Chapter 1-3 Managerial Accounting

Financial v. Managerial Accounting
Managerial: future, for managers who plan and control, emphasis on relevance, emphasis on timeliness, focus on segment reports, not bound by GAAP, not mandatory
3 activities that managerial accounting helps carry out:
1. planning
2. controlling
3. decision making
-Establishing goals, specifying how to achieve them, and develop a budget.
-Gathers feedback to ensure that plans are being followed.
-Performance reviews compare actual results with the budget.
Decision Making:
-Involves making a selection among competing alternatives
-Answers three questions: what should we sell, to whom, and how?
3 Customer Value Propositions:
1. Customer Intimacy Strategy
2. Operational Excellence Strategy
3. Product Leadership Strategy
Customer Intimacy Strategy:
Understand and respond to individual customer needs
Operational Excellence Strategy
Deliver products and services at low prices, faster, and more conveniently.
Product Leadership Strategy
Offer higher quality products
Skills that Managerial Accountants must have:
1. Strategic MGMT Skills
2. Enterprise Risk MGMT Skills
3. Process MGMT Skills
4. Measurement Skills
5. Leadership Skills
Strategic MGMT Skills:
-Must know how to develop and execute a strategy in order to satisfy customer needs
-Customer Value Propositions**
Enterprise Risk MGMT Skills:
-Once a company identifies its risks, they decide how to avoid, reduce, or accept those risks.
Process MGMT Skills:
-Business processes are series of steps that are followed in order to complete a task in business.
-2 types:
Lean Production
-JIT production
-minimizes inventory/most efficient
Theory of Constraints
-Effectively managing the constraint is the key to success.
-realize the constraint, fix it, see results.
-ex. hospital and number of surgeries
Measurement Skills
-knowing how to measure everything in your business
Leadership Skills:
1. technical competence
2. high integrity
3. understanding how to implement org. change
4. strong communication skills
5. capable of motivating/mentoring others
6. team manage effectively
IMA Ethical Statement:
1. competence
2. confidentiality
3. integrity
4. credibility
Three types of Manufacturing Costs:
1. Direct Materials
2. Direct Labor
3. Manufacturing Overhead
direct materials:
-Raw materials that become an integral part of the product and can be easily traced directly to it
-radio in a car
Direct Labor:
-Labor costs that can be easily traced to individual units of product
-wages paid to the assembly workers
Manufacturing Overhead:
-Costs that CANNOT be easily traced directly to specific units produced.
-Indirect Materials (materials used to support in the production process, like lubricants and cleaning supplies used in the company) and Indirect Labor (wages paid to people like maintenance workers, security, etc.)
Selling v. Admin. Costs:
-Selling: costs needed to secure the order, deliver the product (advertisements, shipping, sales salaries, etc.)
-Administrative: all exec, organizational, and clerical costs (exec. compensation, PR, general accounting, etc.)
Product Costs:
-Include direct materials, labor, and manufacturing overhead
-Begin in Balance Sheet (Inventory); post-sale is moved to Income Statement (COGS)
Period Costs:
-Include all selling and admin costs
-Income Statement (Expense)
Conversion v. Prime Costs:
-Conversion: Manufacturing Overhead and Direct Labor
-Prime Cost: Direct Material and Direct Labor
3 common cost classifications used for predicting cost behavior
-Variable Costs
-Fixed Costs
-Mixed Costs
Variable Costs:
-varies in direct proportion to changes in the level of activity
-ex. texting; with each text, your bill increases by $.05
Fixed Costs:
-stays the same, no matter how much activity
-committed (taxes) or discretionary (ads)
-relevant range
-ex. monthly contract allotment; as more calls are made, average fixed cost decreases
Mixed Costs:
Y=a+b(x), where
a= total fixed
b=variable cost per unit
Y= total mixed
x=level of activity
-contains elements of both variable and fixed
High-Low Method:
1. select highest and lowest levels of activity, fill in formula:
Variable Cost per Unit=(Difference in Total Cost)/(Difference in Production)
2. Take answer, plug either highest or lowest level of production into formula: