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Questions and Answers
What is the primary purpose of financial accounting?
What is the primary purpose of financial accounting?
Management accounting primarily provides information to which group of users?
Management accounting primarily provides information to which group of users?
Which of the following is NOT a part of the management process?
Which of the following is NOT a part of the management process?
What does the controlling function in management involve?
What does the controlling function in management involve?
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What is the main objective of the continuous improvement process?
What is the main objective of the continuous improvement process?
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What is a key aspect of decision-making in management?
What is a key aspect of decision-making in management?
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Cost accounting primarily focuses on which aspect of financial management?
Cost accounting primarily focuses on which aspect of financial management?
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Which philosophy involves comparing actual results with expected results as a form of control?
Which philosophy involves comparing actual results with expected results as a form of control?
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What is the primary objective of cost accounting?
What is the primary objective of cost accounting?
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Which of the following best defines a cost object?
Which of the following best defines a cost object?
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What are indirect costs commonly referred to as?
What are indirect costs commonly referred to as?
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Which of the following is an example of direct material cost?
Which of the following is an example of direct material cost?
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Which costs are included in prime costs?
Which costs are included in prime costs?
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Which of the following describes period costs?
Which of the following describes period costs?
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What type of costs are included in conversion costs?
What type of costs are included in conversion costs?
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Which of the following costs is considered overhead?
Which of the following costs is considered overhead?
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What is the main difference between product costs and period costs?
What is the main difference between product costs and period costs?
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What are the components of overhead?
What are the components of overhead?
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Study Notes
Financial Accounting
- Focuses on recording, summarizing, and reporting transactions from business operations over time.
- Aims to provide useful financial information to external users like investors, creditors, and regulatory agencies.
- Helps in informed decision-making regarding resource allocation.
Management Accounting
- Also called managerial accounting, it involves identifying, measuring, analyzing, and communicating financial information to managers.
- Primarily serves internal users such as executives and department managers.
Management Process
- Planning: Development of company objectives and translation into actionable steps.
- Directing and Motivating: Managers oversee daily operations.
- Controlling: Monitoring operations to compare actual results with expected outcomes, allowing for identification of discrepancies and potential corrective action.
- Improving: Focused on continuous improvement to eliminate sources of problems in processes.
- Decision-Making: Involves choosing between alternative courses of action to achieve strategic goals.
Cost Accounting
- Specialized area that captures, records, analyzes, and reports all costs incurred in production.
- Objective is to determine actual production costs, enabling effective control of expenditures and pricing strategies.
Understanding Costs
- Represents cash or cash-equivalent value sacrificed for goods/services that provide current/future benefits.
- Involves cash payment or future cash commitments to generate revenue.
Cost Object
- Any item for which costs are measured and assigned, including products, customers, departments, projects, or activities.
Direct and Indirect Costs
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Direct Costs: Traceable to a specific cost object, include:
- Direct Material Costs: Costs of materials integral to finished products.
- Direct Labor Costs: Salaries and wages for workers directly converting materials into products.
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Indirect Costs/Overhead: Cannot be traced to a specific cost object, including:
- Indirect Materials Costs: Materials not directly traceable to finished products.
- Indirect Labor Costs: Labor not economically traceable to a product, e.g., supervision costs.
Overhead
- Includes indirect manufacturing costs related to production.
- Formula: Indirect Material + Indirect Labor + Other Production Costs.
Cost Classification
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Management Reports:
- Prime Costs: Made up of Direct Material + Direct Labor.
- Conversion Costs: Include Direct Labor + Overhead.
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Financial Reporting:
- Product Costs: Manufacturing costs (direct materials, labor, overhead); capitalized as part of inventory.
- Period Costs: Selling and administrative expenses; recognized as expenses when incurred.
Examples of Costs
- Direct Materials: Leather for baseball gloves; wool yarn for durability.
- Direct Labor: Wages for assembly line workers; benefits for sewing operators.
- Overhead: Coolants for machines; factory rent; electricity costs.
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Description
Explore the fundamentals of financial accounting, including its key processes such as recording, summarizing, and reporting business transactions. This quiz focuses on how financial accounting provides critical information to external stakeholders like investors and creditors to facilitate informed decision-making.
