Adam Moretto

0916813

IAP 3

1. Financial accounting
- Has to comply with various accounting standards.
- Reports on the business as a whole
- Financial accounting requires that records be kept with considerable precision, which is
needed to prove that the financial statements are correct.

Managerial accounting
- does not have to comply with any standards when information is compiled for internal
consumption.
- almost always reports at a more detailed level, such as profits by product, product line, or
geographic region.
- Mainly deals with estimates, rather than proven and verifiable facts.

2. Gross Margin is the gross profit as a percentage of Net Sales. It is calculated by doing: Sales – Cost
of Goods Sold (contains both fixed and variable product costs). Contribution Margin only subtracts
the variable portion of expenses, and the formula is Net Sales minus the variable product costs and
the variable period expenses. Therefore, the main difference between the two margins is that one
includes fixed expenses and only variable product costs, and the other only includes variable
expenses but both product and period costs.

3. If two products have the exact same contribution margin per unit, it does not mean that management
should always be indifferent to whether they produce or sell the product. Other manufacturers could
product the product for you at a lower cost than what you are producing the product at.

4. Traditional Vs. Activity Based Costing

Similarities
1) Both allocate indirect overhead costs to products.
2) Both of the estimated overhead costs are calculated using a cost driver rate.

Differences
1) Traditional is more simple than ABC; ABC is a lot more complex as it includes a precise
breakdown of the different indirect costs.
2) Traditional is less costly and easier to implement; ABC is costlier and a lot more complex to
implement.
3) Traditional is less accurate and can result in under/over costing; ABC is far more accurate and
rarely results in over/under costing.

5. Breakeven Point = Fixed Expenses / Contribution Margin Ratio

CM Ratio = !.00 – (Variable Expenses/Sales)

= (75,000 + 50,000) / [1.00 - (420,000/530,000)]

= 125,000 / 20.75%
= $602,410
7. Budgeting
- nature of the budgeting process
- Types of budget
- Adjustment to Plans and Budgets
- Cash budgeting (i.e., cash flow forecasts and short- and long-term sources and uses of funds)
- Benchmarking
- Budget variance analysis
- Performance indicators

Cost Management
- nature of costs
- Classification of costs
- Product costing
- Joint product and by-product costing
- Process costing
- Job costing
- Activity-based costing (ABC)
- Relevant costing
- other costing (e.g., hybrid costing, operations costing, kaizen costing, product life cycle costing)
- Standard cost systems

Types of Management Accounting Analysis

- Cost-volume-profit analysis (C-V-P)
- Trend and sensitivity analysis
- Contribution margin analysis
- Cost-benefit analysis
- Scenario planning (business intelligence tool)
- Quantitative modeling (linear programming, regression analysis, cause and effect diagrams, etc.)
- Production planning in a scarce resources environment
- Theory of constraints

Individual Performance Measurement

- a) Types of performance measurement, evaluation, and incentive systems