UFC1.
Designed to boost confidence and grades!
Managerial Accounting - Answer: provides financial and nonfinancial information to
managers and other internal decision makers
Purpose of managerial accounting - Answer: provide useful information to decision
makers
Differences between financial accounting and managerial accounting - Answer: 1.
Managerial accounting also reports non-financial information.
2. Financial accounting information is generally used by external users, whereas
managerial accounting information is used by internal decision makers.
3. Managerial accounting is not constrained by GAAP.
4. Managerial accounting information is provided quickly, whereas financial accounting
usually needs an audit.
Planning - Answer: the process of setting goals and making plans to achieve them
Control - Answer: the process of monitoring planning decisions and evaluating an
organization's activities and employees
Characteristics of fraud: - Answer: 1. Provides direct or indirect benefit to the employee.
2. Violates the employee's obligations to his employer.
3. Costs the employer money or loss of other assets.
4. Is hidden from the employer.
Characteristics of an internal control system: - Answer: 1. Urge adherence to company
policies.
2. Promote efficient operations.
3. Ensure reliable accounting.
4. Protect assets.
1
APPHIA - Crafted with Care and Precision for Academic Excellence.
,Ethics - Answer: beliefs that distinguish from right and wrong.
The Institute of Management Accountants (IMA) - Answer: the professional association
for management accountants.
Issued a code of ethics to help accountants involved in solving ethical dilemmas.
IMA's Statement of Ethical Professional Practice requirements - Answer: Management
accountants must be competent, maintain confidentiality, act with integrity, and
communicate information in a fair and credible manner.
Fixed Costs - Answer: do not change with changes in volume of activity.
Ex) straight-line depreciation
Variable Costs - Answer: change in proportion to changes in the volume of activity.
Ex) sales commissions
Mixed Costs - Answer: both fixed and variable.
Ex) standard wages for employees (fixed) plus any overtime worked (variable)
Cost Object - Answer: a product, process, department or customer to which costs are
assigned.
Direct Costs - Answer: traceable to a single cost object.
Ex) salaries of maintenance dept employees, equipment purchased by maintenance
dept, materials purchased by maintenance dept, maintenance dept equipment
depreciation
Indirect Costs - Answer: cannot be easily traced to a single cost object.
Ex) factory accounting, factory administration, factory rent, factory manager's salary,
factory light and heat, insurance on factory
2
APPHIA - Crafted with Care and Precision for Academic Excellence.
, Controllability of costs - Answer: depends on the employee's responsibilities.
Ex) a senior manager controls costs of investments in land, buildings and equipment,
whereas a supervisor controls daily expenses such as supplies, maintenance and
overtime.
Sunk Costs - Answer: costs that have already been incurred and cannot be avoided or
changed (irrelevant to future decisions).
Ex) the cost of already-purchased office equipment.
Out-of-pocket Costs - Answer: require a future outlay of cash (relevant for decision
making).
Ex) future purchases of equipment.
Opportunity Costs - Answer: the potential benefit lost by choosing a specific action from
two or more alternatives.
Ex) a student giving up wages from a job to attend evening classes
Product Costs - Answer: costs capitalized as inventory; expenditures that are
necessary and integral to finished products.
Includes direct materials, direct labor, and indirect manufacturing costs (overhead).
These costs pertain to activities carried out to manufacture the product.
Period Costs - Answer: costs expensed; expenditures identified more with a time period
than with finished products.
Includes general administrative expenses, selling expenses.
These costs pertain to activities that are not part of the manufacturing process.
Difference between product costs and period costs - Answer: Product costs: assigned
to inventory on the balance sheet (until that inventory is sold).
Period costs: expensed on the income statement (flow directly).
3
APPHIA - Crafted with Care and Precision for Academic Excellence.
Designed to boost confidence and grades!
Managerial Accounting - Answer: provides financial and nonfinancial information to
managers and other internal decision makers
Purpose of managerial accounting - Answer: provide useful information to decision
makers
Differences between financial accounting and managerial accounting - Answer: 1.
Managerial accounting also reports non-financial information.
2. Financial accounting information is generally used by external users, whereas
managerial accounting information is used by internal decision makers.
3. Managerial accounting is not constrained by GAAP.
4. Managerial accounting information is provided quickly, whereas financial accounting
usually needs an audit.
Planning - Answer: the process of setting goals and making plans to achieve them
Control - Answer: the process of monitoring planning decisions and evaluating an
organization's activities and employees
Characteristics of fraud: - Answer: 1. Provides direct or indirect benefit to the employee.
2. Violates the employee's obligations to his employer.
3. Costs the employer money or loss of other assets.
4. Is hidden from the employer.
Characteristics of an internal control system: - Answer: 1. Urge adherence to company
policies.
2. Promote efficient operations.
3. Ensure reliable accounting.
4. Protect assets.
1
APPHIA - Crafted with Care and Precision for Academic Excellence.
,Ethics - Answer: beliefs that distinguish from right and wrong.
The Institute of Management Accountants (IMA) - Answer: the professional association
for management accountants.
Issued a code of ethics to help accountants involved in solving ethical dilemmas.
IMA's Statement of Ethical Professional Practice requirements - Answer: Management
accountants must be competent, maintain confidentiality, act with integrity, and
communicate information in a fair and credible manner.
Fixed Costs - Answer: do not change with changes in volume of activity.
Ex) straight-line depreciation
Variable Costs - Answer: change in proportion to changes in the volume of activity.
Ex) sales commissions
Mixed Costs - Answer: both fixed and variable.
Ex) standard wages for employees (fixed) plus any overtime worked (variable)
Cost Object - Answer: a product, process, department or customer to which costs are
assigned.
Direct Costs - Answer: traceable to a single cost object.
Ex) salaries of maintenance dept employees, equipment purchased by maintenance
dept, materials purchased by maintenance dept, maintenance dept equipment
depreciation
Indirect Costs - Answer: cannot be easily traced to a single cost object.
Ex) factory accounting, factory administration, factory rent, factory manager's salary,
factory light and heat, insurance on factory
2
APPHIA - Crafted with Care and Precision for Academic Excellence.
, Controllability of costs - Answer: depends on the employee's responsibilities.
Ex) a senior manager controls costs of investments in land, buildings and equipment,
whereas a supervisor controls daily expenses such as supplies, maintenance and
overtime.
Sunk Costs - Answer: costs that have already been incurred and cannot be avoided or
changed (irrelevant to future decisions).
Ex) the cost of already-purchased office equipment.
Out-of-pocket Costs - Answer: require a future outlay of cash (relevant for decision
making).
Ex) future purchases of equipment.
Opportunity Costs - Answer: the potential benefit lost by choosing a specific action from
two or more alternatives.
Ex) a student giving up wages from a job to attend evening classes
Product Costs - Answer: costs capitalized as inventory; expenditures that are
necessary and integral to finished products.
Includes direct materials, direct labor, and indirect manufacturing costs (overhead).
These costs pertain to activities carried out to manufacture the product.
Period Costs - Answer: costs expensed; expenditures identified more with a time period
than with finished products.
Includes general administrative expenses, selling expenses.
These costs pertain to activities that are not part of the manufacturing process.
Difference between product costs and period costs - Answer: Product costs: assigned
to inventory on the balance sheet (until that inventory is sold).
Period costs: expensed on the income statement (flow directly).
3
APPHIA - Crafted with Care and Precision for Academic Excellence.
