Managerial Accounting Chapter 14
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Questions and Answers

What is the primary purpose of managerial accounting?

  • To provide financial and nonfinancial information to managers (correct)
  • To track employee performance metrics
  • To assess tax liabilities for the organization
  • To prepare financial statements for external users

    • Managerial accounting is only concerned with financial information.

    False (B)

    List one key responsibility of managerial accounting.

    Providing financial and nonfinancial information to managers

    In managerial accounting, the process of setting goals and making plans to achieve them is called __________.

    <p>planning</p> Signup and view all the answers

    Match the following activities with their corresponding descriptions in managerial accounting:

    <p>Control = Process of monitoring and evaluating an organization's activities Planning = Process of setting goals and making plans to achieve them Ethics = Guidelines for professional conduct in accounting Cost Classification = Grouping costs based on shared characteristics</p> Signup and view all the answers

    What type of costs can be cost-effectively traced to a cost object?

    <p>Direct costs (D)</p> Signup and view all the answers

    Indirect costs can be directly traced to finished goods.

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

    What are the costs for direct materials in the manufacturing of a bike?

    <p>Tires, seats, frame, pedals, brakes, and cables.</p> Signup and view all the answers

    The wages paid to bike assembly workers are examples of _____ costs.

    <p>direct labor</p> Signup and view all the answers

    Match the following types of costs with their definitions:

    <p>Direct Materials = Costs that can be cost-effectively traced to finished goods Direct Labor = Wages for labor that can be traced to finished goods Indirect Labor = Labor costs that cannot be traced directly to finished goods Factory Overhead = Costs not classified as direct materials or direct labor</p> Signup and view all the answers

    Which of the following is an example of factory overhead?

    <p>Maintenance worker salaries (A)</p> Signup and view all the answers

    Screws and nuts used in manufacturing are considered direct materials.

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

    Which of the following represents manufacturing costs?

    <p>All of the above (D)</p> Signup and view all the answers

    Period costs are production costs linked to specific products.

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

    What are the two main categories of manufacturing costs?

    <p>Prime Cost and Conversion Cost</p> Signup and view all the answers

    Costs to obtain orders and deliver finished goods to customers are called ___ expenses.

    <p>selling</p> Signup and view all the answers

    Match the following types of costs with their correct definitions:

    <p>Direct Material = Materials used directly in production Direct Labor = Labor costs for employees directly involved in production Factory Overhead = Indirect costs incurred during production General and Administrative Expenses = Costs related to the overall management of the organization</p> Signup and view all the answers

    Which of the following is NOT considered a period cost?

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

    Factory overhead includes both direct materials and direct labor.

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

    What are general and administrative expenses?

    <p>Costs of staff support and administrative functions.</p> Signup and view all the answers

    ___ costs are often classified into product costs and period costs.

    <p>Manufacturing</p> Signup and view all the answers

    Which type of cost includes costs related to the staff support and overall administration of a business?

    <p>General and Administrative Costs (A)</p> Signup and view all the answers

    What is the primary difference noted between balance sheets for manufacturers, merchandisers, and servicers?

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

    Manufacturing activities do not have a significant impact on financial statements.

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

    What is the purpose of a schedule of cost of goods manufactured?

    <p>To summarize the total production costs for a period and link to financial statements.</p> Signup and view all the answers

    The flow of manufacturing costs is essential for preparing accurate financial statements, including the __________.

    <p>income statement</p> Signup and view all the answers

    Match the following terms with their associated descriptions:

    <p>Cost of Goods Sold = The total cost of products sold during a period Inventory = Goods available for sale at a given time Manufacturing Costs = Total expenses related to production processes Financial Statements = Formal records of the financial activities of a business</p> Signup and view all the answers

    Which learning objective focuses on explaining manufacturing activities and the flow of manufacturing costs?

    <p>Learning Objective C3 (A)</p> Signup and view all the answers

    All manufacturers have the same structure in their balance sheets regardless of the cost structure.

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

    What is included in the balance sheet of a manufacturing company that is notably different from a merchandiser?

    <p>Inventory of raw materials, work-in-progress, and finished goods.</p> Signup and view all the answers

    Learning Objective P1 emphasizes the preparation of an income statement and __________ for a manufacturer.

    <p>balance sheet</p> Signup and view all the answers

    Flashcards

    Managerial Accounting

    Provides financial and nonfinancial information to managers for decision-making.

    Roles of Managerial Accounting

    Includes planning, controlling, and decision-making activities within an organization.

    Ethics in Managerial Accounting

    Involves the moral principles that guide accounting practices and decisions.

    Cost Classification

    The categorization of costs into fixed, variable, direct, and indirect for better management.

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    Cost of Goods Manufactured

    The total cost to produce goods during a certain period, linked to financial statements.

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    Direct Costs

    Costs that can be traced directly to a cost object.

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    Indirect Costs

    Costs that cannot be cost-effectively traced to a cost object.

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    Direct Materials

    Costs for materials that can be traced to finished goods.

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    Direct Labor

    Wages for labor that can be traced to finished goods.

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    Factory Overhead

    Manufacturing costs not classified as direct materials or labor.

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    Indirect Labor

    Labor costs that are not directly traceable to products.

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    Indirect Materials

    Materials used in manufacturing but not directly traceable to a product.

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    Manufacturing Costs

    Costs incurred in the process of making products, including direct materials, direct labor, and factory overhead.

