cob 242 exam 2

• financial accounting uses external users
• financial accounting is rule based (regulated - must comply with GAAP)
• financial accounting is mandatory for external reports
• financial accounting has a total entity perspective
• financial accounting has financial measures - largely historical
• managerial accounting uses internal users (has an internal focus - how do we make better decisions for our company?)
• managerial accounting is tailored to needs (unregulated - timeliness over precision)
• in managerial accounting, there is no GAAP, therefore it isn't mandatory
• in managerial accounting, the techniques and practices are based on experience for what has been effective in the past with timeliness over precision valued
• managerial accounting uses a disaggregated perspective - we can look separately at individual business lines, departments and products
• managerial accounting has both financial and non-financial measures looked at (example: any ratio based performance measure)
• the purpose of managerial accounting is to provide information for decision making and planning (such as production methods, product mix, and quantity of the output desired)
• managerial accounting assist managers in directing and controlling operations
• managerial accounting motivates managers/employees to accomplish organizations' goals
• managerial accounting measures performance against goals
• managerial accounting assess competitive position
• understanding and predicting costs is the main focus of managerial accounting
• direct costs are easily and conveniently traced to a specific cost object
• indirect costs cannot be easily and conveniently traced to a specific cost object
• cost objects are anything for which cost data is desired (example: product, customers, jobs)
• costs are classified by their financial statement effect and behavior
• product costs debit inventories when incurred and become expenses when sold
• product costs or manufacturing costs are direct materials, direct labor, and manufacturing overhead
• direct materials are costs of raw material that is used to make and can be conveniently traced to the finished product
• direct labor are costs of salaries, wages, and fringe benefits for personnel who work directly on the product (touch labor)
• manufacturing overhead are all other manufacturing costs; indirect material, indirect labor, and other costs
• indirect materials are materials used to support the production process (lubricants and cleaning supplies used in an automobile assembly plant)
• indirect labor is the cost of personnel who do not work directly on the product (maintenance workers, janitors, and security guards)
• other costs are costs that cannot be readily traced to a finished product (depreciation on plant and equipment, property taxes, insurance, utilities, overtime premium, and avoidable idle time)
• period costs are expensed when incurred
• period costs or non manufacturing costs are research and development, income taxes, selling costs, and administrative costs)
• selling costs are all costs incurred to secure customer orders and get the finished product to customers (advertising, shipping, sales travel)
• administrative costs are all costs associated with the general management of an organization (executive compensation, general accounting, public relations)
• variable costs increase proportionally with activity (example: your monthly gasoline cost is based on how many miles you drive) slope is variable cost per unit of activity
• fixed costs does not change with activity (example: your monthly car insurance does not change with the number of miles driven)
• mixed cost is partly fixed and partly variable (semi-variable)
• traditional approach is costs organized by function; used because of GAAP and primarily for external reporting
• contribution approach is costs organized by behavior; used primarily by management
• the contribution margin tells you the excess of revenue over variable costs , it covers the company's fixed costs and provides the profits
• selling price per unit = sales/units sold