Questions On Managerial And Financial Accounting

Page 1question 11tco 1 How Does Managerial And Financial Accountin

Question 1. 1. (TCO 1) How does managerial and financial accounting differ in terms of the amount of detail presented and nonmonetary and monetary information? (Points : 15)

Question 2. 2. (TCO 2) What is manufacturing overhead? What is an example of manufacturing overhead? (Points : 15)

Question 3. 3. (TCO 3) What is job-order costing? What type of company would us job-order costing? (Points : 15)

Question 4. 4. (TCO 4) What is a variable cost? What is an example of a variable cost? (Points : 15)

Question 5. (TCO 5) What is the difference between absorption costing and variable costing? (Points : 15)

Question 6. 2. (TCO 6) What is the first step in the cost allocation process? What is done in this step? (Points : 15)

Question 7. 3. (TCO 7) What is a differential cost? What is an example of one? (Points : 15)

Question 8. 4. (TCO 8) What is target costing? What is the target costing process? (Points : 15)

Question 9. (TCO 6) Name the steps in the ABC approach. Describe each of them. Which do you think is the most important step? Why? (Points : 30)

Question 10. 2. (TCO 7) Products Gamma and Delta are joint products. The joint production cost of the products is $800. Gamma has a market value of $500 at the split-off point. If Gamma is further processed at an additional cost of $600, its market value is $1,400. Product Delta has a market value of $1,100 at the split-off point. If Product Delta is further processed at an additional cost of $300, its market value is $1,400. Using the relative sales value method, calculate the joint product cost that would be allocated to Gamma and Delta. How do you know if one of the products should be further processed? (Points : 30)

Question 11. 3. (TCO 8) A company must incur annual fixed costs of $1,000,000 and variable costs of $200 per unit and estimates that it can sell 10,000 pumps annually and marks up cost by 30 percent. Using cost-plus pricing, what is the cost per unit and the price? What are advantages and disadvantages of cost-plus pricing? (Points : 15)

Question 12. (TCO 9) A project will require an initial investment of $400,000 and will return $100,000 each year for six years. If taxes are ignored and the required rate of return is 9%, what is the project's net present value? Based on this analysis, should the company proceed with the project? (Points : 30)

Question 13. 2. (TCO 10) Why does a company perform ratio analysis? What are the profitability ratios? Describe the formula for one profitability ratio and explain how to interpret the ratio? Short Essay Essay

Paper For Above instruction

Managerial and financial accounting serve distinct purposes within an organization, each offering different levels of detail and types of information. Managerial accounting focuses on providing detailed, nonmonetary, and monetary information to internal management to assist in decision-making, planning, and control. This includes detailed budgets, performance reports, and segment data, often emphasizing nonmonetary metrics like customer satisfaction or process efficiency. Conversely, financial accounting delivers summarized, historical, and monetary information designed for external stakeholders such as investors, creditors, and regulators. It emphasizes aggregate data, standardized reporting, and compliance with accounting standards, primarily focusing on monetary figures and less on nonmonetary details.

Manufacturing overhead encompasses all indirect manufacturing costs not directly traceable to specific units of production. Examples include factory rent, utilities, depreciation of equipment, and maintenance expenses. These costs are necessary for production but do not directly appear in the product costs on a per-unit basis, necessitating allocation methods.

Job-order costing is a costing system used by companies that produce customized or unique products, where costs are tracked to specific jobs or orders. Industries such as construction, custom manufacturing, aerospace, and specialized printing employ job-order costing, enabling precise cost control and profitability analysis for each distinct job.

A variable cost varies in direct proportion to production volume, such as raw materials or direct labor wages. For instance, raw material costs increase directly with the number of units produced, making them variable costs that fluctuate with production levels.

Absorption costing allocates all manufacturing costs, including both fixed and variable overheads, to products. In contrast, variable costing includes only variable production costs in product valuation, treating fixed manufacturing overheads as period expenses. The primary difference impacts income measurement and inventory valuation, especially under different accounting and managerial decisions.

The first step in the cost allocation process is identifying and measuring the costs to be allocated. This involves determining the total indirect costs associated with a cost pool and establishing criteria or bases for distributing these costs to cost objects, such as labor hours, machine hours, or activity units.

A differential cost is the difference in total costs between two alternative choices. For example, if producing one product line costs $50,000 and another costs $70,000, the differential cost is $20,000, which helps in decision-making regarding the most cost-effective option.

Target costing is a pricing approach used primarily in competitive markets, where a company determines the desired profit margin and then works backward to establish a permissible cost. The process involves setting a competitive market price, subtracting the targeted profit to find the target cost, and then designing the product and production process to meet that cost structure.

Activity-Based Costing (ABC) enhances traditional cost systems by identifying activities as cost drivers. The steps include: (1) identifying activities, (2) assigning costs to activities, (3) determining cost drivers, and (4) assigning costs to products based on their consumption of these activities. Many consider identifying activities as the most critical step, as it lays the foundation for accurate cost allocation and provides insights into cost control opportunities.

For joint products Gamma and Delta, with a joint cost of $800, using the relative sales value method involves allocating costs based on their proportionate market values at the split-off point. Gamma's market value is $500 at split-off, and after processing, its value increases to $1,400 (cost of $600). Delta has a market value of $1,100, and after further processing, its value increases to $1,400 (cost of $300). Calculations show that Gamma and Delta should be allocated joint costs proportional to their sales values, and the decision to further process depends on whether the additional processing increases the products' total value beyond the associated costs.

Cost-plus pricing involves adding a markup to the unit cost to set the selling price. Given fixed costs of $1,000,000, variable costs of $200 per unit, and an estimated sale of 10,000 units, the unit cost includes fixed costs allocated per unit plus variable costs. Marking up by 30% yields a sales price that covers costs and achieves desired profit margins. The pros of cost-plus pricing include simplicity and cost recovery, while cons include neglecting market conditions and competitive pricing strategies.

Calculating the Net Present Value (NPV) involves discounting future cash inflows at the required rate of return and subtracting initial investment. For an initial investment of $400,000, with annual returns of $100,000 over six years and a discount rate of 9%, the NPV helps determine whether the project adds value. A positive NPV indicates that the project should be undertaken, as it exceeds the minimum required return, aligning with capital budgeting best practices.

Ratio analysis provides insights into a company's operational efficiency, liquidity, and profitability, aiding decision-making by comparing historical data and benchmark standards. Profitability ratios, such as return on assets (ROA), measure how effectively a company generates profit from its assets. The ROA formula is net income divided by total assets, expressed as a percentage. A higher ROA suggests more efficient use of assets to generate earnings, essential for investors and creditors in evaluating company performance.

References

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• Horngren, C. T., Sundem, G. L., Stratton, W. O., et al. (2014). Introduction to Management Accounting. Pearson.
• Kaplan, R. S., & Anderson, S. R. (2004). Time-Driven Activity-Based Costing. Harvard Business Review.
• Langfield-Smith, K., Thorne, H., & Hilton, R. (2018). Management Accounting. McGraw-Hill Education.
• Means, G., & Allen, H. (2015). Cost Accounting. Routledge.
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