wo01GxagkA - MOS 1023 – Into to Accounting Exam#2...

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Unformatted text preview: MOS 1023 – Into to Accounting Exam #2 Textbook Notes Pg. 102-197 Value: benefits less costs Opportunity cost: the value you give up to get something Shareholder value: maximize the returns to shareholders investing in the company Planning decisions: choices about acquiring and using resources to deliver products and services to customers. Control decisions: relate to motivating, monitoring, and evaluating performance through past performance with the purpose of improving future plans. Planning and control go hand in hand. Financial accounting: satisfy the needs of decision makers outside of the firm Managerial accounting: satisfy the needs of decision makers inside the firm Product costs: costs associated with getting products and services ready for sale ex. Salaries, facility rent, supplies maintenance. Gross margin: revenue less product costs Period Costs: costs that are not directly related to making the product, rather include ad, rent, customer service (all costs that are not product costs, appear below the line of gross margin) Subtract period costs from gross margin to get EBIT. Service firms: offer not tangible or storable good ex. Delta Inventory equation (merchandising): - COGS: cost of goods become part of cogs only when firm sells the items - Cost of beg inv + cost of goods purchased during the period – cost of ending inventory = COGS during period Cost flows in manufacturing - direct materials and direct labour - overhead (manufacturing overhead): total of all these indirect manufacturing inputs ex. Production support staff, machines, equipment - variable overhead (electricity) and fixed overhead (salaries never change) - selling and administrative costs - Prime costs: sum of material and labour costs - Capacity costs: sum of variable and fixed overhead - Conversion costs: sum of labour and overhead – required to convert raw materials to finished goods Get chart*** Relation of costs accounts: ending balance in balance sheet WIP account (COGManufactured) is the finished goods inventory account for income statement Cost Allocation: - Cost pool: total costs to allocate - Cost objectives: items or entities which we allocate the costs in the cost pool - Cost driver (allocation basis): attributes we can measure for each cost basis (ex. Number of males) Allocation volume: sum of cost driver amounts across all cost objects Characteristics of effective performance measures: An ideal performance measure: - aligns employee and organizational goals - yields maximum info about the decisions or actions or the individual or organizational unit - is easy to measure - is easy to understand and communicate Informative principle: if performance measure provides info about a managers effort Controllable performance measure: reflects consequences of the actions taken by the decision maker LT Measures: reductions in cost, organizations use performance measures - benchmarking: involves comparing the effectiveness and efficiency of various activities against the best practices in the industry - kaizen: continuous improvement – encourages emplyees ROI is a measure of profit generated per dollar of investment Finance: the study od how and under what terms savings are allocated between lenders and borrowers Real assets: tangible things that compose personal and business assets (house) Financial assets: a claim that one individual or institution has on another Market intermediaries: entities that facilitate the working of markets and help provide direct intermediaries but do not change the nature of the transaction- also called brokers Financial intermediaries: entities that invest funds of behalf of others and change the nature of the transactions Three channels of intermediation: - direct or non-market: lender provides money directly to the ultimate borrower without any help from a specialist – non market (under the table) (direct claim to money) - market: between lender and borrower but must involve a secondary lender to help with some funds . example real estate broker (direct claim to money) - financial: financial instiution or intermediary lends money to the borrower but raises the money itself from borrowing from others (indirect claim to money because its borrowed) example banks. When market intermediaries help individuals its called retail; when they help financial intermediaries its institutional Credit crunch: a situation in which financial intermediaries have to raise the cost of their loans by a significant amount due to their own inability to raise financing on reasonable terms. Financial Instruments: 1. debt instruments: represent legal obligations to repay borrowed funds at a specific maturity date and provide agreed interest payments. Ex. Bank loans, mortgage loans, etc. 2. equity instruments: represent and ownership stake in a company. Most common is the common share (part ownership in a company and usually gives voting rights on major decisions) and preferred shares (fixed dividend payments made before giving to common shareholders). Primary markets: markets that involve the issue of new securities by the borrower in return for cash from investors Secondary markets: trading environments that permit investors to buy and sell existing securities ...
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