Chapter 1: Intro to managerial acc.
example decisions:
-manager considering adjusting hours open for week.
-asked to authorize and approve plan to issue 10 million common stock.
managerial accounting: internal users, managers. no mandatory rules for preparing
reports. financial and non financial information. emphasizes the future (planning and
decision making). detailed information about product line, departments, etc.
financial accounting: external users, stockholders and creditors. just follow GAAP when
preparing financial statements. financial information. historical orientation (reports what
has already occurred). information about overall firm performance.
manager’s responsibilities: decision making!
-planning
—setting objectives and goals.
-directing
—overseeing day to day operations
-controlling
—evaluating results of operations
ethics: refers to the standards of conduct for judging right from wrong, honest from
dishonest, and fair from unfair.
ACC242 Ch. 2
cost is the value of what you trade to get what you want
cost is an asset if:
— benefit exceeds one accounting period
cost is called an expense if:
—benefit is consumed within one accounting period
cost object:
-an activity
-a product
-a service
-a project
ACC241 : Managerial Accounting
-a geographic region
-a department
like:
-repairing equipment, testing products manufactured for quality
-paper towels, computers, cars
-etc.
major cost classifications:
-direct costs
indirect costs
product cost: costs associated with making the products available and ready to sell.
- included as part of inventory (balance sheet) until the product is sold. then expensed
on income statement as cost of goods sold
period costs: costs that are not product costs
⁃selling costs
⁃administrative
⁃generally, expenses on income statement when incurred
the product (cost object):
-direct material
-direct labor
-manufacturing overhead (indirect)
ACC 241 Ch. 3 Job Costing (Sept. 3, 2015)
reasons why management needs product cost
-control costs
-assess profitability
-pricing decisions
-discounts on high-volume sales
-bids on contracts
-financial statement preparation
how do manufacturers treat non-manufacturing costs?
-GAAP: only inventoriable product costs added to the cost of assets (inventory)
-internal decision-making: management wants to know the total cost of the product
across the value chain
developing a costing system
when developing a product
direct materials - manufacturer
beginning raw materials inventory
+purchases of raw materials
+freight in
=materials available for use
-indirect materials used
-ending raw materials inventory
=direct materials used
ECN212 : MicroEconomics
(August 25, 2015): Introduction
microeconomic focus
-incentives matter
-good institutions align self interest with social interest
-trade-offs are everywhere
-thinking on the margin
-the power of trade
macroeconomic focus
-the importance of wealth and economic growth
-institutions matter
-economic booms and busts cannot be avoided but can be moderated
-prices rise when the government prints too much money
-central planning is a hard job
incentives: are rewards and penalties that motivate behavior. when these incentives
exist, they can be instrumental in affecting the way that people actually do behave
scarcity: the term scarce resources simply refers too the fact that the availability of
resources is insufficient for individuals to satisfy all desires at zero price.
-scarcity forces us to make choices
MICROECONOMIC FOCUS 1. Incentives matter 2. Good Institutions align self interest
with social interest 3. Trade-offs are everywhere 4. Thinking on the margin 5. The power
of trade
MACROECONOMIC FOCUS 6. The importance of wealth and economic growth 7.
Institutions matter 8. Economic booms and busts cannot be avoided but can be
moderated 9. Prices rise when the government prints too much money 10. Central
planning is a hard job
Most of this course will be about analyzing markets. There are markets in almost
everything – as we’ll discuss as the semester goes on. In short, a market is the
interaction between all of the potential buyers and sellers of good or service.
Goal-oriented – market participants are interested in fulfilling their own, personal goals.
Rational behavior – behavior is based on a careful, deliberate process that weighs
expected benefits and costs. People do not make decisions that make themselves
worse off.
Although sometimes additional information may be helpful in making decisions, the
process of gathering information is not costless. Once again, we must consider the cost
of obtaining information versus the benefit it will bring. Because information is scarce,
uncertainty is a fact of life
Opportunity Cost requires us to look at the full cost of making choices. This must
include the value of the next best alternative.
Explicit costs refer to money used in the pursuit of a goal that could otherwise have
been spent on an alternative objective. Implicit costs are costs associated with the
individual’s use of his or her own time and other resources (aka “opportunity cost”).
