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Chapter 14 - Managerial Accounting 1. (LO 2) Describe the classes of manufacturing costs (DM, DL, MOH) and the differences between product and period costs. 2. (LO 3) Demonstrate how to compute COGM (Cost of Goods Manufactured). COGS = Beg. FG Inventory + COGM - End. FG InventoryCOGM = Beg. WIP Inventory + Total Manufacturing Costs* - End. WIP). (*Total Manufacturing Costs = DM used + DL + MOH) Understand Illustration 14.8 (Cost of Goods Manufactured formula) and Illustration 14.9 (Cost of Goods Manufactured Schedule) in textbook. Chapter 15 - Job Order Costing 3. (LO 1) Describe cost systems and the flow of costs in a job order system. Illustrations 15.3 and 15.15 from the textbook can be helpful to understanding cost flows. Understand which accounts are affected when a product is sold on credit or for cash. Understand the flow of costs in each of the inventory accounts (RM, WIP, and FG). (e.g., Beginning RM Inventory + Purchases of RM - RM Used = Ending RM Inventory; Beginning WIP Inventory + DM added + DL incurred + MOH applied = Ending WIP Inventory) 4. (LO 2) Use a job cost sheet to assign costs to work-in-process. Understand what information a job cost sheet contains and how job cost sheets relate to the WIP account balance (i.e. The sum of costs on job cost sheets associated with jobs in process equals the balance of WIP Inventory). 5. (LO 3) Demonstrate how to determine and use the predetermined overhead rate. Be able to determine DL cost given an overhead rate based on DL$ and an applied overhead amount. Chapter 17 - Activity-Based Costing 6. (LO 1) Discuss the difference between the traditional costing and activity-based costing. Understand the definitions of an "activity cost pools" and "cost drivers". 7. (LO 2) Apply activity-based costing to a manufacturer. 8. (LO 3) Understand the classifications of "value-added activities" vs. "non-value added" activities. Chapter 18 - Cost-Volume-Profit 9. (LO 1) Explain variable, fixed, and mixed costs and the relevant range. Understand what happens to each type of cost when the level of activity increases and decreases. 10. (LO 2) Apply the high-low method to determine components of mixed costs. Understand how to apply all four steps of the high-low method. 11. (LO 3) Prepare a CVP income statement to determine contribution margin. Utilize the relationships within the components of the CVP Income Statement (Sales - Variable Costs = Contribution Margin - Fixed Costs = Net Income) to solve questions. The flow of the CVP income statement provides the most useful formula of all formulas presented in this course. 12. (LO 4) Compute the break-even point using the mathematical equation (Sales - Variable Costs - Fixed Costs = Net Income) and the contribution margin technique [Fixed Costs / Unit Contribution Margin = Breakeven point (in units)].Chapter 20 - Incremental Analysis 13. (LO 1) Describe management's decision-making process and incremental analysis. Understand how to determine whether information is "relevant" to a particular business decision by applying the definition of "relevant" (i.e., must relate to a future cashflow amount that differs between the alternative choices). Understand how to compute the "relevant cost" of an alternative choice (i.e., Relevant costs include only those costs that will affect the future and that differ between the alternative choices.). 14. (LO 3) Analyze the relevant costs in a make-or-buy decision. Understand how to compute opportunity cost (i.e., the lost potential benefit that could have been obtained by choosing another alternative.) 15. (LO 4) Analyze the relevant revenues and costs in determining whether to sell inventory now or process inventory further (then sell that inventory). Illustration 20.12 provides a good example in the etext. Chapter 21 - Pricing 16. (LO 1) Compute a target cost when the market determines a product price. Remember that the target cost is based on the market-determined product price and the amount of desired profit (where Desired Profit = Investment * Minimum rate of return; Also......price = cost + markup; Also......price = (cost + cost*markup%). Understand when target costing should be used (i.e., in a competitive, common-product environment, when the market determines the selling price). Desired profit = Investment in new production equipment * Minimum rate of return 17. (LO 2) Compute a target selling price using cost-plus pricing. Remember that a target selling price is based on cost plus markup. Understand when cost-plus pricing can be used (i.e., in a less competitive environment, where there is flexibility in pricing.) Chapter 22 - Budgetary Planning 18. (LO 1) Be familiar with the "essentials of effective budgeting" (i.e., sound organizational structure, research and analysis, and acceptance by all levels of management) and the components of the master budget. Be able to identify the benefits of budgeting. 