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    Cost & Managerial Accounting I Essentials
    Cost & Managerial Accounting I Essentials
    Cost & Managerial Accounting I Essentials
    Ebook164 pages1 hour

    Cost & Managerial Accounting I Essentials

    By William Keller

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    About this ebook

    REA’s Essentials provide quick and easy access to critical information in a variety of different fields, ranging from the most basic to the most advanced. As its name implies, these concise, comprehensive study guides summarize the essentials of the field covered. Essentials are helpful when preparing for exams, doing homework and will remain a lasting reference source for students, teachers, and professionals. Cost & Managerial Accounting I includes the nature and usefulness of cost accounting, cost items and purposes, cost flows and accumulation, cost-volume-profit relationships, costing methods, job order costing, process costing, cost allocation, variable costing, master budgets, and flexible budgets.
    LanguageEnglish
    PublisherResearch & Education Association
    Release dateJan 1, 2013
    ISBN9780738671581
    Cost & Managerial Accounting I Essentials

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    • 5/5
      Absolutely great little booklet. I have an MBA accounting exam coming up and while I am fairly comfortable with the financial accounting I felt there were several holes in my managerial accounting knowledge - no more! I warmly recommend this book.

    Book preview

    Cost & Managerial Accounting I Essentials - William Keller

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    CHAPTER 1

    THE NATURE AND USEFULNESS OF COST ACCOUNTING AND THE ACCOUNTANT’S ROLE

    1.1 DEFINITION OF COST ACCOUNTING

    Cost Accounting–A sub-field of accounting that records, measures, and reports information about costs. A cost is a sacrifice of resources. Cost Accounting is Management Accounting (Internal Accounting) plus some external reporting.

    Management Accounting–(Internal Accounting)–The identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that assists executives in fulfilling objectives of their organization.

    1.2 COMPARISON OF COST ACCOUNTING WITH FINANCIAL ACCOUNTING

    1.3 COMPARISON OF CPA CERTIFICATE WITH CMA CERTIFICATE

    1.4 COMPARISON OF THE OFFICES OF CONTROLLER AND TREASURER

    1.5 COSTS AND BENEFITS OF ACCOUNTING

    How much accounting for managerial purposes is enough?

    Are the benefits derived from managerial cost accounting high enough to exceed the expenses?

    Should a computerized inventory system be installed?

    a. Costs and Benefits of accounting are difficult to measure.

    b. Users can see the benefits of accounting information supplied them, but accountants are most familiar with the costs.

    The Value of Information–Accurate analysis of information.

    The company is trying to decide whether or not to accept a one-time order. If the order is accepted, the increased revenue to the company will be $1,000,000. The costs of making the product for the special order are not known with certainty, but they are estimated to be either $800,000 or $1,200,000, depending on how much time is needed for its manufacture. So, acceptance of the order would result in a net gain of $200,000 or a net loss of $200,000, whereas rejection will produce neither gain nor loss. The owner regards the two production cost events as having the following probabilities: (1) There is a .7 probability that production costs will be $800,000, so there would be a $200,000 profit; (2) There is a .3 probability that production costs will be $1,200,000, hence a $200,000 loss if the order is accepted.

    EV = the expected value of the outcomes

    PRi = the probability of each outcome occurring

    Vi = the value of each outcome

    EV PR¡ Vi = (.7 x $200,000) + (.3 x −$200,000) = +$80,000

    Thus, since the probability that production costs will only be $800,000 is 70%, there is a probability for an $80,000 profit in accepting the one-time order.

    1.6 LINE vs. STAFF AUTHORITY

    Line–People who perform a line function are responsible for supervision, guidance, and decision making. There is a chain of command from the president to upper-, middle-, and lower-level managers.

    Staff—People who perform a staff function provide advice and service to other members in the organization but cannot require implementation of their recommendations. Staff members have no authority over the line personnel but provide specialized help to the various departments (e.g., a company nurse).

    Line and staff managers within the corporate organization should be clearly defined on organization charts.

    REVIEW QUESTIONS

    1. How do costs differ from expenses?

    Costs usually have to do with the value of merchandise purchased in a mercantile business or the value of the goods manufactured in a manufacturing firm. They are usually placed in the top portion of the income statement as part of the computation of cost of goods sold and are part of the computation of gross income. Expenses are listed toward the bottom of the income statement after gross profit - below the gross profit line - and usually consist of selling expenses and office expenses. They are to be found in both manufacturing and mercantile firms.

    2. Is cost accounting the same as management accounting?

    Most authorities consider these the same, but some authorities believe that management accounting is somewhat broader than cost accounting. These authorities believe that cost accounting is completely within the business while management accounting could also include some reporting outside the business.

    3. Is beginning accounting usually considered cost accounting or financial accounting?

    Financial accounting.

    4. How does cost accounting differ from financial accounting?

    Cost accounting reports to higher-ups within the firm while financial accounting stresses mainly outside reports. Cost accounting’s main thrust is to cut costs while financial accounting stresses revenue, costs, and expenses. Cost accounting exists chiefly to implement future plans while financial accounting is to summarize figures for the year just past.

    5. What are the educational requirements for the CPA Certificate?

    College graduate from accredited college with accounting major.

    6.

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