Managerial Accounting

Units

1. 1

   Managerial accounting and cost concepts

   4 lessons

   1. Managerial versus financial accountingCompare managerial and financial accounting on users, time focus, rules and detail, and describe how managers use accounting numbers to plan, direct and control.
   2. Classifying costsClassify a chairmaker’s costs and calculate manufacturing overhead, product and period costs, prime cost, and conversion cost.
   3. The flow of manufacturing costsTrace manufacturing costs from raw materials through work in process and finished goods to cost of goods sold, and reconcile each balance.
   4. Schedule of cost of goods manufacturedPrepare a schedule of cost of goods manufactured from direct materials used, direct labor, overhead and the work in process inventories, then use it in a manufacturer's income statement.
2. 2

   Cost behavior

   4 lessons

   1. Variable, fixed and mixed costsShow how total and per unit variable, fixed and mixed costs behave as activity changes within the relevant range, and recognize step costs.
   2. The high-low methodSplit a mixed cost into a variable rate and a fixed component using the highest and lowest activity months, and say what the method leaves out.
   3. Scattergraph and least-squares regressionPlot a scattergraph, fit Y = a + bX by least squares, compare it with the high-low estimate, and read R² as the share of cost variation that activity explains.
   4. The contribution format income statementContrast the traditional and contribution margin income statements and compute contribution margin per unit, contribution margin ratio and the effect of a sales change on operating income.
3. 3

   Cost-volume-profit analysis

   4 lessons

   1. Break-even analysisCompute the break-even point of a single product in units, as fixed costs divided by contribution margin per unit, and in sales dollars, as fixed costs divided by the contribution margin ratio, and read it where revenue meets total cost.
   2. Target profit and the CVP graphFind the units and sales dollars needed for a target operating income, grossing up an after-tax target, and read the profit line of the CVP graph where it crosses zero.
   3. Margin of safety and operating leverageCompute the margin of safety in units, dollars and percent, and the degree of operating leverage as contribution margin divided by operating income, and show how fixed costs magnify the change in profit.
   4. Sales mix and multiproduct break-evenComputes a weighted average contribution margin for a sales mix and the break-even units for each product, and shows the effect of a mix shift.
4. 4

   Job-order costing

   4 lessons

   1. Job-order costing and the job cost sheetExplains when job costing fits, materials requisitions, time tickets and the job cost sheet that accumulates direct materials, direct labor and applied overhead.
   2. Predetermined overhead rateComputes a predetermined overhead rate from estimated overhead and an allocation base, applies overhead to jobs and sets a price with markup.
   3. Underapplied and overapplied overheadCompares actual with applied overhead, and disposes of the difference to cost of goods sold or by proration across inventories.
   4. Job costing journal entriesJournalizes the flow of materials, labor and overhead through work in process to finished goods and cost of goods sold with T accounts.
5. 5

   Process costing

   4 lessons

   1. Process costing cost flowsContrasts process with job costing and draws cost flows through sequential departments, each with its own work in process account.
   2. Equivalent units, weighted-average methodComputes equivalent units of production for materials and conversion under the weighted-average method, with partially complete ending inventory.
   3. The production cost reportComputes cost per equivalent unit, assigns costs to units transferred out and ending work in process, and reconciles costs in a production report.
   4. FIFO process costingComputes equivalent units and costs under the FIFO method, separating beginning inventory work, and compares results with weighted average.
6. 6

   Activity-based and variable costing

   4 lessons

   1. Activity-based costingBuilds an ABC system: identify activities, form cost pools by unit, batch, product and facility levels, compute activity rates and assign overhead to products.
   2. ABC versus traditional costingCompares product costs under a single plantwide rate and ABC for a high volume and a low volume product, showing cost distortion and cross subsidies.
   3. Absorption and variable costingPrepares absorption and variable costing income statements and reconciles them through fixed overhead deferred in or released from inventory.
   4. Activity-based management and target costingExplains value-added versus non-value-added activities, target costing from market price minus desired profit, and life cycle costing.
7. 7

   Budgeting

   4 lessons

   1. The master budgetDiagrams the master budget's flow from the sales forecast through operating budgets to the budgeted income statement, cash budget and balance sheet.
   2. Sales, production and purchases budgetsPrepares the sales budget, schedule of expected cash collections, production budget and direct materials purchases budget with desired ending inventories.
   3. The cash budgetPrepares a quarterly cash budget with receipts, disbursements, excess or deficiency, and borrowing and repayment under a minimum cash balance.
   4. Flexible budgetsContrasts static and flexible budgets, builds a flexible budget at actual activity and separates activity variances from revenue and spending variances.
8. 8

   Standard costs and variances

   4 lessons

   1. Setting standard costsExplains ideal versus practical standards and builds a standard cost card with price and quantity standards for materials, labor and overhead.
   2. Direct materials variancesComputes the materials price variance (AQ x (AP - SP)) and quantity variance (SP x (AQ - SQ)), labeling each favorable or unfavorable, with a variance diagram.
   3. Labor and variable overhead variancesComputes labor rate and efficiency variances and variable overhead spending and efficiency variances using the same three column framework.
   4. Fixed overhead variancesComputes the fixed overhead budget and volume variances, and explains management by exception and who is responsible for each variance.
9. 9

   Relevant costs for decisions

   4 lessons

   1. Relevant costs and sunk costsDefines relevant costs as future costs that differ between alternatives, explains sunk costs, avoidable costs and opportunity costs, using differential analysis.
   2. Make or buy decisionsCompares the cost to make a part with the outside purchase price, counting avoidable fixed costs and the opportunity cost of freed capacity.
   3. Special orders and keep or drop decisionsEvaluates a special order at a reduced price with idle capacity and decides whether to drop a product line considering traceable and common fixed costs.
   4. Constrained resources and sell or process furtherRanks products by contribution margin per unit of the constrained resource, and decides whether to sell a joint product at split-off or process it further.
10. 10

    Capital budgeting decisions

    4 lessons

    1. Payback and simple rate of returnComputes the payback period with even and uneven cash flows and the simple (accounting) rate of return, and explains their weaknesses.
    2. Net present valueDiscounts a project's cash flows, including working capital and salvage value, at the required rate of return to compute NPV and decide accept or reject.
    3. Internal rate of return and profitability indexFinds IRR for even cash flows using an annuity factor, compares IRR with NPV, and ranks projects with the profitability index.
    4. Income taxes in capital budgetingComputes after-tax cash flows, the depreciation tax shield and after-tax salvage value, and reworks an NPV analysis on an after-tax basis.
11. 11

    Decentralization and performance measurement

    4 lessons

    1. Responsibility centersExplains decentralization and cost, profit and investment centers, and prepares a segmented income statement with traceable and common fixed costs.
    2. Return on investment and residual incomeComputes ROI as margin times turnover (DuPont) and residual income, and shows how ROI can lead managers to reject good projects.
    3. Transfer pricingSets transfer price ranges between divisions using the selling division's variable cost plus opportunity cost and the buying division's outside price.
    4. The balanced scorecardBuilds a balanced scorecard with financial, customer, internal business process and learning and growth measures linked by cause and effect.