15-1. 15-2 managerial accounting is a field of accounting that provides economic and financial...

15-2

Managerial accounting is a field of accounting that

provides economic and financial information for managers

and other internal users.

Managerial accounting applies to all types of businesses.

Corporations

Proprietorships

Partnerships

Not-for-profit

Managerial Accounting BasicsManagerial Accounting Basics

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Comparing Managerial and Financial Accounting

Illustration 15-1


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Management Functions

PlanningPlanning

Maximize short-term profit and market share.

Commit to environmental protection and social programs.

Add value to the business.

DirectingDirecting ControllingControlling

Coordinate diverse activities and human resources.

Implement planned objectives.

Provide incentives to motivate employees

Hire and train employees.

Produce smooth-running operation.

Keeping activities on track.

Determine whether goals are met.

Decide changes needed to get back on track.

May use an informal or formal system of evaluations.


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Illustration 15-2

Organization charts show the

interrelationships of activities

and the delegation of authority

and responsibility within the

company.

Organizational Structure


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Business Ethics

All employees are expected to act ethically.

Many organizations have codes of business ethics.

Past financial frauds:

► Enron,

► Global Crossing,

► WorldCom


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Business Ethics

Sarbanes-Oxley Act (SOX)

Clarifies management’s responsibilities.

Requires certifications by CEO and CFO.

Selection criteria for Board of Directors and Audit

Committee.

Substantially increased penalties for misconduct.

Code of Ethical Standards


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Managers should ask questions such as the following.

1. What costs are involved in making a product or

providing a service?

2. If we decrease production volume, will costs decrease?

3. What impact will automation have on total costs?

4. How can we best control costs?

Manufacturing CostsManufacturing Costs

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Manufacturing consists of activities and processes that

convert raw materials into finished goods.

Manufacturing Costs


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Raw Materials

Basic materials and parts

used in manufacturing

process.


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Direct Materials

Materials that physically and directly associated with

the finished product during manufacturing.

Becomes a PART of the product.

Raw MaterialsRaw Materials

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Indirect Materials

Not physically part of the finished product or an insignificant part of finished product.

Considered to be … Manufacturing Overhead.

Raw MaterialsRaw Materials

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Work of factory employees that can be physically and directly

associated with converting raw materials into finished goods.

Direct Labor

Labor CostsLabor Costs

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Indirect Labor

Factory employees BUT no physical association with

the finished product or it is impractical to trace costs

to the goods produced.

Labr CostsLabr Costs

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Costs indirectly associated with making finished product.

ALL mfg costs BUT direct materials & direct labor.

aka factory overhead, indirect mfg costs, or burden.

Manufacturing Overhead


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Components:

Costs that are an integral part of producing the product.

Recorded in “inventory” account.

(Work-In-Process; Finished Goods)

Not an expense (COGS) until the goods are sold.

Product Costs

Product Versus Period CostsProduct Versus Period Costs

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Illustration 15-3

Product vs Period CostsProduct vs Period Costs

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Charged to expense as incurred.

Non-manufacturing costs.

Includes all selling and administrative expenses.

Period Costs

Product vs Period CostsProduct vs Period Costs

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A bicycle company has these costs: tires, salaries of employees

who put tires on the wheels, factory building depreciation, wheel

nuts, spokes, salary of factory manager, handlebars, and salaries

of factory maintenance employees. Classify each cost as direct

materials, direct labor, or overhead.

Direct MaterialsDirect Materials

Tires.

Spokes.

Handlebars.

Direct LaborDirect Labor OverheadOverhead

Salaries of employees who put tires on the wheels.

Factory depreciation.

Factory manager salary.

Factory maintenance employees salary.

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Cost of Goods Sold Components – (Periodic Inventory System)

Illustration 15-4

Cost of Goods Manufactured

Manufacturing Costs in Financial StatementsManufacturing Costs in Financial Statements

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Cost of goods sold sections of merchandising and

manufacturing income statementsIllustration 15-5


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a. $450,000.

b. $500,000.

c. $550,000.

d. $600,000.

For the year, Red Company has cost of goods manufactured

of $600,000, beginning finished goods inventory of $200,000,

and ending finished goods inventory of $250,000. The cost of

goods sold is

Review Question

Beg. Inventory $200,000

+ COGs Manufactured 600,000

Goods Available for Sale 800,000

- End. Inventory 250,000

Cost of Goods Sold $550,000


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Determining the Cost of Goods Manufactured

Total Work in Process – (1) cost of beginning work in process and (2)

total manufacturing costs for the current period.

Total Manufacturing Costs – sum of direct material costs, direct

labor costs, and manufacturing overhead in the current year.Illustration 15-6


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Illustration 1-8

Illustration 15-7

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Illustration 15-8Inventory accounts for a manufacturer

The balance sheet for a merchandising company shows just one category of inventory.

Balance Sheet


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Illustration 15-9

Current assets sections of merchandising and manufacturing balance

sheets

Balance Sheet


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Illustration 15-10

Illustration: Suppose you started your own snowboard

factory, KRT Boards. Here are some of the costs that your

snowboard factory would incur. Assign the following costs:


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Illustration 15-10


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If KRT Boards produces 10,000 snowboards the first year,

what would be the total manufacturing costs?

Illustration 15-11


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U.S. economy, in general, has shifted toward an emphasis

on providing services rather than goods.

Over 50% of U.S. workers are now employed by service

companies.

Trend is expected to continue in the future.

Most of the techniques learned for manufacturing firms are

applicable to service companies.

Product Costing For Service Industries


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Refers to all business process associated with providing a product or service.

For a manufacturing firm these include the following:

Focus on the Value Chain

Illustration 15-12

Managerial Accounting TodayManagerial Accounting Today

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Just-In-Time Inventory Methods

Inventory system in which goods are manufactured or purchased just in time for sale.

Reduce defects in finished products, with the goal of zero defects.

Total Quality Management (TQM)


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Constraints (“bottlenecks” ) limit the company’s potential profitability.

A specific approach to identify and manage these constraints in order to achieve company goals.

Theory of Constraints

Software programs designed to manage all major business processes.

Enterprise Resource Planning (ERP)


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Allocates overhead based on use of activities.

Results in more accurate product costing and scrutiny of all activities in the value chain.

Activity-Based Costing (ABC)


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Evaluates operations in an integrated fashion.

Uses both financial and non-financial measures.

Links performance to overall company objectives.

Balanced Scorecard


15-1. 15-2 managerial accounting is a field of accounting that provides economic and financial...

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