Class notes
BUS-A100 CLASS NOTES
- Course
- Bus-a100
- Institution
- Indiana University
A100 class notes for Jamie Seitz
[Show more]
Seller
Follow
Content preview
CHAPTER 1Review questions:
1. Define managerial accounting.
2. What are the components of cost inventory for a manufacturing firm?
3. What is the cost flow of a manufacturing firm?
4. What are fixed costs? What are variable costs? How do they differ?
5. Prepare a contribution margin income statement.
6. What are the inventory accounts for a manufacturing firm?
a. Answer: raw materials, work in progress, finished goods
Financial accounting
- Produces financial statements for external users
- Follows GAAP or IFRS rules
- Summary of historical information; transactions from prior period
Managerial accounting
- Statements for internal users
- Used to run company
- No defined rules
- Uses historical information to create forecasts
- Does not have to be expressed in financial terms
- Number, percentage, etc depending on what is most useful
- Manufacturing firm has most complexity
Importance of determining cost of a product
Companies compete in one of two ways:
1. Product differentiation
a. Able to differentiate its products from competitors products in a meaningful way
for customers
i. Product typically marked up
2. Price-based competition
a. Tries to sell its product for a lower price
i. Product typically marked down
The cost of inventory
Business classifications:
- Merchandising firms
- Wholesale and retail
- Manufacturing firms
- Manufacturer buys inventory, company processes it, company sells product
different from original inventory
- Cost of inventory (inventory on balance sheet)
, - 1) raw materials
- Aka direct materials
- 2) direct labor
- Labor cost for all employees directly involved in making product
- Does NOT include maintenance employee, forklift driver, or
anyone working in factor but not directly on product (product level
cost)
- 3) manufacturing overhead
- All other expenses
- Utilities, rent, salaries of maintenance employees, etc
- Factory related
- Do not include administrative expenses
- Product costs–inventoriable expenses; factory expenses
- Period costs–non-inventoriable expenses; not related to factory operations
- 3 inventory accounts:
- 1) raw material inventory
- 2) work in progress inventory
- Collects cost of all direct materials, direct labor, and portion of
manufacturing overhead used during production process
- 3) finished goods inventory
- Total cost that the product accumulated
- When sold:
- 1) revenue increased on income statement + either cash or
accounts receivable on balance sheet
- 2) inventory account reduced by cost of product sold
- 3) COGS increased on income statement
- Service firms
- Do not carry inventory
- Sell knowledge and abilities of employees
- Inventory purchased → inventory asset account increased → accounts payable
or cash decreased
- Sale recorded on income statement at sales price; cash or accounts
receivable increased on balance sheet
- Inventory reduced on balance sheet at COGS, COGS increased
Fixed costs vs variable costs
Fixed costs–total stays same regardless of volume produced
- Ex: rent, property taxes, salary of CEO, depreciation
Variable costs–change depending on level of production
- Ex: direct materials, sales commission, cost of transportation of finished goods to
warehouse
*only move within relevant range
Mixed costs–contain both fixed and variable costs
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller gabbyh123. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53340 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now