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Introduction to Managerial Accounting. Module 4 Managerial Accounting Concepts. Created by M. Mari Fall 2007-1. Purpose of Managerial Accounting. Providing useful information to decision makers They do this by collecting, managing, and reporting information in demand by their users.

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introduction to managerial accounting

Introduction to Managerial Accounting

Module 4

Managerial Accounting Concepts

Created by M. Mari

Fall 2007-1

purpose of managerial accounting
Purpose of Managerial Accounting
  • Providing useful information to decision makers
  • They do this by collecting, managing, and reporting information in demand by their users.
  • Much of managerial accounting involves gathering information about costs for planning and control decisions
managerial characteristics
Managerial Characteristics
  • Provides estimates of future operations
  • Used by mgmt in conducting daily operations, planning, and developing strategies
management accountant in the organization
Management Accountant in the Organization
  • Individual reporting units in an organization can be viewed as having either
    • Line responsibilities
      • One directly involved in the basic objectives of the organization
      • Such as production and distribution
    • Staff responsibilities
      • Is one that provides services, assistance, and advice to the departments with line or other staff responsibilities
      • Has no direct authority over a line department
      • Controller is such an example
purpose of managerial accounting7
Purpose of Managerial Accounting
  • Planning
    • Is the process of setting goals and making plans to achieve them
      • Strategic planning – developing long range courses of action to achieve goals
      • Operational planning – develop short-term courses of action to manage the day to day operations of a business
purpose of managerial accounting8
Purpose of Managerial Accounting
  • Directing
    • Is the process by which managers, given their assigned level of responsibilities, run day-to-day operations.
purpose of managerial accounting9
Purpose of Managerial Accounting
  • Controlling
    • Is the process of monitoring planning decisions and evaluating an organization’s activities and employees.
    • It includes the measurement and evaluation of actions, processes, and outcomes.
purpose of managerial accounting10
Purpose of Managerial Accounting
  • Improving
    • Feedback is used by managers to support continuous process improvement.
    • CPI is the philosophy of continually improving employees, business processes, and products.
purpose of managerial accounting11
Purpose of Managerial Accounting
  • Decision making
    • is inherent in each of the four management processes described.
types of cost classification
Types of Cost Classification
  • Cost object – is a product, process, department, or customer to which costs are assigned.
types of cost classification13
Types of Cost Classification
  • Direct cost – traceable to a cost object
      • Material
      • Labor
  • Indirect cost – are incurred for the benefit of more than one cost object
      • Maintenance
      • Utilities
  • Direct –
    • cost of materials that are an integral part of the product
  • Indirect –
    • Cost of materials that are not a significant portion of the total product cost
  • Direct
    • Cost of wages of employees who are directly involved in the converting materials into the manufactured product
  • Indirect
    • Labor that do not enter directly into the manufacture of a product
factory overhead
Factory Overhead
  • Costs other than direct materials cost and direct labor costs
    • Manufacturing overhead
    • Factory burden
    • Depreciation
    • utilities
manufacturing formulas
Manufacturing Formulas:
  • Prime Costs

= Direct Material + Direct Labor

  • Conversion Costs

= Direct Labor + Factory Overhead

  • Example: Suppose that direct materials are $5,000, direct labor is $4,000 and factory overhead is $3,000, what are prime costs and conversion costs?
  • Prime costs = direct material + direct labor
  • = $5,000 + 4,000
  • = $9,000
  • Conversion costs = direct labor + factory overhead
  • = $4,000 + $3,000
  • = $7,000
  • Example: Suppose the direct materials are $3,000, prime costs are $5,000, conversion costs are $9,000, and factory overhead is $7,000. What are direct labor costs?
  • Prime costs = Direct materials + Direct Labor
  • $5,000 = $3,000 + DL
  • $2,000 = DL
  • Conversion costs = Direct labor + Factory overhead
  • $9,000 = $2,000 + FO
  • $7,000 = FO
Product costs

Direct materials, direct labor, and factory overhead

Associated with the production of the product

Period costs

Refer to expenditures identified more with a time period than with finished products.

Selling and administrative expenses

inventory accounts
Inventory Accounts
  • Materials inventory
      • Refers to the goods a company acquires to use in making products
      • Direct and indirect material costs
      • Asset account
  • Work in process inventory
      • Consists of products in the process of being manufactured but not yet complete.
      • Consists of direct materials, direct labor and factory overhead costs
  • Finished goods inventory
    • Consists of completed products ready for sale.
    • Contains all of the costs incurred to manufacture the completed product.
cost of goods sold
Cost of Goods Sold
  • Beginning finished goods inventory
  • + cost of goods manufactured
  • Goods available for sale
  • Less Ending finished goods inventory
  • Cost of goods sold