Midterm

• Managerial Accounting


  The magnifying glass for managers, highlighting critical information for better decision-making
• Managerial Accounting: The Detective Work

  1. Focus on important info

  2. Find business clues

  3. Enhance decision making
• The Balanced Scorecard Approach

  • Measure financial performance
  • Assess customer satisfaction
  • Evaluate internal process efficiency and effectiveness
• Flexibility in Managerial Accounting

  • No strict rules, unlike financial accounting
  • Companies tailor it to their specific needs
• Calculating Total Product Cost

  1. Materials

  2. Labor

  3. Overhead
• Period Costs


  Costs not directly tied to production, e.g. manager salaries, advertising
• Job-Order Costing for Custom Homes

  1. Track costs

  2. Unique builds
• Work-in-Process Inventory

  • Materials added
  • Labor time accounted for
  • Overhead included
• Cost Transfer Between Departments


  1. Department No.1 completes its part and passes costs

  2. Next department receives costs for further processing
• Activity-Based Costing and Cost Drivers

  • Machine hours directly impact cost
  • Electricity usage costs rise with use
• Variable Costs


  Vary in total, constant/fixed per unit, e.g. purchasing ice cream scoops
• Fixed Costs


  Remain constant regardless of production output, e.g. rent, insurance, depreciation
• Profit Planning in Managerial Accounting

  1. Cost coverage

  2. Profit target

  3. Practical calculation
• Safety Margin/Margin of Safety


  The extent to which sales can decline before losses are incurred, serving as a cushion against market volatility
• The Integral Nature of Budget

  Financial blueprint, comparative analysis, jellybean metaphor
• Master Budget: The Comprehensive Financial Overview

  1. Research

  2. Planning

  3. Execution
• Budget vs. Actual: Variance Analysis

  Budget insight, labor variance
• Quality Control Costs

  Incurring costs, excluding waste
• External Failure Costs


  Returns, complaints
• Weighted Average Cost of Capital (WACC)

  Averages costs of borrowing and equity capital, helps decide if a project's return justify the investment
• Relevant Cost in Decision-Making

  Future costs, avoidable costs
• Cost-Plus Pricing

  Total cost, markup, selling price
• Competitive Bidding and Costs

  Variable costs, fixed costs, bidding strategy
• Capital Budgeting

  Evaluating and selecting long-term investments aligned with wealth maximization
• Evaluating Investments with NPV

  DCF analysis, project viability
• Profitability Index (PI)

  Ratio of value to cost, aids in project selection and comparison
• The Payback Period

  Time needed for an investment to recoup its initial cost through generated cash flows
• Accounting Rate of Return (ARR)

  Compares average annual profit to initial or average investment, informs investment decision threshold
• Economic Order Quantity (EOQ)

  Balances ordering and holding costs, contributes to inventory management and cash flow optimization
• Order/Reorder Point

  Reorder point, prevents stockouts, safety stock
• Complementary Products

  Cheaper complement products boost demand for related products, accessibility affects intertwined market demands
• Price Inelasticity

  Necessary nature of products attributes to price inelasticity, consumers prioritize essential goods despite price hikes
• Understanding Inflation


  Represents the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power
• Managerial Accounting: A Business Partnership with Management

  • Evolution from staff capacity to consultants, cross-functional teamwork, trusted business partner
• Walt Disney Company

  • Utilizes managerial accounting to align creative and guest service goals with financial discipline
• Hewlett-Packard (HP)


  • Managerial accounting provides insight into cost management, investment, opportunities, and financial forecasting, enabling informed decisions aligned with long-term visions and goals
• Major Themes in Managerial Accounting

  • Information and incentives, behavioral issues, organizational design
• Managerial accountants

  • Work closely with other departments
  • Ensure company's offerings are both creatively and financially viable
• Objectives of managerial accounting activity

  • Providing information for decision making and planning
  • Assisting managers in directing and controlling operational activities
  • Motivating managers and employees toward organizational goals
  • Measuring the performance of activities, subunits, and individuals
  • Assessing the organization's position and long-run competitiveness
• Strategic role of managerial accounting at HP

  Provides insight into cost management, investment, opportunities, and financial forecasting