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Glossary of Managerial Accouting

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PROCESS MANAGEMENT APPROACHES
LEAN PRODUCTION

THEORY OF CONSTRAINTS

SIX SIGMA



STEPS OF LEAN PRODUCTION
1. Order placement
2. Order creation
3. Generate Components
4. Components Ordered
5. Production Begins
6. Goods Delivered






BENEFITS OF LEAN PRODUCTIONS
Reduces inventories
Decreases defects
Reduces wasted effort
Shortens customer response times


THEORY OF CONSTRAINTS
A business or production process is only as strong or fast as it's weakest link. The constraint in a system is determined by the step that has the smallest constraint.
THE SIX SIGMA PROCESS
Define
Measure
Analyze
Improve
Control



ENTERPRISE RISK MANAGEMENT
A process used by a company to proactively identify foreseeable risk and manage them before they occur or prepare for them accordingly.
CORPORATE SOCIAL RESPONSIBILITY
The concept whereby organizations consider the needs of all stakeholders when making decisions.
PRIMARY ACTIVITIES OF MANAGEMENT
Planning
Directing
Motivating
Controlling




MANAGERIAL ACCOUNTING
Concerned with providing information to managers who direct and control the operations of an organization.
FINANCIAL ACCOUNTING
Concerned with providing information to stockholders, creditors and others who are outside of the organization.
MANAGERIAL ACCOUNTING FOCUSES ON...
Emphasis on the future, relevance, timeliness; detailed segment reports on departments products and customers; doesn't have to follow GAAP or report externally.
MANUFACTURING COSTS
Raw Materials (direct and indirect)

Labor (direct and indirect)

Overhead (all costs except Direct Labor and Materials)





PRODUCT COST
All costs involved in acquiring or making a product.
PERIOD COST
All costs that are not related to product costs.
PRIME COST
The sum of direct materials cost and direct labor cost.
CONVERSION COST
The sum of direct labor cost and manufacturing overhead cost.
THREE CLASSES OF INVENTORIES
Raw materials
Work in process
Finished goods

VARIABLE COST
A cost that varies in direct proportion to changes in the level of activity.
FIXED COST
A cost that remains constant regardless of the changes in the level of activity.
RELEVANT RANGE
The range of activity within which the assumptions about variable and fixed cost are valid.
DIRECT COST
A cost that can be easily and conveniently traced back to a specific cost object.
INDIRECT COST
A cost that cannot be traced back to a specific cost object.
OPPORTUNITY COST
The potential benefit that is given up when one alternative is selected over another.
DIFFERENTIAL COST
A difference in cost between any two alternatives.
SUNK COST
A cost that has already occurred.
COST OF GOODS MANUFACTURED FORMULA
RM + PURCHASES = RMA

RMA - ERM = DMU

DMU + DL + MF OH = TMC

TMC + BWIP = TWIP

TWIP - EWIP = COGM







COST OF GOODS SOLD FORMULA
FG (Beginning of the year) + COGM = COGA

COGA - FG (End of the year) = COGS









GROSS MARGIN FORMULA
SALES - COGS = GM
NET OPERATING INCOME FORMULA
GM - SE - AE = NOI
ABSORPTION COSTING
Assigning manufacturing costs (fixed and variable) to specific units of product.
JOB ORDER COSTING
Used in situations where many different products are produced for each period.
PROCESS COSTING
Used in companies that produce many units of a single product for long periods.
CALCULATING PREDETERMINED OVERHEAD RATE
Estimated Total Manufacturing Overhead divided by Estimated total amount of the allocation base.

Example: $320,000/40,000 direct labor hours.

OVER AND UNDER APPLIED OVERHEAD
Actual MF OH - TMH OH = Under or over applied overhead; the difference is handled by debiting or crediting cost of goods sold.

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