Managerial Accounting Concepts
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Questions and Answers

Managerial accounting reports must be prepared according to generally accepted accounting principles (GAAP).

False (B)

Operational planning focuses on long-term strategies that extend over a period of five to ten years.

False (B)

Directing involves the process of setting goals and objectives for the company.

False (B)

Controlling aims to ensure that actual results do not deviate significantly from expected results.

<p>True (A)</p> Signup and view all the answers

Continuous process improvement focuses on identifying the source of problems and finding solutions.

<p>True (A)</p> Signup and view all the answers

The management process involves five phases: planning, directing, controlling, improving, and decision making.

<p>True (A)</p> Signup and view all the answers

Strategic planning typically involves short-term actions and decisions with a focus on daily operations.

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

The aim of management by exception is to identify and address deviations from expected results.

<p>True (A)</p> Signup and view all the answers

Financial accounting is primarily concerned with information for internal users.

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

Managerial accounting can be considered as "internal accounting" due to its focus on information for internal users.

<p>True (A)</p> Signup and view all the answers

Cost accounting is primarily concerned with the production of financial statements for external users.

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

Cost accounting can be viewed as a bridge between financial and managerial accounting.

<p>True (A)</p> Signup and view all the answers

Financial accounting is used by internal parties like managers to make strategic decisions.

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

Financial accounting can be classified as "external accounting".

<p>True (A)</p> Signup and view all the answers

The cost accounting system is a component of the overall accounting system.

<p>True (A)</p> Signup and view all the answers

The nature of manufacturing processes does not affect the types of manufacturing costs incurred.

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

Manufacturing overhead is comprised of indirect materials, indirect labor, and other manufacturing costs.

<p>True (A)</p> Signup and view all the answers

Direct costs are always readily assignable to a specific project.

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

Direct materials are an integral part of the finished product but do not contribute significantly to the product's total cost.

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

Direct labor is considered a manufacturing overhead cost.

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

Indirect material is a type of direct cost.

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

The cost of depreciation is an example of a direct cost.

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

The assembly production process is ideal for small batches of customized products.

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

The more costs that can be traced to a specific project, the less accurate the cost assignments will be.

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

Continuous flow production prioritizes constant, uninterrupted production, often seen in industries like chemicals.

<p>True (A)</p> Signup and view all the answers

Direct labor is considered an indirect cost because it is not directly traceable to a specific product.

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

Legend Guitars utilizes a job shop production process to manufacture guitars.

<p>True (A)</p> Signup and view all the answers

The cost of equipment acquired using assets other than cash is determined by the price paid for the equipment.

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

A cost object can be a product, a department, or an activity, but not a sales territory.

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

Batch production is less efficient compared to job shop production in terms of output.

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

The cost of a product includes the sacrifice made to obtain the benefit of that product, such as expenses for materials and labor.

<p>True (A)</p> Signup and view all the answers

Manufacturing operations fall under the broader classification of service businesses.

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

The per-unit conversion cost for BlueDenim Company's jeans last week was $2.60.

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

Prime costs include all costs of converting raw materials into a finished product.

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

The total conversion cost for BlueDenim Company's jeans last week was $P102,000.

<p>True (A)</p> Signup and view all the answers

Manufacturing overhead is considered a product cost for financial accounting purposes.

<p>True (A)</p> Signup and view all the answers

The per-unit prime cost is calculated by dividing the total prime cost by the number of units manufactured.

<p>True (A)</p> Signup and view all the answers

The per-unit prime cost for BlueDenim Company's jeans last week was $P3.40.

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

Direct Labor is a component of both Prime Cost and Conversion Cost.

<p>True (A)</p> Signup and view all the answers

BlueDenim Company's total prime cost incurred last week was $P78,000.

<p>True (A)</p> Signup and view all the answers

Units of product that are only partially complete are termed FINISHED GOODS INVENTORY.

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

A manufacturing business's cost of goods sold includes the cost of direct materials, direct labor, and factory overhead.

<p>True (A)</p> Signup and view all the answers

To determine its cost of goods sold, a retail business first subtracts its ending inventory from its net purchases.

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

The cost of goods manufactured is the total cost of products that are sold during the period.

