Management Accounting: A Business Partner

1. Management Accounting:A Business Partner Chapter 16

2. Management Accounting:Basic Framework

3. Actual Results:Current PerformanceEvaluation: Past SupportDecision Making EvaluateDecision Making Management Accounting System Framework Top Management Budget Plans: Future AssignDecision Making

4. Demand for Accounting Information

5. Accounting for Manufacturing Operations • The cost to produce a unit of product includes: • Direct material • Direct labor • Manufacturing overhead

6. Direct Materials Raw materials & component parts that become an integral part of finished products. Can be traced directly and conveniently to products. If materials cannot be traced directly to products, the materials are considered indirect and are part of manufacturing overhead.

7. Direct Labor Includes the payroll cost of direct workers. Those employees who work directly on the goods being manufactured. The cost of employees who do not work directly on the goods is consideredindirect laborand is part of manufacturing overhead.

8. Includes: Indirect materials. Indirect labor. Machinery and equipment costs. Cost of regulatory compliance. Manufacturing Overhead All manufacturing costs other than direct materials and direct labor. Does not include selling or generaland administrative expenses.

9. Finished Goods MegaLoMart Manufacturing Overhead Direct Labor Goods Sold Flow of Physical Goods in Production Direct Materials Purchased Direct Materials Used

10. Flow of Physical Goods in Production Manufacturing costs are oftencombined as follows: DirectMaterials DirectLabor Manufacturing Overhead PrimeCost ConversionCost

11. When goodsare sold Income Statement Revenue COGS Gross margin Period expenses Operating profit Period Costs (operating expenses and income taxes) as incurred Product Costs versus Period Costs Product Costs (manufacturing costs) Balance Sheet Current assets and finished goods inventory as incurred

12. Ethics, Fraud, and Corporate Governance Product costs are capitalized as part of inventory and only charged to expense when the inventory is sold. Period costs are chargedto expense as incurred. Income will be artificially inflated if period costs are capitalized.

13. Finished goods- completed goods awaiting sale. Work in process - partially completed goods. Inventories of a Manufacturing Business Raw materials - inventory on hand and available for use.

14. Direct materials used Work in Process Inventory Materials Inventory $$$ $$$ $$$ $$$ Direct labor &Manufacturing Overhead Cost of goods manufactured Cost of Goods Sold Finished Goods Inventory $$$ $$$ $$$ Flow of Costs Associated With Production Direct materials purchased

15. Accounting for Manufacturing Costs Pure-Ice Inc. had $52,000 of inventory in direct materials inventory on January 1, of this year. During the year, Pure-Ice purchased $586,000 of additional direct materials. At December 31 of this year $78,000 of the direct materials were still on hand. How much direct material was placed into production duringthe year?

16. Accounting for Manufacturing Costs ? ?

17. Accounting for Manufacturing Costs !

18. Accounting for Manufacturing Costs In addition to the direct materials, Pure-Ice incurred $306,000 of direct labor cost during the year. Manufacturing overhead for the year was $724,000. Pure-Ice started the year with $132,000 in work in process. During the year, units costing $1,480,000 were transferred to finished goods inventory. What is the balance in work in process at the end of the year?

19. Accounting for Manufacturing Costs

20. Accounting for Manufacturing Costs !

21. Direct costs Costs that can beeasily and conveniently traced to a unit of product or other cost objective. Examples: direct material anddirect labor Indirect costs Costs cannot be easily and conveniently traced to a unit of product or other cost object. Example: manufacturing overhead Direct Costs and Indirect Costs 16-21

22. Determining the Cost of Finished Goods Manufactured A schedule of the cost of finished goods manufacturedis prepared to provide managers with an overview of manufacturing activities during a period.

24. The cost of goods completed during the period is used to compute COGS for the period.

25. Financial Statements of a Manufacturing Company Balance Sheet Income Statement

26. The income statement is prepared using established financial accounting procedures.

27. Financial Statements of a Manufacturing Company Manufacturers have three inventory accounts.

28. End of Chapter 16