Economic cost is simply the combination of explicit costs and implicit costs.
Accounting costs are costs reported in companies’ net income statements generated by
accountants
Sunk costs are costs that have already been incurred and are beyond recovery
Political Planning: Political organization is the major alternative to the use of markets. •
Political organization involves the use of collective decision making (government) to
decide what, how, and for whom goods and services will be produced.
An economic system in which the government owns the income-producing assets and
directly determines what goods they produce is called socialism. • In a democracy,
political decision makers have to consider how their actions will influence their election
prospects.
Microeconomics is the branch of economics that focuses on how human behavior
affects the conduct of affairs within narrowly defined units, such as individual
households or business firms. Sometimes we refer to microeconomics as price theory.
Macroeconomics is the branch of economics that focuses on how human behavior
affects outcomes in highly aggregated markets, such as the markets for labor or
consumer products.
A theory shows how facts are related to one another. • Theory is based on certain
assumptions. • Theory can be used to predict as well as explain real-world outcomes.
Theories are judged first and foremost on their ability to predict future consequences of
economic action in the real world.
“Theories are attempts to discover the principles that drive the world. They need
confirmation, but no justification for their existence. Theories describe and deal with the
real world on their own terms and must stand on their own two feet.”
“Models stand on someone else’s feet. They are metaphors that compare the object of
their attention to something else that it resembles. Resemblance is always partial, and
so models necessarily simplify things and reduce the dimensions of the world.”
Statistical association alone cannot establish causation. Only theory can help us
understand the concept of causation, but statistics can never allow us to prove that one
thing has been caused by another.
The fallacy of composition is the erroneous view that what is true for the individual (or
the part) is also true for the group (or the whole).
Microeconomics focuses on narrowly defined units, while macroeconomics is focused
on highly aggregated units. One must beware of the fallacy of composition when shifting
from micro- to macro-units.
For the most part, we are interested in being able to describe what exists around us.
This is the science of economics and is intended to be objective (not influenced by
personal feelings). It tells us “what is”. We refer to this as positive analysis.
Positive economics is defined as the scientific study of “what is” among economic
relationships. It describes a factual relationship between different aspects of the world.
Positive economic statements can be supported or corroborated by evidence.
When we let our opinions into our analysis, we start talking about what “should or ought
to be”. This is no longer objective. It becomes subjective (it belongs to the mind of the
subject). This is what we refer to as normative analysis.
Normative economics is defined as judgments about “what ought to be” in economic
matters. Normative economics represents an opinion which requires a value judgment.
Normative economic statements cannot be supported or corroborated with evidence.
In general, economics is concerned with Positive Analysis.
Transactions costs: the time, effort, and other resources needed to search out,
negotiate, and consummate an exchange. • Transactions costs reduce our ability to
produce gains from potential trades.
A person who buys and sells, or arranges trades. • Middlemen reduce transactions
costs.
Shifting the Production Possibilities Curve Outward
1. An increase in the economy’s resource base would expand our ability to produce
goods and services. 2. Advancements in technology can expand the economy’s
production possibilities. 3. An improvement in the rules (laws, institutions, and policies)
of the economy can increase output. 4. By working harder and giving up current leisure,
we could also increase our production of goods and services. This requires us to give
up something else we value: leisure.
Division of labor breaks down the production of a good into a series of tasks performed
by different workers. Specialization and division of labor increase output for three
reasons: 1. Specialization permits individuals to take advantage of their existing skills. 2.
Specialized workers become more skilled with time. 3. Division of labor allows for the
adoption of mass-production technology.
The law of comparative advantage is the proposition that the joint output of trading
partners will be greatest when each good is produced by the low opportunity cost
producer.
1. Implies that trading partners can gain by specializing in the production of goods they
can produce at a relatively low opportunity cost and trade for goods they could only
produce at a relatively high opportunity cost. 2. The principle of comparative advantage
is universal as it applies across individuals, firms, regions and countries.
Trade is a key to prosperity because it: 1. channels goods toward those who value them
the most, and, 2. makes it possible for people to produce more as the result of
specialization and division of labor, large-scale production processes, and the
dissemination of improved products and lower cost production methods.
