What are some of the key differences between financial and managerial accounting? How do these differences impact the type of information that must be gathered and reported? What are the different types of decisions that users of financial accounting information must make? What are the different types of decisions that users of managerial accounting information must make?

Financial accountants use financial statements and submit such quarterly and yearly for use primarily by external users. These reports pertain to the business as a whole, are condensed, and reported using the GAPP.

What are the differences between a direct cost and an indirect cost? Which is the more difficult cost to track? Why? How do indirect costs affect the cost of a product? Should indirect costs be included in product cost? Why or why not?

Direct costs are traceable costs as they relate to a specific unit within a business and are for the sole benefit of that unit. Indirect costs pertain to the company as a whole and benefit more than one center. Indirect costs are more difficult to trace as they tend to be more abstract and apply to more than one unit. Indirect costs affect the cost of a product as some can be classified under manufacturing overhead.

What is activity-based costing? What are some of the key elements of activity-based costing? How does this method differ from a more traditional costing method?

Activity-based accounting is a more precise method of allocating overhead costs to a product or service. Activities are any type of event that has a cost; in ABC, these activities are assigned cost pools which are distinct activities, like setting up machinery. Cost pools are then assigned cost drivers which are events that have a direct cause for consumption of resources. I think the key elements of ABC is the break down of overhead costs into cost pools and cost drivers to ultimately find a more precise cost for products or services. 

What are value-added processes? How do you determine if a process adds value? How does identification of value-added processes help a company run more efficiently and effectively?

Value-added processes are anything done by a company to add value to a product or service, using resources and costs that customers are willing to pay for. These processes add market value to a product or service, like special packaging or advanced machinery or skills. With knowledge of value-added processes within a company, management is able to reach a higher and more reasonable price for these items.

Team CACC/349

BYP 2-2 In the course of routine checking of all journal entries prior to preparing yearend

reports, Sally Yount discovered several strange entries. She recalled that the president’s son Ken had come in to help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entries Ken made were:

1. Work in Process Inventory 25,000Cash 25,000

(This is for materials put into process. I don’t find the record that we paid for these, so I’m crediting Cash, because I know we’ll have to pay for them sooner or later.)

2. Manufacturing Overhead 12,000

Cash 12,000

Team CACC/349

P2-4A Aquatic Manufacturing uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A, direct labor hours in Department B, and machine hours in Department C.

In establishing the predetermined overhead rates for 2005 the following estimates were made for the year.

Department

A B C

Manufacturing overhead $930,000 $800,000 $750,000

Direct labor cost $600,000 $100,000 $600,000

Direct labor hours 50,000 40,000 40,000

Machine hours 100,000 120,000 150,000

 For what is cost-volume-profit (CVP) analysis used? What are some of the key underlying assumptions that make CVP analysis useful for decision makers? Why might decision makers use CVP analysis?

Cost-volume profit (CVP) identifies the effects of the changes in costs and volumes to a company's profit. This analysis is used in profit planning to help management determine the best prices for products and the product mixes to use as well as aiding a company in the maximization use of the production plant.

What are the differences between variable and absorption costing? Why is variable costing not allowed for GAAP reporting? Which method is more useful for internal decision-making? Why? As a manager, which would you prefer? Why?

Absorption costing consists of all costs for a job, including direct materials, direct labor, and both fixed and variable manufacturing overhead. Variable costing only includes direct materials, direct labor, and variable manufacturing overhead for a job. Variable costing is not allowed under GAAP as it does not account for fixed manufacturing overhead costs.

ACC 349

UOP

Modern Machine Shop Online

The ABCs of Activities Based Costing

http://www.mmsonline.com/articles/the-abcs-of-activities-based-costing

October 31, 2011

This article tells is about a company called Starn Tool & Manufacturing. It describes its owners’ experiences with activity based costing versus their old method of “flat-shop rate” job costing and quoting.