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

The first step in preparing the statement of Cost of Goods Manufactured is determining the cost of total manufacturing costs incurred.

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

Income statements for retail and manufacturing businesses differ primarily in the reporting of goods available for sale.

<p>True (A)</p> Signup and view all the answers

Managerial accounting is only beneficial for the financial aspects of management.

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

The statement of Cost of Goods Manufactured is prepared in three steps.

<p>True (A)</p> Signup and view all the answers

Flashcards

Job Shop Production

Custom, one-off production based on specific customer specifications.

Assembly Production

High-volume production of standardized products, often using automated lines.

Batch Production

Production in distinct batches or groups, more efficient than Job Order production.

Continuous Flow Production

Ongoing, uninterrupted production typical in industries like chemicals or energy.

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Cost in Business

A sacrifice made to obtain some benefit, usually in cash or a promise to pay.

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Cost Object

Anything to which costs are assigned, like products or departments.

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Managerial Accounting

A field responsible for determining product costs and motivating managerial decisions.

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Material Acquisition in Manufacturing

The process of obtaining materials needed for production after an order is placed.

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Financial Accounting

Accounting that provides financial statements for external users like investors and creditors.

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Cost Accounting

Tracks and reports costs associated with the production of goods and services.

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Internal Users

Individuals who use accounting information within an organization, such as managers and employees.

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External Users

Individuals or groups outside an organization who use its financial information, such as investors and regulators.

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Product Costs

Costs directly associated with the production of goods, essential for pricing and profitability analysis.

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Planning and Controlling

Processes in management accounting for setting goals and monitoring progress toward those goals.

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Manufacturing Processes

Various methods companies use to produce goods, which affects their incurred costs.

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Managerial Accounting Reports

Reports that don't follow formal criteria or fixed intervals and support management tasks.

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Management Process Phases

Five phases: Planning, Directing, Controlling, Improving, Decision Making.

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Strategic Planning

Long-term planning to achieve a company's objectives, often over five to ten years.

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Operational Planning

Short-term planning that manages day-to-day operations of the company.

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Controlling

Monitoring actual results and comparing them with expected outcomes, aiding in decision-making.

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Management by Exception

The philosophy of reviewing variances between actual and expected results.

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Continuous Process Improvement

The ongoing effort to enhance business processes and eliminate problems.

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Direct Cost

Costs easily traced to a cost object, observed directly.

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Indirect Cost

Costs that cannot be traced to a specific project but are essential for operations.

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Manufacturing Cost

Total cost associated with manufacturing a product, including materials and labor.

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Direct Material Cost

Cost of raw materials that become integral to a finished product.

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Direct Labor Cost

Wages of employees directly involved in producing the finished product.

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Manufacturing Overhead

All manufacturing costs not classified as direct materials or labor.

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Indirect Material

Materials used for production that are not part of the finished product.

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Indirect Labor

Wages for personnel not directly working on the product but essential for manufacturing.

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Prime Cost

Costs that include direct materials and direct labor.

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Conversion Cost

Costs involved in converting materials into a finished product, comprising direct labor and manufacturing overhead.

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Total Prime Cost Calculation

Total calculated by adding direct materials and direct labor costs.

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Total Conversion Cost Calculation

Total calculated by adding direct labor and manufacturing overhead.

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Per-Unit Prime Cost

Cost per unit calculated by dividing total prime cost by the number of units produced.

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Per-Unit Conversion Cost

Cost per unit calculated by dividing total conversion cost by the number of units produced.

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Partially Complete Units

Units of product that require further work before sale.

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Finished Goods Inventory

Complete units of product not yet sold to customers.

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Cost of Goods Sold (COGS)

Total cost of merchandise sold during a period.

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Cost of Goods Manufactured

Total cost of products made available for sale during the period.

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Statement of Cost of Goods Manufactured

A report detailing the cost incurred to manufacture products.

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Total Manufacturing Costs

Sum of all costs incurred in manufacturing during a period.