Economies of Scale: often, large scale production leads to lower per unit costs. •
Innovation: technological change is about figuring out how to get more from existing
resources. • Gains from trade underlie modern living standards.
Over time, investment and improvements in technology permit us to increase output.
Shifts in the production possibilities curve highlight this point. • Economic goods are the
result of human ingenuity and action. Through time, the size of the “economic pie” is
variable, not fixed.
Chapter 2: Demand
As the price of a good increases, people will choose to buy less of it. Conversely, as the
price of a good decreases, people will choose to buy more of it. The availability of
substitutes (goods that perform similar functions) explains this negative relationship.
As the price of a good increases, people will choose to buy less of it. • As the price of a
good decreases, people will choose to buy more of it. Both of these statements are
made with the assumption that all other influences are being held constant.
In economics, the concept of holding all else equal has been given the name ceteris
paribus. It is Latin for "with other things [being] the same," and usually rendered in
English as "all other things being equal.”
Income affects demand for a good in one of two ways. Because of this, we separate
goods into two distinct categories: 1) Normal Goods 2) Inferior Goods
These are the goods for which an increase in income leads to a greater consumption of
the good in question. Most goods are normal goods. When you get more money, you
buy more of them.
These are the goods for which an increase in income leads to a lesser consumption of
the good in question. Inferior goods are relatively rare. When you get more money, you
buy less of them.
An increase in income will cause a positive (or rightward or outward) shift in demand for
a normal good and a negative (or leftward or inward) shift in demand for an inferior
good.
When income increases, the demand for a normal good… D …shifts right (or out)
When income increases, the demand for an inferior good… D …shifts left (or in)
The price of another good also can affect the demand for the original good in one of two
ways. Once again we divide this category goods into two separate cases: 1) Substitutes
2) Complements
Complements : These are goods consumed together. Consumption of both rises or falls
at the same time.
When the price of one substitute increases (for example Pepsi), people have a positive
shift in demand for the other substitute (in this case, Coke). The price of one substitute
and the shift in demand for the other move in the same direction (positive or negative).
When the price of one complement increases (for example hot dog buns), people have
a negative shift in demand for the other substitute (in this case, hot dogs) because the
bundle of the two is now more expensive. The price of one complement and the shift in
demand for the other move in the opposite direction (positive or negative).
People buy less when things get expensive. If they can substitute a different good for
the expensive good, they will. For bundles of goods (complements), only one has to
increase in price for people to buy less of both of them.
When the price of a substitute increases, the demand for the other substitute… D …
shifts right (or out)
When the price of a complement increases, the demand for the other complement… …
shifts left D (or in)
Tastes and Preferences : Things go in and out of fashion in this world. This affects
demand greatly. It is a difficult thing to measure, but generally we are only interested in
the direction in which demand shifts.
When desire for a good increases, the demand for the good shifts right (or out)
When the desire for a good decreases, the demand for the good shifts left (or in)
Expectations – If people expect the price of something to rise in the future, their demand
today will shift to the right (and if they expect the price to fall, demand will shift to the
left)
Expectations – Similarly, if people expect their incomes to increase or decrease in the
future, they will act as if these changes have already occurred.
Demography – If your population or a certain portion of your population increases,
demand for goods related to these groups will shift to the right (and if these populations
decrease, demand will shift to the left).
Derived Demand If the demand for a good shifts, then inputs used to make that good
will also see a demand shift in the same direction (holding all else equal).
If demand for leather couches shifts to the right, the demand for leather will also shift to
the right. If demand for McDonald’s burgers shifts to the left, then demand for
McDonald’s employees will also shift to the left*. *Note: McDonald’s burgers are not
made out of people, but are made by people
Summary: Determinants of Demand 1) Income a) Normal Goods b) Inferior Goods 2)
Prices of Other Goods a) Substitutes b) Complements 3) Tastes and Preferences 4)
Expectations 5) Demography / Population 6) Derived Demand
Consumer surplus is the area below the demand curve but above the actual price paid.
Consumer surplus is the difference between the amount consumers are willing to pay
and the amount they have to pay for a good. Lower market prices increase the amount
of consumer surplus in the market.
