ACC 321 Final Exam Review

Chapter 1
Differences between financial and managerial accounting. Business is changing and as a result
so is managerial accounting. Value chain is what? Controller does what? Line or staff today.
Important activities of management accountant’s problem solving, scorekeeping, and attention
directing.
1. Difference Between Financial and Managerial accounting:
 Managerial accounting: measuring, analyzing, and reporting financial and
nonfinancial information that helps managers make decisions to fulfill the goals
of an organization. Used to help managers to make decisions inside of the
company.
o Develop, communicate and implement strategies, as well as coordinate
product design, production, and marketing decisions and evaluate a
company’s performance.
 Financial accounting: focuses mainly on reporting financial information to
external parties based on GAAP. The most important way financial accounting
information affects managers decisions and actions is through compensation, in
part based on numbers in the financial statements.

Managerial Accounting Financial Accounting

Purpose of Information Helps managers make Communicate financial
decisions position
Users (main) Internal managers External investors
Rules for information No set rule except relevant GAAP used for financial
cost/benefit statements
Information is Future oriented Past oriented (historical)
Time period of information Day to years and specific to Financial statements
reported department prepared quarterly and
annually
Influence Behavior of managers Financial reports summaries
economic events

2. What is a value chain? The sequence of business functions by which a product is made
progressively more useful to customers.
 Research and development>design of products or
service>production>marketing>distribution>customer service
3. Controller does: reports to chief accounting officer, internal, the financial executive
primarily responsible for management accounting and financial accounting. Makes the
budget and provides info to the CFO.
4. Line management: those directly involved in achieving company goals: production
marketing and distribution
 5. Staff management: those that give advice and assistants to line managers: managerial
accountant, information technology, human resources
6. Important Activities of management accountants:
 They must possess certain values and behaviors that reach well beyond basic
analytical abilities, must be ethical or there is no point in their work
 Competent
 Confidential
 Integrity
 Credibility
o Must work well in teams (cross functional)
o Must promote fact-based analysis and make tough minded critical
judgements without being adversarial
o They communicate clearly, openly, and candidly
o They must have a strong sense of integrity

Chapter 2
Different cost classifications for different purposes. 1)Variable vs Fixed, 2)Direct and Indirect,
3)Product and Period. Cost object is used for what? Cost tracing and allocation are what? cost
of goods manufactured is what and schedule is what?
1. Name the different cost classifications and describe them
a. Variable: cost that changes in total in proportion to changes in the related level
of total activity or volume output produced, aka cost driver
b. Fixed Cost: remains unchanged in total for a given time period, despite wide
changes in activity, or volume output produced.
c. Direct Costs: related to particular cost object and can be traced to cost object
(actual amount paid) in an economically feasible (cost effective) way.
d. Indirect Costs: allocated to cost object (estimates amount using cost drive)
related to a particular cost object but cannot be traced to it in an economically
feasible way.
e. Product Costs: the sum of the costs assigned to a product for a specific purpose.
Made and sold by a company
 Those costs needed to make a product are inventoried first as an
asset and then cost is expenses on income statement when goods
sold as cost of goods sold.
f. Period Costs: all costs in the income statement other than the cost of goods sold.
 Cost that are expensed by a company as incurred and all costs on
income statement other than cost of goods sold.
 Administrative costs, marketing, distribution and customer
services
g. Actual cost: the real cost incurred from a historical cost or past cost
h. Budgeted Costs: a predicted or forecasted cost
i. Unit Cost: also called average cost, calculated by dividing the total cost by the
related number of units produced.
2. Cost Object is used for: anything for which a cost measurement is desired.
 3. Cost Tracing and Allocation:
 Cost Tracing: assignment of direct costs to a cost object, actual amount actual
materials used. Assigning direct costs to relevant cost objects
 Cost Allocation: assignment of indirect costs to a relevant cost object (estimate)
4. Cost of Goods Manufactured: the cost of goods brought to completion, whether they
were started before or during the current accounting period.
5. Schedule of Cost of Goods manufactured: adds up the cost of direct materials, direct
manufacturing labor, and manufacturing overhead costs. At the end, they take the work
in process inventory.

