Question

Chapter 18

Introduction to Managerial Accounting

Directed Reading Guide

12. Why is managerial accounting important?

1. Identify as a focus of Managerial (M) or Financial (F) accounting:
   1. Primarily for internal users   ______
   2. Primarily for external users   ______
   3. Follows GAAP rules             ______
   4. Summary reports of the entire company      ______
   5. Concerned about how reports will affect employee behavior ______
2. Managers need information for?

12. How are costs classified?

1. Manufacturing (product) costs categories are:

1. materials
   

2. labor
   
3. overhead
   

2. __________________ combines direct materials and direct labor.

3. __________________ combines direct labor and manufacturing overhead.

4. Selling and administrative expenses are referred to as _________________.
   

12. How do manufacturing companies prepare financial statement?

1. Identify if the item is part of the Cost of Goods Manufactured (COGM) or the Cost of Goods Sold (COGS):

1. Beginning Finished Goods Inventory   __________
   
2. Direct Materials Used                           __________
   
3. Direct Labor                                          __________
   
4. Beginning Work-in-Process Inventory __________

2. If beginning Finished Good Inventory is $2,000, ending Finished Goods Inventory is $3,000, and Cost of Goods Manufactured is $10,000, what is Cost of Gods Sold?

12. What are business trends that are affecting managerial accounting?

1. Which business trend to you think is affecting managerial accounting the most in today’s business’s and why?  

2. Pick an activity in the value chain and describe how it can add value to a product (you may pick a product to use as part of your example).

12. How is managerial accounting used in service and merchandising companies?

1. ABC Company has incurred costs of $4,000 and provided service to 1,000 customers, what is the cost per service?

2. ABC Company sold 300 bottles of water that costs $150 to purchase, what is the cost per water bottle?
   
   

Answer 1

Managerial accounting is use of accounting information for decision making purpose and financial reporting is communication of financial results to end users.

a. i) Managerial

ii) Financial

iii) Financial

iv) Financial

v) Managerial

b. Managers need information for

i) Decision making

ii) Support the business process

iii) Support operations of the business

iv) To formulate strategies

v) Management information system (MIS)

a. Prime cost combines direct material and direct labor

Conversion cost combines direct labor and manufacturing overheads

Selling and administrative expense are referred to as Period cost.

a. i) Cost of goods sold (COGS)

ii) Cost of goods manufactured (COGM)

iii) Cost of goods manufactured (COGM)

iv) Cost of goods manufactured (COGM)

a. Cost of goods sold = opening Finished goods + COGM – Closing Finished goods

COGS= $2,000+ $10,000- $3,000 = $9,000

A. a. Business trends affecting managerial accounting

· High competition

· Need to attain cost leadership

· Winning in market place through execution

· Implementation of technology

· Implementation of Enterprise resource planning

b. The competition in market place is affecting the managerial accounting the most. There is lot of focus on cost and how well costs are managed and controlled in an organisation

c. Product chosen- Car manufacture

Activity - quality inspection of safety features.

A car requires safety features to safeguard its end users. Hence quality inspection of safety features is an important value adding activity in car manufacturing activity

A. a Cost per service = Total cost / Total customers = $4,000/1,000= $4 per customer

a. Cost per bottle = Purchase cost / Total bottles= $150/ 300 bottles = $0.50 per bottle