Managerial Accounting Chapter 1

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Questions and Answers

What is the primary difference between a manufacturer's and a merchandiser's cost of goods sold?

  • The cost of goods sold for a manufacturer is calculated using the same formula as a merchandiser, but with different account names
  • The cost of goods sold for a manufacturer is always higher than that of a merchandiser
  • The cost of goods sold for a manufacturer is not reported on the income statement, whereas a merchandiser is
  • The cost of goods sold for a manufacturer includes direct labor and overhead costs, whereas a merchandiser does not (correct)

What is the purpose of the merchandise inventory account in a merchandiser's balance sheet?

  • To track the cost of goods available for sale at the end of the period (correct)
  • To track the cash spent on purchasing goods during the period
  • To track the cost of goods sold during the period
  • To track the cost of goods purchased during the period

What is the classification of 'Work in Process' in a manufacturer's balance sheet?

  • Non-Current Asset
  • Equity
  • Current Liability
  • Current Asset (correct)

How is the cost of goods sold calculated for a merchandiser?

<p>Beginning merchandise inventory + Purchases - Ending merchandise inventory (B)</p> Signup and view all the answers

What is the purpose of the 'Prepaid Expenses' account in a company's balance sheet?

<p>To track the payments made in advance for goods or services (B)</p> Signup and view all the answers

What is the classification of 'Raw Materials' in a manufacturer's balance sheet?

<p>Current Asset (B)</p> Signup and view all the answers

What is the primary purpose of identifying areas that require additional attention in a company?

<p>To allocate resources efficiently (C)</p> Signup and view all the answers

What is the term for the wages paid to automobile assembly workers?

<p>Direct Labor (B)</p> Signup and view all the answers

What is the primary purpose of managerial accounting?

<p>To assist management in making better decisions related to business performance (A)</p> Signup and view all the answers

What is the key to effective control in managerial accounting?

<p>Gathering feedback (B)</p> Signup and view all the answers

Which of the following is an example of manufacturing overhead?

<p>Lubricants used in the automobile assembly plant (C)</p> Signup and view all the answers

What is the primary difference between direct materials and indirect materials?

<p>Direct materials can be traced to individual units, while indirect materials cannot (A)</p> Signup and view all the answers

Which of the following is a vital function of management accounting?

<p>Decision making (B)</p> Signup and view all the answers

What is the main purpose of a budget in managerial accounting?

<p>To provide a detailed plan for the future (B)</p> Signup and view all the answers

What is the role of decision-making in the management of a company?

<p>To exercise good judgment in planning, directing, and controlling (A)</p> Signup and view all the answers

What type of report compares budgeted to actual results in managerial accounting?

<p>Performance Report (D)</p> Signup and view all the answers

What is the primary purpose of manufacturing cost classification?

<p>To identify areas of inefficiency in production (A)</p> Signup and view all the answers

What are the three vital functions of management accounting?

<p>Planning, controlling, and decision making (D)</p> Signup and view all the answers

Flashcards

Manufacturer's vs. Merchandiser's COGS

Manufacturer's COGS includes direct labor and overhead; merchandiser's does not.

Merchandise Inventory Purpose

To track the cost of goods available for sale at period end.

Work in Process Classification

Work in Process is classified as a Current Asset on balance sheets.

Calculating COGS for Merchandisers

COGS = Beginning inventory + Purchases - Ending inventory.

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Prepaid Expenses Purpose

To track payments made in advance for goods or services.

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Raw Materials Classification

Raw Materials are classified as a Current Asset on balance sheets.

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Identifying Areas for Attention

Helps allocate resources efficiently within a company.

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Direct Labor Definition

Wages paid to workers directly involved in production.

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Purpose of Managerial Accounting

To assist management in making better business decisions.

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Key to Control in Managerial Accounting

The key is gathering feedback effectively.

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Manufacturing Overhead Example

Includes costs like lubricants used in assembly.

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Direct Materials vs. Indirect Materials

Direct materials can be traced; indirect cannot.

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Vital Function of Management Accounting

A major function is decision making for management.

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Budget Purpose in Managerial Accounting

To provide a detailed plan for future financial activities.

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Role of Decision-Making in Management

Involves good judgment in planning and controlling operations.

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Performance Report Type

Compares budgeted results to actual outcomes in managerial accounting.

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Manufacturing Cost Classification Purpose

To identify inefficiencies in production processes.

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Functions of Management Accounting

The three vital functions are planning, controlling, and decision making.

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Study Notes

Balance Sheet

  • Current assets include: Cash, Receivables, Prepaid Expenses, and Merchandise Inventory
  • Merchandise Inventory consists of:
    • Raw Materials (materials waiting to be processed)
    • Work in Process (partially complete products)
    • Finished Goods (completed products awaiting sale)

Income Statement

  • Cost of goods sold for manufacturers differs slightly from that of merchandisers
  • Cost of goods sold for merchandising company: Beginning merchandise inventory + Purchases - Ending merchandise inventory

Managerial/Management Accounting

  • Definition: A method of accounting that creates statements, reports, and documents to help management make better decisions
  • Primarily used for internal purposes
  • Three pillars of management accounting:
    • Planning: Establishing goals and specifying how to achieve them
    • Control: Gathering feedback to ensure plans are properly executed or modified as circumstances change
    • Decision making: Selecting a course of action from competing alternatives

Costs Terms, Concepts, and Classifications

  • Manufacturing costs include:
    • Direct Materials: Raw materials that become an integral part of the product and can be conveniently traced directly to it
    • Direct Labor: Labor costs that can be easily traced to individual units of product
    • Manufacturing Overhead: Manufacturing costs that cannot be traced directly to specific units produced
  • Examples of Manufacturing Overhead:
    • Indirect labor (wages paid to employees not directly involved in production work)
    • Indirect materials (materials used to support the production process)

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