Chapter 3
What is cost behavior? Purpose of cost/volume/profit analysis is? Predict future. Can you
calculate breakeven point, and do you know what it means? Could you do a contribution
income statement?
1. Cost behavior- indicates how the cost will change in total when there is a change in
activity
2. What is CVP: examines the behavior of total revenues, total costs, and operating
income as changes occur in the activity (output) level, selling prices, variable cost per
unit and total fixed costs.
3. Purpose of CVP analysis- used to study the behavior of total revenues, total costs, and
income, and watch as they change with the number of units sold, the selling price, the
variable cost per unit, or the fixed costs of a product.
4. How to calculate breakeven point: the quantity of output sold at which total revenues
equal total costs
a. Units: Fixed/Contribution Margin per Unit
b. Price: Fixed/Contribution Margin %
 [(selling price* Quantity of units sold) – (Variable cost per unit * Quantity of units
sold)] – fixed costs= Operating income
5. How to do a contribution income statement
Revenues
-Variable Manufacturing costs
-Variable nonmanufacturing costs
=Contribution Margin
-Fixed costs
=Operating income
Chapter 4
Cost term-cost object, cost-pool, cost allocation base. Why allocate indirect
cost? Why budget indirect costs annually? Why is uniform allocation rate not
always good enough? When is job and process costing used? Can you cost a job?
How do you record product costs in a job cost system? Over or under allocated
overhead is what?
1. Cost object – anything for which measurement of costs desired
2. Cost Pool- a grouping of individual indirect cost items.
 3. Cost Allocation Base- a systematic way to link indirect cost or group of indirect
costs to cost objects
4. Why allocate indirect costs: Cost allocation sometimes needs to be used when
cause and effect relationships between costs is not clear cut.
5. Why budget indirect costs annually: to avoid spreading monthly fixed costs over
fluctuating levels of monthly output and fluctuating quantities of cost allocation
base.
6. Why uniform cost allocation base is not always good enough: it doesn’t
highlight the indirect costs and direct costs
7. Job Costing is used when there are many different parts in the manufacturing
process. Process costing is when there is a uniform made products the exact
same way.
8. Can you cost a job?
9. How to record product costs in a job cost system: All costs are assigned to
inventory, direct materials, direct labor, manufacturing overhead. Expensed in
the period the product is sold.
10. Over or under allocated overhead: under allocated is when we will have a debit
balance, if it has been overallocated we will have a credit balance.
Chapter 17
Process costing is used by what type of manufacturing company? Equivalent
units are what and are used for? When we do a process cost problem we are
trying to get? What is the difference between the two methods used in process
costing-weighted average and FIFO?
1. Problem: use weighted average for the problem not FIFO
2. Process costing is used by a company that mass produces goods. Continuous production
of a similar product all the time. Think of auto industry.
3. Equivalent units are used for comparing work that has been done on fully assembled
and partially assembled products.
4. When we do a process cost problem we are trying to get: We use process costing to
assign the total costs to the units completed and to the units in ending work in process
inventory
5. Difference between weighted average and FIFO: Weighted Average: lumps prior costs
with current cost. Calculates the cost per equivalent unit of all work done to date.
(regardless of when the accounting period in which it was done). FIFO separates costs,
prior and current, better for control. Can they increase can they decrease sure but a
manager should be aware of this all the time. 1) Assigns the cost of the previous
accounting period’s equivalent units in beginning work in process inventory to the first
units completed and transferred out of the process and 2) assigns the cost of equivalent
units and complete new units, and finally to units in ending work in process inventory.

Chapter 5
What is cost smoothing? Product-cost-cross-subsidizing is about the over and
under costing of products, why? When a single broad indirect cost is used to
allocate indirect costs (plantwide overhead rate), what can happen? What is
activity-based costing and how does it help? Can you identify a situation where
products may not be correctly costed?
1. Problem, has to deal with ABC costing, almost no calculations for this
problem. More of do I understand the issues here and write about them.
There is a volume issue at hand, what is it?
2. Cost Smoothing: reduces the fluctuations of costs
3. Product Cross Subsidizing: the strategy to price a product above its market value to
subsidize the loss the pricing another product lower than its market value.
4. When a single rate is used for indirect costs what can happen: sometimes it will not
account for overhead costs.
5. ABC Costing: refines a costing system by identifying individual activities as the
fundamental cost objects. It increases product diversity, increases indirect costs,
competition in product market.
6. A situation when products may not be properly costed: assigning jobs to products for
amount of hours spent on each product.

Chapter 6
A master budget is done when and includes a financial and operation set of
budgets, which include? Can you figure out an answer for a major individual
budget like sales, production, direct materials, or cash budgets?
1. A master budget summarizes: the financial projections of all the company’s budgets. It
expresses management’s operating and financing plans-the formal outline of the
company’s financial objectives and how the will be attained.

Chapter 7
Flexible budgets provide insight into what? Variance analysis is used to check
effectiveness and efficiency which is what? Can you get static budget, flexible
budget, price and efficiency variances and do you know what they mean?
1. Problem combined with chapter 8, static budget and level one two and three.
2. Master budget and static budget are the same thing
3. Flex needed for control
4. Static incorporates control

Chapter 8
When the allocated (applied) amount of overhead cost is different than the
actual overhead amount incurred, the difference can be explained through
variance analysis that depends on whether the overhead is variable or fixed.
 1. Problem

Chapter 11
When making special decisions what is relevant to the decision becomes very important. So
knowing the difference between those costs and revenues that are relevant and those that are
not is vital to good analysis. How do sunk costs and opportunity costs fit in to this analysis. Of
the three special decisions: 1) special order, 2) make or buy and 3) equipment replacement how
is each judged?
1. Problem
2. We could be looking at outsourcing, special order or equipment
3. What is something that’s relevant? MC question possibly

Chapter 21 see notes

1. Problem