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    Prime Cost

    The sum of direct materials and direct labor costs used in production.

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    Conversion Cost

    The total of direct labor and factory overhead costs required to convert raw materials into finished products.

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    Period Costs

    Nonproduction costs that are linked to a specific time period rather than products.

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    Selling Expenses

    Costs incurred to obtain orders and deliver finished goods to customers.

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    General and Administrative Expenses

    Costs related to the overall management and supporting functions of a business.

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    Balance Sheet

    A financial statement showing a company's assets, liabilities, and equity at a specific point in time.

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    Income Statement

    A financial statement summarizing revenues, expenses, and profits over a period of time.

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    Flow of Manufacturing Activities

    The sequence of steps in the production process from raw materials to finished products.

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    Financial Statements

    Formal records that outline the financial activities and position of a business.

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    Inventory

    The goods and materials a business holds for the purpose of resale.

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    Manufacturing Activities

    Procedures performed to produce goods, involving planning, sourcing, and operational tasks.

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    Purpose of Cost Schedules

    To outline and summarize manufacturing costs, linking them to financial performance.

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    Study Notes

    Chapter 14: Managerial Accounting Concepts and Principles

    • Managerial accounting provides financial and nonfinancial information to an organization's managers
    • The purpose of managerial accounting involves planning, strategy, and control.
    • Planning involves setting goals and developing plans.
    • Strategy involves evaluating current strategies and creating new ones
    • Control involves monitoring and evaluating organizational activities, tracking costs, and improving performance.
    • Fraud affects all business, costing the average U.S. business 5% of annual revenues.
    • Internal control systems are used by managers to ensure reliable accounting, protect company assets, and uphold company policies, and promote efficient operations. The Association of Certified Fraud Examiners estimates the average U.S. business loses 5% of its annual revenues to fraud.
    • Managerial accounting helps in various careers, such as marketing, management, and entrepreneurship.
    • Decision-makers in both for-profit and non-profit organizations use accounting to make informed decisions and secure financing from donors.
    • Managerial accounting information is useful for marketing staff deciding which products to promote, and management evaluating sales force performance.
    • Entrepreneurs use the information to manage costs, budgets, and financial statements.
    • Financial accounting focuses on external users like investors, creditors and focuses on monetary information from the past. Reporting is structured by GAAP.
    • Managerial accounting focuses on internal users like managers, and uses more flexible reporting, not bound to GAAP. Reporting can be real time and forward looking.
    • The Institute of Management requires that management accountants be competent, maintain confidentiality, act with integrity, and communicate in a fair and credible manner.

    Learning Objective C1

    • Explain the roles and ethics of managerial accounting.

    Learning Objective C2

    • Describe accounting concepts useful in classifying costs
    • Direct costs are costs easily traced to a cost object.
    • Indirect costs cannot be easily traced to a cost object.
    • Direct materials are direct materials that are cost-effectively traceable through the manufacturing process to finished goods. Examples include tires, seats, frames, pedals, brakes, and cables in manufacturing a bicycle.
    • Direct labor is the wages and salaries of direct labor that are cost-effectively traced through the manufacturing process to finished goods.
    • Factory overhead consists of all manufacturing costs that are not direct materials and direct labor and cannot be cost-effectively traced to finished goods. Illustrative examples include maintenance workers, indirect materials (screws, nuts, staples), and factory utility costs.
    • Prime cost = Direct materials + Direct labor
    • Conversion cost = Direct labor + Factory overhead
    • Product costs are direct materials, direct labor and factory overhead costs. Product costs are part of the inventory of a manufacturer until sold.
    • Period costs are nonproduction costs linked to a time period, not products. Selling expenses include costs to obtain orders and the cost to deliver finished products to customers. General and administrative expenses include salaries and expenses of staff, support and administrative functions

    Learning Objective C3

    • Explain manufacturing activities and the flow of manufacturing costs.
    • Illustrate a flow of manufacturing activities. Raw materials become a work in process then eventually finished goods.

    Learning Objective P1

    • Prepare an income statement and balance sheet for a manufacturer

    • The balance sheet includes elements like raw materials inventory, work in process inventory, and finished goods inventory.

    Learning Objective A1

    • Assess raw materials inventory management using raw materials inventory turnover and days' sales in raw materials inventory.
    • Raw materials inventory turnover is a calculation used to assess how effectively a company manages its raw materials inventory.

    Learning Objective P2

    • Prepare a schedule of cost of goods manufactured and explain its purpose and links to financial statements.
    • A schedule of cost of goods manufactured summarizes the types and amounts of costs incurred in a company's manufacturing process.

    Key Calculations in Schedule of Cost of Goods Manufactured

    • Total manufacturing costs = Direct materials used + Direct labor used + Factory overhead used
    • Cost of goods manufactured = Total manufacturing costs + Beginning work in process inventory – Ending work in process inventory
    • Trends include customer orientation, digital manufacturing, global economy, e-commerce, lean principles (eliminating waste), total quality management, just-in-time (JIT) manufacturing, value chain (series of principles adding value to a company's products or services), and corporate social responsibility.

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    Managerial Accounting Concepts and Principles PDF

    Description

    Explore the key concepts and principles of managerial accounting in this quiz. Understand how it aids in planning, strategy, and control within organizations, while also learning about the impact of fraud and the importance of internal control systems. Perfect for students and professionals seeking to improve their accounting knowledge.

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