A change in price leads to a relatively large change in quantity demanded. • Demand
will be elastic when close substitutes for the good are readily available.
A change in price leads to only a small change in quantity demanded. • Demand will be
inelastic when few, if any, close substitutes are available.
Ch. 3: Supply
Producers purchase resources and use them to produce output. • Producers will incur
costs as they bid resources away from their alternative uses.
Opportunity cost of production: the sum of the producer’s costs of employing each
resource required to produce the good. • Firms will not stay in business for long unless
they are able to cover the cost of all resources employed, including the opportunity cost
of the resources owned by the firm.
Economic Cost is the cost of all resources used to produce the good. • Accounting Cost
often ignores the opportunity costs of resources owned by the firm (for example, the
firm’s equity capital).
As the price of a good increases, the more firms will choose to offer it at this price.
Conversely, as the price of a good decreases, the less firms will choose to offer it at this
price. Both of these statements are made with the assumption that all other influences
are being held constant
When price is placed on the vertical axis and quantity placed on the horizontal axis,
supply slopes upward.
For a movement along a given supply curve, what has changed? Price (because it
determines quantity supplied)
The State of Technology : As time goes on, we get better and better at using the
resources around us efficiently. As that efficiency increases, we can make goods by
using fewer resources. Fewer resources mean a lower cost. This causes supply to shift
rightward (or outward).
As technology advances in the production of a good, the supply of that good shifts to
the right (outward).
The Price of an Input : When you require resources to produce your product, you care
very much about the price of these resources. As the price of any input resource
increases, your willingness to supply the final good at any given price decreases. This is
a leftward (or inward) shift of the supply curve
As the price of an input increases, the supply of the good shifts to the left (inward).
Expectations – If firms expect the price of something to rise in the future, they will be
less willing to supply the good today at any given price. Supply will shift to the left
(inward).
Number of Sellers – If the number of firms willing to sell something increases, the
supply available of this good at any given price will be greater than it was before. Supply
will shift to the right (outward).
Taxes and Subsidies – If the government increases taxes on a good, the supply
available of that good at any given price levels will be lower than it was previously.
Supply will shift to the left (inward).
Summary: Determinants of Supply 1) State of Technology 2) Prices of Inputs 3)
Expectations 4) Number of Sellers 5) Taxes and Subsidies (and other controls)
Producer surplus is the area below the the actual price paid but above the supply curve.
Producer surplus is the difference between the amount producers are willing to sell for
and the amount they do sell a good for. Higher market prices increase the amount of
producer surplus in the market.
When supply is elastic, the quantity supplied is sensitive to changes in price. Thus a
change in price leads to a relatively large change in quantity supplied.
When supply is inelastic, the quantity supplied is not very sensitive to changes in price.
Thus, a change in price leads to only a relatively small change in quantity supplied.
Ch. 4: The Market
The market for a good involves the representation of all of the potential buyers (the
demand curve) and all the potential sellers (the supply curve) for a given product.
Equilibrium occurs at the intersection of demand and supply.
When demand shifts left: – the equilibrium price and quantity will fall. When demand
shifts right: – the equilibrium price and quantity will rise.
When supply shifts left: – the equilibrium price will rise and the equilibrium quantity will
fall. When supply shifts right: – the equilibrium price will fall and the equilibrium quantity
will rise.
•Invisible hand: the tendency of market prices to direct individuals pursuing their own
self interests into productive activities that also promote the economic well-being of
society. •This direction, provided by markets, is a key to economic progress.
Product prices communicate up-to-date information about the consumers’ valuation of
additional units of each commodity. • Without the information provided by market prices
it would be impossible for decisionmakers to determine how intensely a good was
desired relative to its opportunity cost.
Price changes coordinate the choices of buyers and sellers and bring them into
harmony. • Price changes create profits and losses which change production levels for
products.
Suppliers have an incentive to produce efficiently (at a low cost). • Entrepreneurs have
an incentive to both innovate and produce goods that are highly valued relative to cost. •
Resource owners have an incentive both to develop and supply resources that
producers value highly.
