounting provides information to internal users as they request it. TRUE or FALSE

Answer 10

TRUE

Question 11

Managerial Accounting information get real-time reports. TRUE or FALSE

Answer 11

TRUE

Question 12

Managerial Accounting Information focuses on specific activities, products, and departments, or division for which they are responsible. TRUE or FALSE

Answer 12

TRUE

Question 13

Managerial Accounting reports have nonmonetary information, includes customer and employee satisfaction data, and percentage of on-time deliveries. TRUE or FALSE

Answer 13

TRUE

Question 14

How can you prevent or limit the occurence of Fraud?

Answer 14

1. By establishing internal controls; financial or non-financial, as well as human or computer interaction
2. Code of ethics; promoting ethical decision making

Question 15

What are types of businesses?

Answer 15

1. Manufacturing - create products
2. Service - perform services for customers
3. Merchandising - companies that purchase finished inventory to sell

Question 16

Variable Costs

Answer 16

change in proportion to changes in activity volumes; as volume increase, so does variable cost

Question 17

Fixed Costs

Answer 17

Does NOT change as activitiy volume change

Question 18

Direct Costs

Answer 18

Can be traced to a product, process, department or customer

Question 19

Indirect Costs

Answer 19

Can NOT be traced to a product, process, department, or customer

Question 20

Product Costs

Answer 20

Necessary to create a product; cosist of direct materials, direct labor, and factory overhead

Question 21

Period Costs

Answer 21

1. Non-production costs linked to a time period (not to specific products)
2. Reported on income statement as selling expense or general administrative expenses

Question 22

What are examples of selling expenses?

Answer 22

Advertisement, delivery, salesperson salaries, commisions, and travel expenses

Question 23

What are examples of General Administrative Expenses?

Answer 23

Accounting expenses, office employee wages, office rent, and manager salaries

Question 24

What are examples of direct costs?

Answer 24

tires, seats, handlebars, cables, bike maker wages, frames, benefits

Question 25

What are examples of indirect costs?

Answer 25

Factory accounting, rent, manager's salary, light and head, insurance, equipment depreciation

Question 26

What is direct materials?

Answer 26

Materials acquired by manufacturing company to be used in making a product; raw materials Example: tires, seats, handlebars, etc.

Question 27

What is Direct Labor?

Answer 27

Wages and salaries for direct labor that cost-effectively traced through manufacturing process Examples: wages paid to bike assembly worker

Question 28

What is Manufacturing Overhead?

Answer 28

CANNOT be easily traced to specific finished goods Examples: Indirect labor, material, other costs | Other costs: Maintenance workers, screws, nuts, stables, factory utility

Question 29

What are the THREE types of inventories manufacturers report on the Balance Sheet?

Answer 29

1. Raw Materials 2. Work In Process 3. Finished Goods

Question 30

What are raw materials?

Answer 30

Cost of materials a company acquires to use in making products (direct materials)

Question 31

What is Work In Process?

Answer 31

Consists of costs of direct materials, direct labor, and overhead for **partially completed products**

Question 32

What are Finished Goods?

Answer 32

Consists of costs of direct materials, direct labor and overhead **completed products ready for sale**

Question 33

How does a *Merchandiser* compute the **Cost of Goods Sold**?

Answer 33

Beg. Merchandise Inventory + Cost of Merchandise Purchased - Ending Merchandise Inventory = Cost of Goods Sold

Question 34

How does a *Manufacturer* compute the **Cost of Goods Sold**?

Answer 34

Beg. Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory = Cost of Goods Sold

Question 35

Service Companies do not report Cost of Goods Sold. TRUE or FALSE?

Answer 35

TRUE

Question 36

How do you compute the Net Income?

Answer 36

Gross Profit + Selling Expenses + General and Administrative Expenses = Net Income

Question 37

How do you compute the **Total Raw Materials Available for use**?

Answer 37

RM inventory, beg. + RM purchases = Total RM avail. for use

Question 38

How do you compute the **Total Finished Goods available for sale**?

Answer 38

FG inventory, beginning + Cost of goods manufactured = Total FG available for sale

Question 39

How do you compute the **Direct Materials used**?

Answer 39

RM inventory, beginning + Raw materials purchased = Total RM Available for use **[THEN]** Total RM available for use - RM inventory, ending = DM used

Question 40

How do you compute the **Total Factory Overhead**?

Answer 40

Indirect labor + Depreciation expense( Factory) + Factory utilities = Total Factory Overhead

Question 41

How do you compute the Total Cost of Work in Process or Manufacturing Cost?

Answer 41

1. Total Manufacturing Costs + WIP, beginning = Total cost of WIP 2. WIP, beginning + DM used + Direct Labor + TF Overhead used = Total cost of WIP (Total Manufacturing Cost) | These are the same thing

Question 42

How do you compute the **Cost of Goods Manufactured**?

Answer 42

Total cost of WIP - Work in process, ending = Cost of goods manufactured

Question 43

How do you compute the **Goods Available for Sale**?

Answer 43

Finished goods inventory, beginning + Cost of goods manufactured = Goods Available for sale

Question 44

How do you compute the **Cost of Goods Sold**?

Answer 44

Cost of Goods Available for sale - Finished goods inventory, ending = Cost of goods sold

Question 45

Compute the** Raw Materials Inventory Turnover**

Answer 45

Raw materials use / Average raw materials inv. = RM Inventory Turnover

Question 46

Compute the **Days' Sales in RM Inventory**

Answer 46

Ending raw materials inventory/Raw materials used x 365 = Days' Sales in RM Inventory