19. (LO 2) Be able to determine budgets for sales and production. Sales budgets are based on expected quantity of unit sales * unit selling price. Production budgets are based on (1) fulfilling expected unit sales, (2) fulfilling desired units for ending finished goods inventory, and (3) backing out any units available from beginning finished goods inventory. 20. (LO 3) Prepare a budgeted amount for direct labor based on production information and direct labor standards. 21. (LO 4) Be able to compute cash collections given monthly sales info and a typical cash collection pattern for both "cash sales" and "credit sales".Chapter 23 - Budgetary Control & Responsibility Accounting 22. (LO 2) Understand how to determine flexible budget amounts for the actual level of activity, given planning budget information. 23. (LO 4) Evaluate performance in investment centers using ROI = Controllable Margin / Average Operating Assets. 24. (LO 5) Explain the difference between ROI and residual income. Calculate ROI = Controllable Margin / Average Operating Assets. Calculate Residual Income = Controllable Margin - (Minimum Rate of Return * Average Operating Assets). Chapter 24 - Standard Costs and Balanced Scorecard 25. (LO 1) Describe standard costs. Understand how standards are identified, measured, and maintained. 26. (LO 4) Understand the four balanced scorecard perspectives (Financial, Customer, Internal Process, Learning & Growth) and how they are related. Be familiar with the types of measures (aka objectives) within each balanced scorecard perspective. Understand what the balanced scorecard balances. Chapter 25 - Planning for Capital Investments 27. (LO 1) Describe capital budgeting inputs and apply the cash payback technique in situations where annual cashflows are consistent (Payback Period = Initial investment / Annual net cash flow), as well as situations where annual cashflows vary (determined by calculating a cumulative net cash flow amount each period and determining when that cumulative net cash flow amount reaches the same amount as the initial investment amount). 28. (LO 2) Use the net present value method. Net present value is determined by netting the present values of all cashflows related to a particular investment. 29. (LO 3) Identify capital budgeting challenges and refinements. Understand the potential impacts of intangible benefits, how the profitability index (i.e., Profitability Index = Present Value of Net Cash Flows / Initial Investment) is used for mutually exclusive investment projects, how sensitivity analysis can be used to adapt for different risk levels, and why "post-audits" are an important part of the capital budgeting process. 30. (LO 4) Use the internal rate of return method. Remember that the internal rate of return provides the rate at which the NPV = 0. Remember that we can back into the internal rate of return when we have an initial investment that produces equal annual net future cashflows by determining the PVA factor as the initial investment divided by the annual net future cashflows. We can then refer to a PVA table, find the related number of periods, then move down the row until we get to an amount close to the PVA factor, then look up to determine the associated rate.31. (LO 5) Use the annual rate of return method. Annual Rate of Return = (Expected Annual Net Income / Average Investment), where "Average Investment" = (Original Investment + Salvage Value) / 2. Don't forget that this method uses accrual accounting concepts like depreciation and net income in determining the annual rate of return. If annual cost savings are created through making the investment in an asset, treat those savings like income. Any depreciation expense related to the investment would need to be subtracted from those annual savings in determining the "Expected Annual Net Income", when solving for the Annual Rate of Return. Appendix F - Time Value of Money 32. (LO 1) Compute interest, compute the future value of a single cashflow, and compute the future value of an annuity cashflow. Understand the components needed to compute interest (amount, rate, and time period) or a present or future value amount. Know the definition of an "annuity" (i.e., "a stream of equal cashflows received at set time intervals"). 33. (LO 2) Compute the present value of a single cashflow, and compute the present value of an annuity cashflow. 34. (LO 3) Compute the present value in a capital budgeting situation. Net present value is determined by netting the present values of all cashflows related to a particular investment