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CHAPTER 1 MANAGERIAL ACCOUNTING






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CHAPTER 1 MANAGERIAL ACCOUNTING. Explain the distinguishing features of managerial accounting. Identify the 3 broad functions of management. Define the 3 classes of manufacturing costs. Distinguish between product and period costs. Study Objectives. Study Objectives: Continued
CHAPTER 1 MANAGERIAL ACCOUNTING

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Slide 1

CHAPTER 1

MANAGERIAL ACCOUNTING

  • Explain the distinguishing features of managerial accounting.

  • Identifythe 3 broad functions of management.

  • Define the 3 classes of manufacturing costs.

  • Distinguish between product and period costs.

Study Objectives

Slide 2

Study Objectives: Continued

Explain the difference between a merchandising and a manufacturing income statement.

Indicate how cost of goods manufactured is determined.

Explain the difference between a merchandising and a manufacturing balance sheet.

Identify trends in managerial accounting.

Slide 3

MANAGERIAL ACCOUNTINGBASICS

Definition of Managerial Accounting

A field of accounting that provides

economic and financial information

for managers and other internal users

Also called Management Accounting

Slide 4

MANAGERIAL ACCOUNTING BASICSDistinguishing Features

  • Applies to all types of businesses –

    service, merchandising, and manufacturing

  • Applies to all forms of businesses – proprietorships, partnerships, and corporations

  • Applies to not-for-profit and profit-oriented companies

Slide 5

COMPARING MANAGERIAL AND FINANCIAL ACCOUNTINGStudy Objective 1Similarities

  • Both deal with economic events of a business.

  • Both require that economic events be quantified and communicated to interested parties.

Slide 6

COMPARING MANAGERIAL AND FINANCIAL ACCOUNTINGDifferences

Slide 7

MANAGEMENT FUNCTIONSStudy Objective 2

Management’s activities and responsibilities can be classified into the following three broad functions:

Planning

Directing

Controlling

Slide 8

MANAGEMENT FUNCTIONS Planning

  • Look ahead

  • Establish objectives such as

    • Maximize short-term profit

    • Commit to environmental protection

  • Key Objective: Add value to the business

    • Value measured by trading price of stock and by potential selling price of the company

  • Slide 9

    MANAGEMENT FUNCTIONS Directing

    • Coordinate diverse activities and human resources

    • Implement planned objectives

    • Provide incentives to motivate employees

    • Hire and train employees including executives, managers, and supervisors

    Slide 10

    MANAGEMENT FUNCTIONS Controlling

    • Keep activities on track

    • Determine whether goals are met

    • Decide changes needed to get back on track

    • May use an informal or a formal system of evaluation

      Good decision making is the outcome of good judgment in planning, directing, and controlling.

    Slide 11

    MANAGERIAL COST CONCEPTSManufacturing CostsStudy Objective 3

    • Manufacturing consists of activities to convert raw materials into finished goods.

    • In contrast, a merchandising firm sells goods in the form in which they were bought.

      Typical Classification of Manufacturing Costs

    Slide 12

    MANAGERIAL COST CONCEPTSManufacturing Costs - Materials

    • Direct Materials

      • Raw materials - basic materials used in manufacturing.

      • Raw materials that can be physically and directly associated with the finished product are called direct materials.

      • Examples include

        Flour in the baking of bread

        Syrup in the bottling of soft drinks

        Steel used in making automobiles

    Slide 13

    MANAGERIAL COST CONCEPTSManufacturing Costs- Materials

    • Indirect Materials

      • Raw materials that cannot be easily associated with the finished product are called indirect materials.

      • Indirect materials do not physically become part of the finished product or represent too small a part of the finished product in terms of cost

      • Considered part of manufacturing overhead

    Slide 14

    MANAGERIAL COST CONCEPTSManufacturing Costs - Labor

    • Direct Labor

      • Work of factory employees that can be physically and directly associated with converting raw materials into finished goods

      • Examples include

        Bottlers at Coca-Cola

        Bakers at Sara Lee

        Typesetters at a newspaper

    Slide 15

    MANAGERIAL COST CONCEPTSManufacturing Costs - Labor

    • Indirect Labor

      • Work of factory workers that have no physical association with the finished product or for which it is impractical to trace to the goods produced

      • Examples include

        Wages of maintenance workers

        Supervisors

    Slide 16

    MANAGERIAL COST CONCEPTSManufacturing Costs – Manufacturing Overhead

    • Costs that are indirectly associated with manufacturing the product

    • Examples include

      Indirect materials

      Indirect labor

      Depreciation on factory buildings

      Insurance, taxes, maintenance on factory facilities

    • Basically manufacturing overhead includes all manufacturing costs exceptdirect materials and direct labor.

