Managerial Accounting Differences Flashcards

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Questions and Answers

What are the users of financial accounting reports primarily concerned with?

Internal users

External parties (correct)

Both internal and external users

None of the above

What is a budget?

A detailed plan for the future expressed in formal quantitative terms.

Managerial accounting reports are prepared for external users.

False

What are the three main functions of management?

Planning, Controlling, Decision Making. Signup and view all the answers

What is a value chain?

Major business functions that add value to products and services Signup and view all the answers

What does the Theory of Constraints emphasize?

Effectively managing the constraint is the key to success. Signup and view all the answers

Define opportunity cost.

The potential benefit given up when one alternative is selected over another. Signup and view all the answers

What does Total Manufacturing Costs (TMC) include?

Direct materials, direct labor, and manufacturing overhead. Signup and view all the answers

The sum of direct materials cost and direct labor cost is called ________.

Prime cost Signup and view all the answers

What does a job cost sheet track?

Direct and indirect costs associated with a job Signup and view all the answers

What are indirect costs?

Costs that cannot be easily traced to specific units produced. Signup and view all the answers

What do fixed costs do within the relevant range?

Stay constant Signup and view all the answers

_______ costs are incurred in both manufacturing and merchandising firms.

Selling and administrative Signup and view all the answers

What are job-order costing systems used for?

When many different products are produced, products are manufactured to order, and require unique cost tracking. Signup and view all the answers

What is the formula for computing total job cost?

Total job cost = Direct materials + Direct labor + Applied manufacturing overhead. Signup and view all the answers

Study Notes

Differences between Financial and Managerial Accounting

Financial accounting targets external users; managerial accounting focuses on internal decision-makers.
Financial accounting summarizes past transactions, while managerial accounting emphasizes future planning.
Objectivity is crucial in financial accounting; managerial accountants prioritize relevant data over absolute objectivity.
Financial accounting aims for precision; managerial accounting values timely, good estimates.
Companywide reports characterize financial accounting; managerial accounting produces segment reports (product lines, departments).
Managerial accounting is not bound by GAAP or IFRS, while financial accounting must comply with these standards.
Financial accounting is compulsory; managerial accounting is optional for organizations.

Segment

Segments refer to parts of an organization, with managerial accounting emphasizing individual reportings, such as product lines and sales territories.

Three Main Functions of Management

Planning determines goals and the means to achieve them, often coupled with a budget.
Controlling gathers feedback through performance reports, comparing budgeted versus actual outcomes.
Decision making involves selecting actions from competing alternatives, guided by questions of product focus, target customers, and execution strategies.

Budget

A budget serves as a detailed financial plan expressed in quantitative terms for the future.

Strategy

A strategy acts as a game plan for a company, differentiating it from competitors to attract customers.

Business Process

A business process consists of a sequence of steps taken to accomplish a business task.

Value Chain

The value chain encompasses major business functions that add value to products and services.

Lean Production (JIT)

Lean production, or Just-in-Time (JIT), organizes resources efficiently, producing only in response to customer orders.

Constraint

A constraint (bottleneck) is the weakest link in a system, limiting overall gain and identified as the step with the least capacity.

Theory of Constraints (TOC)

TOC emphasizes the importance of managing constraints for organizational success.

CSR involves considering all stakeholders' needs in decision-making, extending beyond legal compliance to meet voluntary expectations.

Total Manufacturing Costs (TMC)

TMC consist of direct materials, direct labor, and manufacturing overhead, summed as TMC = DL + DM + MOH.

Direct Materials (DM)

DM are raw materials integral to the finished product, easily traceable (e.g., aircraft engines in planes).

Indirect Materials (IM)

IM are materials supporting production but not directly traceable to the product.

Direct Labor (DL)

DL refers to labor directly attributed to a product, often called "touch labor."

Indirect Labor (IL)

IL includes wages for employees not directly involved in production.

Manufacturing Overhead (MOH)

MOH encompasses all manufacturing costs excluding DM and DL, including indirect materials and labor costs.

Selling & Administrative Costs (SG&A)

SG&A covers costs related to non-manufacturing activities in both manufacturing and merchandising firms.

Product Costs

Product costs involve all costs incurred to acquire or create a product, recognized as expenses upon sale.

Period Costs

Period costs include all selling and administrative expenses.

Prime Cost

Prime cost totals direct materials and direct labor costs.

Conversion Cost

Conversion cost adds direct labor to manufacturing overhead costs, essential for turning materials into finished goods.

Variable Costs

Variable costs fluctuate directly with activity levels, such as per-text costs for texting plans.

Fixed Costs

Fixed costs remain stable within a relevant range, unaffected by activity changes, such as a monthly cell phone fee.

Mixed Costs

Mixed costs contain variable and fixed elements, such as a utility bill with both component types.

High-Low Method

The high-low method estimates mixed costs using the highest and lowest activity levels to determine fixed and variable components.

Relevant Range

The relevant range refers to an activity level where cost behavior assumptions remain valid, often approximated by a straight line.

Traditional Income Statement

A typical traditional format includes sales, COGS, gross margin, selling/admin expenses, and net operating income.

Contribution Format Income Statement

A contribution format separates variable expenses from fixed expenses, illustrating contribution margin.

Contribution Margin

Contribution margin reflects sales minus variable expenses, showcasing resources available for fixed costs and profit.

Differential (Incremental) Cost

Differential costs are the cost differences between two options; differential revenue represents revenue differences.

Opportunity Cost

Opportunity costs signify potential benefits forfeited when choosing one alternative over another.

Sunk Cost

Sunk costs are already incurred and irrecoverable, thus ignored in future decisions.

Job-Order Costing

Job-order costing assigns costs to unique product orders, used when producing various items or custom orders.

Job Cost Sheet

The job cost sheet tracks all costs related to a specific job, including direct and indirect expenses, serving as a subsidiary ledger.

Predetermined Overhead Rate (POHR)

POHR calculates manufacturing overhead by estimating total overhead costs divided by the allocation base.

Applying Manufacturing Overhead

This involves calculating overhead applied to job costs via a four-step process using estimated overhead and production levels.

Cost Driver

A cost driver is a factor that directly influences the cost incurred, typically the basis for applying indirect costs.

Total Job Cost Calculation

The total job cost includes calculating applied overhead based on the predetermined rate linked to labor hours.

Inventory Types

Raw Materials Inventory encompasses all materials for final products.
Work in Process Inventory consists of units partially completed.
Finished Goods Inventory includes completed units waiting for sale.

Cost of Goods Sold (COGS)

COGS reflects costs associated with produced goods that have been sold during a reporting period.

Costs Flow and Transfers

Cost flow through inventory accounts to COGS, detailing the transitions between raw materials, WIP, finished goods, and costs incurred.

Journal Entries

Journal entries record material purchases, direct labor costs, and manufacturing overhead transfers to respective inventory accounts.

Schedule of Cost of Goods Manufactured

This schedule sums direct materials, direct labor, and manufacturing overhead to calculate costs of finished goods.

Schedule of Cost of Goods Sold

COGS calculation derives from the beginning and ending inventory figures to reflect sold costs in a period.

Under- or Over-Applied Manufacturing Overhead

Adjustments to COGS are required based on the application of overhead compared to actual incurred overhead costs.

Additional Tips

Non-manufacturing costs are excluded from total manufacturing costs; terms related to production typically signify product costs.

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Description

This quiz covers the key distinctions between financial and managerial accounting. Learn how these branches of accounting differ in terms of users, focus, and reporting methods. Perfect for exam preparation and deepening your understanding of accounting principles.