Competitive markets – the forces of supply and demand – lead to market order, low-
cost production, and economic progress. • The pricing system coordinates the choices
of literally millions of consumers, producers, and resource owners and thereby provides
market order. • Central planning is neither necessary nor helpful. • The market process
works so automatically that the coordination and order it generates is often taken for
granted. Thus the expression “invisible hand” is quite descriptive of the process.
The efficiency of market organization is dependent upon: • The presence of competitive
markets. • Well-defined and well-enforced private property rights.
Ch. 5: Extensions of Markets
There are two main ways that government can mess with equilibrium in the market
when it comes to price. • Price Ceilings – The government sets a price at which
suppliers cannot sell above. • Price Floors – The government sets a price at which
buyers cannot pay below.
Effects of Rent Control • Shortages and black markets will develop. • The future supply
of housing will decline. • The quality of housing will deteriorate. • Non-price methods of
rationing will increase in importance. • Inefficient use of housing will result. • Long-term
renters will benefit at the expense of newcomers.
Effects of a Minimum Wage • Reduces employment of low-skilled labor. • Reduction in
non-wage component of compensation • Less on-the-job training • May encourage
students to drop out of school
A black market is a market that operates outside the legal system. Black markets have
a higher incidence of defective products, higher profit rates, and greater use of violence
to resolve disputes.
The primary sources of black markets are: • Evasion of a price control • Evasion of a tax
(e.g. high excise taxes on cigarettes) • Legal prohibition on the production and
exchange of a good (e. g., prostitution, marijuana and cocaine)
A legal system that provides secure property rights and unbiased enforcement of
contracts enhances the operation of markets. • Markets will exist in any environment,
but they can be counted on to function efficiently only when property rights are secure
and contracts enforced in an evenhanded manner. • The inefficient operation of markets
in countries like Russia following the collapse of communism illustrates the importance
of an even-handed legal system.
The legal assignment of who pays a tax is called the statutory incidence. • The actual
burden of a tax (actual incidence) may differ substantially. • The actual burden does not
depend on who legally pays the tax (statutory incidence).
The deadweight loss of taxation is the loss of the gains from trade as a result of the
imposition of a tax. • It imposes a burden of taxation over and above the burden of
transferring revenues to the government. • It is composed of losses to both buyers and
sellers. • The deadweight loss of taxation is sometimes referred to as the “excess
burden of the tax.”
The actual burden of a tax depends on the elasticity of supply relative to demand. • As
supply becomes more inelastic, more of the burden will fall on sellers and resource
suppliers. • As demand becomes more inelastic, more of the burden will fall on buyers.
The average tax rate equals tax liability divided by taxable income. • A progressive tax
is one in which the average tax rate rises with income. • A proportional tax is one in
which the average tax rate stays the same across income levels. • A regressive tax is
one in which the average tax rate falls with income.
Marginal tax rate: calculated as the change in tax liability divided by the change in
taxable income. • The marginal tax rate is highly important because it determines how
much of an additional dollar earned must be paid in taxes (and therefore, how much one
gets to keep). In this way, the marginal tax rate directly impacts an individual’s incentive
to earn.
Tax rate: the rate (%) at which an activity is taxed. • Tax base: the amount of the activity
that is taxed. • Tax revenues: tax rate multiplied by tax base
The Laffer curve illustrates the relationship between tax rates and tax revenues. • As tax
rates increase from low levels, tax revenues will also increase even though the tax base
is shrinking. • As rates continue to increase, at some point, the shrinkage in the tax base
will dominate and the higher rates will lead to a reduction in tax revenues. • The Laffer
Curve shows that tax revenues are low for both high and low tax rates.
• A subsidy is a payment to either the buyer or seller of a good, usually on a per unit
basis. • The supply and demand framework can be used to analyze the impact of a
subsidy just as it was used to analyze impact of a tax.
As in the case of a tax, the division of the benefit from a subsidy is determined by the
relative elasticities of demand and supply rather than to whom the subsidy is actually
paid. • When supply is highly inelastic relative to demand, sellers will derive most of the
benefits of a subsidy. • When demand is highly inelastic relative to supply, the buyers
will reap most of the benefits of a subsidy.
Sometimes subsidies are granted to some (e.g. the elderly or the poor) but not others.
When this is the case, the group that is not subsidized is generally harmed. They often
have to pay higher prices than would otherwise be the case.