The ABCs of Activities Based Costing

ACC 349

This article explains how a company called Starn Tool & Manufacturing describes its

owners’ experiences with activity based costing versus their old method of “flat-shop rate” job

costing and quoting. T

E4-10

1) Designing hours; number of engineering order change

2) Amount of processed orders

3) Amount of parts in stock

4) Amount of boxes; material weight

5) Amount of employees hired; employee turnover

6) Direct labor hours; machine hours

7) Amount of parts; direct labor; employees

8) Amount of employees

9) Book value of assets

10) Amount of employees; costs of manufactured goods, hours of direct labor

11) Amount of machines; machine hours

12) Amount of appliances; gallons of paint

E4-11

a) Overhead Rates:

Activity-Based Cost Pool

Overhead Estimate ÷

Expected Useof Cost Driver

per Activity =Activity-BasedOverhead Rate

Material handlingMachine setupQuality inspection

$35000 $27500 $27000

1000  500  600

$35.00 $55.00 $45.00

Team CACC/349

BYP 4-2 Ideal Manufacturing Company of Sycamore, Illinois has supported a research and development (R&D) department that has for many years been the sole contributor to the company’s new farm machinery products. The R&D activity is an overhead cost center that provides services only to in-house manufacturing departments (four different product lines), all of which produce agricultural/farm/ranch related machinery products. The department has never sold its services outside, but because of its long history of success, larger manufacturers of agricultural products have approached Ideal to hire its R&D department for special projects. Because the costs of operating the R&D department have been spiralling uncontrollably, Ideal’s management is considering entertaining these outside approaches to absorb the increasing costs. But, (1) management doesn’t have any cost basis for charging R&D services to outsiders, and (2) it needs to gain control of its R&D costs. Management decides to implement an activity-based costing system in order to determine the charges for both outsiders and the in-house users of the department’s services. R&D activities fall into four pools with the following annual costs.

Market analysis $1,050,000

Product design 2,280,000

Product development 3,600,000

Prototype testing 1,400,000

Team CACC/349

P4-3A Stellar Stairs Co. of Poway designs and builds factory-made premium wooden stairs for homes. The manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of varying lengths and widths. All are of white oak wood. Its budgeted manufacturing overhead costs for the year 2006 are as follows.

Overhead Cost Pools Amount

Purchasing $ 57,000

Handling materials 82,000

Production (cutting, milling, finishing) 210,000

Setting up machines 85,000

Inspecting 90,000

Inventory control (raw materials and finished goods) 126,000

What are some of the advantages and disadvantages of standard costs? How do managers determine what the standard cost should be? Describe the effect of inaccurate standard costs on financial reporting.

Because standard costs are a mean for budgeting they are advantageous as they aid in manager planning, provide more accurate price setting for products, foster more cost-conscious employees, provide cost control, and simplify the cost processes of inventory.

When should variances be investigated? Who should be responsible for correcting a negative variance? Why? What are some factors that can lead to variances? How can variances be corrected?

Variances should be investigated when variances are significant between actual costs and standard costs. Each section that deals with cost control of each department should report variances to top management to be reviewed for the effectiveness of management cost control. Variances can happen by using inferior materials or by sacrificing quality control

Team CWeek 4 LT Assignment – Case Study

ACC/349

BYP 6-2 Technology Plus manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stopwatches, and automatic pencil sharpeners. Some of the products are sold as sets, and others are sold individually. Products are studied as to their sales potential, and then cost estimates are made. The Engineering Department develops production plans, and then production begins. The company has generally had very successful product introductions. Only two products introduced by the company have been discontinued.

Team CWeek 4 LT Assignment – Textbook Exercises

ACC/349

P7-1A Blue Mountain Products manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a light-weight, self-standing tent. Cost and sales data for the first month of operations are shown below.

Manufacturing costs:

Fixed overhead $200,000

Variable overhead $4 per tent

Direct labor $16 per tent

Direct materials $40 per tent

Beginning inventory 0 tents

Tents produced 10,000

Tents sold 9,000

Selling and administrative costs:

Fixed $400,000

Variable $6 per tent sold

What is a master budget? What are some of the underlying budgets that form the master budget? What is the budgeting process at your organization? Is it effective? Why or why not?

The master budget is a set of interrelated budgets that constitutes a plan of action for a specified time period.  Some of the underlying budgets that form the master budget are; sales budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget, selling and administrative expense budget, budgeted income statement, capital expenditure budget, cash budget, and budgeted balance sheet. 

What is the difference between external and internal pricing? What factors must be considered when setting internal transfer pricing between divisions of a company? What are the different methods of setting internal transfer pricing? Which is the most effective? Why?

Team CWeek 5 LT Assignment – Textbook Exercises

ACC/349

P8-2A Bolus Computer Parts Inc. is in the process of setting a selling price on a new component it has just designed and developed. The following cost estimates for this new component have been provided by the accounting department for a budgeted volume of 50,000 units.

Per Unit Total

Direct materials $50

Direct labor $25

Variable manufacturing overhead $20

Fixed manufacturing overhead $600,000

Variable selling and administrative expenses $18

Fixed selling and administrative expenses $400,000