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Study Notes

Managerial Accounting Concepts & Principles

  • Managerial accounting provides information to meet the specific needs of company management.
  • It includes historical data (objective measures of past operations) and estimated data (subjective estimates for future decisions).
  • Managerial accounting reports do not always adhere to generally accepted accounting principles (GAAP).
  • They are not always prepared at fixed intervals.
  • They are not always prepared for the entire business.

The Management Process

  • The management process consists of five basic phases: planning, directing, controlling, improving, and decision-making.

Planning

  • Planning involves developing company objectives (goals) and translating them into action plans.
  • It can be categorized as strategic planning (long-term actions to achieve objectives, often over five to ten years) and operational planning (short-term actions for daily operations).

Directing

  • Directing is the process where managers oversee daily operations.
  • Examples include a production supervisor ensuring uninterrupted production, or a credit manager assessing customer payment ability.

Controlling

  • Controlling involves monitoring operating results and comparing them to expected results.
  • This feedback helps isolate areas needing investigation and potential corrective actions.
  • The philosophy of controlling by comparing actual and expected results is called "management by exception".

Improving

  • Continuous process improvement aims to continually enhance employees, processes, and products.
  • The goal is to eliminate problem sources within processes.

Decision-Making

  • Decision-making is inherent in each preceding management phase.
  • Managers continuously select among alternative actions.

Accounting Information Systems: Differences

  • Financial Accounting: Primarily focuses on providing information (financial statements) to external users (investors, creditors, customers, suppliers, and government agencies). External accounting.
  • Managerial Accounting: Provides information to internal users (managers, executives, and workers) for planning, controlling, and decision-making. Internal accounting.
  • Cost Accounting: A component of the overall accounting system that accumulates data about the cost of producing goods or services. Cost accounting systems measure, record, and report product costs to set prices, manage operations, and develop financial statements.
  • Cost accounting is the intersection of financial and managerial accounting. Cost accounting provides product cost information to both external and internal parties.

Manufacturing Costs and Operations

  • Manufacturing firms can be categorized by their primary manufacturing process (e.g., Job Shop, Batch, Assembly, Continuous Flow). The process type impacts the cost incurred within the business operation.
  • Manufacturing operations involve stages like obtaining materials, cutting, assembly, and finishing, as exemplified by the Guitar manufacturing example provided.

Cost

  • A cost is a sacrifice made to obtain a benefit, often expressed as a cash payment or a commitment to pay cash in the future.
  • Costs can be classified by how they relate to a particular object or segment of operations, which is called a cost object (e.g., a product, a sales territory, or an activity).

Direct and Indirect Costs

  • Direct Costs: Easily traceable to a cost object (e.g., direct materials, direct labor).
  • Indirect Costs: Not easily traceable to a cost object, but necessary for the operation of the organization (e.g., factory overhead).

Manufacturing Costs

  • Direct Materials: Raw materials physically incorporated into the finished product.
  • Direct Labor: Wages of employees directly involved in the production process.
  • Manufacturing Overhead: All other manufacturing costs not directly traceable (e.g., indirect materials, indirect labor, factory depreciation).

Prime Cost and Conversion Cost

  • Prime Cost: Direct materials + Direct labor
  • Conversion Cost: Direct labor + Manufacturing overhead

Product Cost

  • Product Costs: Include all costs directly involved in acquiring or creating a product (direct materials, direct labor, and manufacturing overhead).
  • Period Costs: Selling and administrative expenses (not directly tied to the product).

Statements for Manufacturing Businesses

  • Balance Sheet: Reports assets, liabilities, and owners' equity (similar to a merchandising company, but with three inventory categories: materials, work-in-process, and finished goods).
  • Income Statement: Shows revenues, costs of goods sold, and operating expenses.

Uses of Managerial Accounting Information

  • Managerial accounting information helps managers in all phases of the management process (planning, directing, controlling, improving decision-making).
  • Examples include setting selling prices, monitoring and controlling costs, investigating scrap or employee downtime, and analyzing potential efficiencies.

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Unit 1: Managerial Accounting Concepts & Principles PDF

Description

Test your understanding of key managerial accounting principles and processes. This quiz covers topics such as GAAP, operational planning, and the management cycle including planning, directing, and controlling. Assess your knowledge on how these concepts apply to internal decision-making within organizations.

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