Managerial Accouting
Terms
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- PROCESS MANAGEMENT APPROACHES
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LEAN PRODUCTION
THEORY OF CONSTRAINTS
SIX SIGMA - STEPS OF LEAN PRODUCTION
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1. Order placement
2. Order creation
3. Generate Components
4. Components Ordered
5. Production Begins
6. Goods Delivered
- BENEFITS OF LEAN PRODUCTIONS
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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
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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
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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
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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
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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
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RM + PURCHASES = RMA
RMA - ERM = DMU
DMU + DL + MF OH = TMC
TMC + BWIP = TWIP
TWIP - EWIP = COGM - COST OF GOODS SOLD FORMULA
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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
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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.