    Slide 17

    PRODUCT VERSUS PERIOD COSTSStudy Objective 4Product Costs

    • Consist of the direct material cost, the direct labor cost, and the manufacturing overhead cost

    • A necessary and integral part of producing the product

    • Recorded as inventory when incurred

    • Do not become expenses until the finished goods inventory is sold

    Slide 18

    PRODUCT VERSUS PERIOD COSTS Period Costs

    • Matched with revenue of a specific time period and charged to expense as incurred.

    • Non-manufacturing costs

    • Deducted from revenues in period incurred to determine net income

    • Include all

      • Selling expenses

      • General and Administrative expenses

    FOR RENT

    Slide 19

    PRODUCT VERSUS PERIOD COSTS

    Slide 20

    MANUFACTURING COSTS INFINANCIAL STATEMENTSStudy Objective 5

    Income Statement

    The income statement for a manufacturer is similar to that of a merchandiser except for the cost of goods sold section.

    CGS

    Slide 21

    MANUFACTURING COSTS INFINANCIAL STATEMENTS Cost of Goods Sold ComponentsMerchandiser versus Manufacturer

    Slide 22

    MANUFACTURING COSTS INFINANCIAL STATEMENTS Cost of Goods Sold Section of the Income Statement

    Slide 23

    DETERMINING THE COST OF GOODS MANUFACTUREDStudy Objective 6

    Work in Process – partially completed units of product

    Total Manufacturing Costs – sum of direct material costs, direct labor costs, and manufacturing overhead; all incurred in the current year

    Slide 24

    COST OF GOODS MANUFACTURED SCHEDULE

    Slide 25

    Merchandising Company

    One category of inventory:

    Merchandise

    Inventory

    Manufacturing Company

    May have three inventory accounts:

    Raw Materials

    Work in Process

    Finished Goods

    BALANCE SHEET - InventoriesStudy Objective 7

    Slide 26

    BALANCE SHEET - Inventories

    Slide 27

    MANAGERIAL ACCOUNTING TODAYStudy Objective 8Service Industry Trends

    • U.S economy in general has shifted toward an emphasis on providing services

    • Today over 50 percent of U.S. workers are employed by service companies

    • Trend is expected to continue in future

    • Most of the techniques learned for manufacturing firms are applicable to service companies

    Slide 29

    MANAGERIAL ACCOUNTING TODAYManagerial Accounting Practices

    • Value Chain

      • Refers to all activities associated with providing a product or service.

      • For a manufacturing firm, these include the following:

    Slide 30

    MANAGERIAL ACCOUNTING TODAYManagerial Accounting Practices

    • Technological Change

      • Computerization and automation

      • Enterprise resource planning (ERP) - software systems that manage the value chain

        In large companies an ERP system might replace as many as 200 individual software packages

      • Computer-integrated manufacturing (CIM) - make products untouched by human hands

      • Internet and business-to-business (B2B) e-commerce

    Slide 31

    MANAGERIAL ACCOUNTING TODAYManagerial Accounting Practices

    • Just-In-Time (JIT) Inventory Methods

      • Inventory system in which goods are manufactured or purchased just in time for use

    • Quality

      • Increased emphasis on product quality because goods are produced only as needed

        Total Quality Management (TQM) - a philosophy of zero defects

    • Activity-Based Costing (ABC)

      • Allocates overhead based on use of specific activities or functions of the company (number of orders or number of machine set ups)

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

    Slide 32

    MANAGERIAL ACCOUNTING TODAYManagerial Accounting Practices

    • Theory of Constraints

      • Used to identify and manage constraints or “bottlenecks”

      • Helps achieve overall goals of the company, particularly profits

    • Balanced Scorecard

      • A performance-measurement approach to evaluate operations in an integrated fashion

        Uses both financial and non-financial measures

      • Links performance measures to overall company objectives


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