DQ 1

Financial vs Managerial Accounting

What are some main differences between financial and managerial accounting? How do these
differences affect the type of information that must be gathered and reported? What different
types of decisions must users of financial accounting information make? What different types of
decisions must users of managerial accounting information make?
Variations are there between financial and managerial accounting. In financial accounting, the
main users of reports are external. Instances of the external users might include government
bodies, stockholders, and creditors. Managerial Accounting has got internal users. Instances of
internal users might include managers and officials. Additionally, financial accounting has
reports every 3 months or every year while managerial accounting sends out reports when
required. Moreover, financial accounting reports are validated by audits from a CPA while in
managerial accounting the confirmation process doesn't include audits (Weygandt, Kieso, &
Kimmel, 2010).
Information should be collected and reported for financial and managerial accounting. The data
gathered for managers to research permits an organization to ascertain the health of divisions and
the organization as a whole. Managerial accounting permits employees to find particular areas of
the businesses costs and returns. On the contrary, financial accounting records information to
provide a general purpose to external users. The reports provide a basic knowledge of expenses
and returns for an organization. For instance, Wal-Mart can easily over-estimate their assets at
half a million dollars and still provide external users an honest signal as to the health of the
organization. But, managerial accounting concentrates on particular information pertaining to
data in each area. A half a million dollar offset would not be acceptable in managerial
accounting.
Users of financial accounting have got many decisions to make while analyzing reports.
Financial accounting can provide an external user an estimation of the organization's net profit,

the long-term health of the organization, the capacity of the entity to pay off its financial
obligations, and evaluate tendencies from earlier years
Financial accounting provides financial information to external users, like stakeholders,
creditors, and government, on the health of an organization. Managerial accounting provides
financial data to internal management for day to day operations and decision making. Managerial
accounting allows managers to pull financial data to set goals, plan ahead, and forecast future
sales. Financial accountings main purpose is to provide financial information to stakeholders the
end results and financial condition of an organization. The information that has to be gathered for
managerial is different than it is for financial accounting. Managerial data is not required by law
and is used for informational purposes only by internal management. The information is
department specific and informal whereas the financial accounting report is required by law and
focuses on a specified period of time. It also pertains the entire company and has to be in a
specific format so it can be easily compared. Users of the financial accounting statement use the
information to make investing decisions, credit worthiness, and the financial health of the
organization. Moreover, financial accounting reports are validated by audits from a CPA while in
managerial accounting the confirmation process doesn't include audits (Weygandt, Kieso, &
Kimmel, 2010).The users of managerial accounting use the information to forecast future sales,
production of new products, and economic circumstances. It is also helps the users look at each
department to determine areas of improvement.
Reference
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2010). Managerial Accounting Tools for
Business Decision Making (5th ed.). Hoboken, NJ: John Wiley & Sons, Inc..

DQ 2
Job cost vs Process Cost Systems
What are the differences between job cost and process cost systems? When would it be
appropriate to use each type of system? What is the effect of each system on the product cost?

Job costing is concerned with the cost determination of orders or tasks and is most suitable in a
batch manufacturing environment where each new order is different from the earlier or following
order. Materials as well as direct labor differ from order to order in this kind of system. Each
manufacturing run is comparatively brief since the manufacturing is carried out for each
particular order. Due to this difference from order to order the cost also differs from order to
order.
Process-cost is what determines the cost for each unit of a product in an environment where
exactly the same items are manufactured for all clients. This kind of system is used in mass
production lines. In some kinds of production plants which have two or more product lines, each
line is a different as well as utilizes a continuous process which manufactures exactly the same
items. Materials are the same for every order as well as the direct labor is performed by novice
workers. Manufacturing runs are long as well as create huge quantities of items. The cost is not
influenced as well as remains exactly the same for every order.
"A cost accounting system consists of accounts for the various manufacturing cost. These
accounts are fully integrated into the general ledger of a company" (Weygandt, Kieso, &
Kimmel, 2010). A job costing system records costs associated with specific jobs or the
production of individual goods. The information used in a job costing system are useful in
determining the accuracy of a companys estimation system and should be able to assign
reasonable costs to inventor able goods.

"A process cost system is used when a series of connected manufacturing processes or
departments produce a large value of similar products" (Weygandt, Kieso, & Kimmel,
2010).Process cost systems are used to calculate costs that are incurred while performing the
particular job. Process cost systems are used when mass production of units are produced and the
costs associated with each unit cannot be differentiated from one another. Under the process cost
system the costs are accumulated over a fixed period and are consistent.

A job cost system would be used for companies that bill for material, labor, and over head costs.
When the job has been completed the company will then transfer the costs from inventory to cost
of goods sold and bill the other company they were working for. A process cost system would be

used when there is a product that is passing through multiple production departments. Each
department will have direct labor and over head where as each will add costs to the product. Job
cost systems do not necessary add to the cost of the product as it is calculated beforehand.
Process cost systems calculate the cost of the product after it has gone through the production
which then adds value to the product.

Reference
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2010). Managerial Accounting Tools for
Business Decision Making (5th ed.). Hoboken, NJ: John Wiley & Sons, Inc..
DQ 3
Direct Cost vs Indirect Cost
What are the differences between a direct cost and an indirect cost? Which is the more difficult
cost to track? Why? How do indirect costs affect a products cost? Should indirect costs be
included in product cost? Why or why not?
A direct cost is a cost which can be very easily as well as quickly tracked to the specific cost
object under consideration. A cost object is just anything for which cost data is needed which
includes products, customers jobs and also organizational subunits. An indirect cost is a cost that
cannot be very easily as well as quickly tracked to the specific cost object under consideration.
To be tracked to a cost object for example a specific item; the cost should be the consequence of
the cost item. A common cost is a specific kind of indirect cost as well as is a cost which is
incurred in order to support a number of costing items however cannot be tracked to them
separately. A particular cost may perhaps be direct or indirect, based on the cost item.
Indirect costs must be a part of product costs simply because these costs are an essential as well
as integral part of manufacturing the finished product. Indirect costs impact the whole
organization and the items which are manufactured. One more reason indirect costs must be
included is since they are tax deductible items.

Direct costs are associated with a particular department, product, job, services, or project.
Indirect costs are not associated with anything in particular and benefit multiple objects or
departments. Indirect costs are more difficult to track because the expenses are not directly
traceable to any particular department or activity. Some examples of indirect costs would be
power consumption, asset depreciation, and supplies. Indirect costs affect production costs by
determining what the overhead will be such as salaries, utilities, insurance, and rent will be once
the direct costs have been figured. Indirect costs should be considered in the cost of production
because of the increase or decrease use of indirect costs can fluctuate. The more production of
units a factory puts out the more electricity and use the equipment is getting. It can also increase
the use of supplies and other indirect costs, so by including the these cost into production costs
they can cover any increases.
Reference
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2010). Managerial Accounting Tools for
Business Decision Making (5th ed.). Hoboken, NJ: John Wiley & Sons, Inc..
(Weygandt, Kimmel, & Kieso, 2010).
(Weygandt, et al, 2010).