Chapter Conceptual Check-Points

Chapter One 1) Why do business need management accounting information systems? What are some examples of how managers use accounting information in making important strategic decisions? 2) Describe the differences between financial and managerial accounting systems. 3) Identify the elements of the value chain, and classify various costs into value chain elements. 4) Understand the five-step process managers use in making decisions, vis--vis their roles in controlling performance. 5) Know the three guidelines in developing and using management accounting information: a. Use a cost-benefit approach b. Balance technical and behavioral considerations c. Use the right costs for the decision at hand because different costs are relevant for different decision purposes 6) Develop reasonable solutions to ethical dilemmas.

Chapter Two 1) Describe the difference between direct versus indirect costs, and how the distinction depends on the cost object. 2) Describe and apply different classifications of costs: a. Direct versus indirect costs b. Variable versus fixed costs (be sure to distinguish how variable and fixed costs behave in total and per-unit), and the role of the relevant range c. Unit costs (how they are computed and why they are dangerous for the casual user) d. Capitalized inventoriable costs versus period costs and why this distinction matters 3) Distinguish among service, merchandising, and manufacturing firms, and the effect this has on their financial statements (B/S and I/S). 4) Prepare a cost of goods manufactured schedule for a manufacturing firm. 5) Explain why different costs are relevant for different decision purposes. 6) Consult page 46 to identify the framework for cost accounting.

Chapter Three 1) Use the equation method to perform CVP analysis (including target income, sales mix, and income taxes). The equation method is the most versatile, so this is the approach generally used; however; in order to compute a breakeven point for a firm with many products, when you

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have only cost and revenue data and no information on the number of units sold, use the contribution margin ration approach shown on page 69 to compute the breakeven point. Prepare and interpret CVP graphs like Exhibit 3-2. Describe the difference between gross margin and contribution margin. Prepare contribution margin income statements as illustrated at the end of Chapter 3. Understand the assumptions underlying CVP analysis and the limitations of linear CVP analysis. Explain how to align companies cost structures (proportion of variable versus fixed costs, operating leverage) with owners risk preferences.

Chapter Four 1) Explain why it is important to know how much a job costs (for what kinds of decisions do you need to know job costs?). 2) Describe the building block concepts of costing systems. 3) Identify the basic difference between job and process costing, and know what kinds of companies use each type of costing system. 4) Determine the cost of completing a specific job for a manufacturer like Dell (a job may include one or more units). 5) Allocate indirect costs, such as MOH, that cannot be traced to specific jobs. Understand the differences among the overhead allocation base, budgeted MOH, actual MOH, allocated MOH, actual MOH rates, and budgeted MOH rates. 6) Know how product costs flow through the T-accounts illustrated in Exhibit 4-7. Focus on: a. How to make the journal entries and how the costs flow through the T-accounts b. Exactly what the financial accounting system includes in the (GAAP) product cost numbers it reports c. Which costs are excluded from the product costs the financial accounting system reports 7) For a service firm, determine the cost of serving a particular client, including tracing direct costs and allocating indirect costs. 8) Identify the differences among actual costing, normal costing, and the variation of normal costing (pages 122-123), and why most companies use normal costing instead of actual costing. 9) Adjust under- or overallocated manufacturing overhead at the end of the period.