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6 Key Differences between Financial and Managerial Accounting 1. Financial Accounting Past Results Managerial Accounting Future Planning* 2. Financial Accounting Verifiability & Objectivity Managerial Accounting Relevance 3. Financial Accounting Accuracy & precision Managerial Accounting Use of estimates 4. Financial Accounting Focused on the whole organization Managerial Accounting Focused on segments of an organization 5. Financial Accounting Presented information to external users Managerial Accounting Presented information to internal users* 6. Financial Accounting Does not need to comply with GAAP Managerial Accounting Needs to comply with GAAP*
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Manufacturing Costs (product costs) A. Direct Materials: The raw material that become part of the finished product and can be easily traced to the final product. B. Direct Labor: Those labor costs that can be easily traced to individual units of a final product. C. Manufacturing Overhead: All the other manufacturing costs except for direct materials and direct labor. a. Indirect Materials: Materials that are used in the manufacturing process, but cannot be directly traced to a final project. b. Indirect Labor: Labor that are used in the manufacturing process, but cannot be directly traced to a final project c. Other Operating Costs: Factory depreciation, heating, lighting, taxes, electricity
Non-Manufacturing Costs (period costs) A. Selling Costs: Costs incurred secure orders and deliver the goods to the customer B. Administrative Costs: Costs associated with the general management of the organization
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Beginning Inventory + Additions to inventory - Withdrawals from Inventory = Ending Inventory Raw Materials 10000 Purchases 50000 30000 Direct Labor Manufac. overhead Work in Progress 1000 30000 50000 Finished Goods 5000 41000 20000 (COGS)
(Beg)
41000
30000
26000
PROBLEM 2 18 (Class exercises) Beginning Inventory + Additions to inventory - Withdrawals from Inventory = Ending Inventory Raw Materials 9000 Work in Progress 17000 290000 (COGM) Finished Goods 20000 290000 27000 (COGS) 40000
125000 6000
128000
Cost Behavior: refers to how a cost changes based on the level of activity 1. Fixed Costs: a cost that remains constant in total regardless of the level of activity 2. Variable Costs: a cost that varies in total in direct proportion to the level of activity 3. Mixed Costs: a cost that is comprised of both fixed and variable costs Ex: Total Cost = $25 + $0.30x
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High - Low Method High Cost - Low Cost High Activity - Low Activity
8111 3608 -
1712 = 3422
6399 = 3422
High Level of Activity Total Variable Cost Total Fixed Cost Low Level of Activity Total Variable Cost Total fixed cost =
Haaki Shop Inc. Income Statement (traditional format) For the Quarter Ended May 31, 2010 Sales Cost of Goods Sold Gross Profit Operating Expenses Selling Expenses Administrative Expenses Net Operating Income 800000 300000 500000
250000 160000
410000 90000
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300000
Haaki Shop Inc. Income Statement (contribution format) For the Quarter Ended May 31, 2010 Sales Variable Expenses Costs of Goods Sold Selling Expenses Admin. Expenses Total Variable Costs Profit Margin Fixed Expenses Selling Expenses Admin. Expenses Total Fixed Expenses Net Operating Income 800000