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1. 1 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.
2. 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.
3. 3 MANAGERIAL ACCOUNTING BASICS Definition of Managerial Accounting
A field of accounting that provides
economic and financial information
for managers and other internal users
Also called Management Accounting
4. 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
5. 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.
6. 6 COMPARING MANAGERIAL AND FINANCIAL ACCOUNTINGDifferences
7. 7 MANAGEMENT FUNCTIONSStudy Objective 2 Managements activities and responsibilities can be classified into the following three broad functions:
8. 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
9. 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
10. 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.
11. 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
12. 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.
Flour in the baking of bread
Syrup in the bottling of soft drinks
Steel used in making automobiles
13. 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
14. 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
Bottlers at Coca-Cola
Bakers at Sara Lee
Typesetters at a newspaper
15. 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
Wages of maintenance workers
16. 16 MANAGERIAL COST CONCEPTSManufacturing Costs Manufacturing Overhead Costs that are indirectly associated with manufacturing the product
Depreciation on factory buildings
Insurance, taxes, maintenance on factory facilities
Basically manufacturing overhead includes all manufacturing costs except direct materials and direct labor.
17. 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
18. 18 PRODUCT VERSUS PERIOD COSTS Period Costs Matched with revenue of a specific time period and charged to expense as incurred.
Deducted from revenues in period incurred to determine net income
General and Administrative expenses
19. 19 PRODUCT VERSUS PERIOD COSTS
20. 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.
21. 21 MANUFACTURING COSTS INFINANCIAL STATEMENTS Cost of Goods Sold ComponentsMerchandiser versus Manufacturer
22. 22 MANUFACTURING COSTS INFINANCIAL STATEMENTS Cost of Goods Sold Section of the Income Statement
23. 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
24. 24 COST OF GOODS MANUFACTURED SCHEDULE
25. 25 BALANCE SHEET - InventoriesStudy Objective 7 Merchandising Company
One category of inventory:
May have three inventory accounts:
Work in Process
26. 26 BALANCE SHEET - Inventories
27. 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
29. 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:
30. 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
31. 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
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
32. 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
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