Transcript Accounting Principles 8th Edition
Chapter 19-1
Chapter 19-2
CHAPTER
19
MANAGERIAL ACCOUNTING
Accounting Principles, Eighth Edition
Study Objectives
1.
2.
3.
4.
5.
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.
Explain the differences between a merchandising and a manufacturing income statement.
Chapter 19-3
Chapter 19-4
Study Objectives
6.
7.
8.
Indicate how cost of goods manufactured is determined.
Explain the difference between a merchandising and a manufacturing balance sheet.
Identify trends in managerial accounting.
Chapter 19-5
Preview of Chapter
Managerial Accounting Basics
Compare managerial and financial accounting Management functions and Business Ethics
Managerial Cost Concepts
Manufacturing costs Product vs. period costs
Manufacturing Costs in Financial Statements
Income Statement and Balance Sheet Cost concepts – A review
Managerial Accounting Today
Service industry trends Managerial accounting practices
Managerial Accounting
Managerial Accounting Basics
Compare Managerial and Financial Accounting Management Functions Business Ethics
Managerial Cost Concepts
Manufacturing Costs Product vs Period Costs
Manufacturing Costs in Financial Statements
Income Statement Balance Sheet Cost Concepts – A Review
Managerial Accounting Today
Service Industry Trends Managerial Accounting Practices
Chapter 19-6
Chapter 19-7
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
Chapter 19-8
Managerial Accounting Basics
Managerial Accounting Activities Explain manufacturing and nonmanufacturing costs and how they are reported
(Chapter 19)
Compute cost of providing a service or manufacturing a product .
(Chapters 20 and 21)
Determine behavior of costs and expenses as activity changes
. (Chapter 22)
Chapter 19-9
Managerial Accounting Basics
Managerial Activities: Continued Assist management in profit planning and formalizing these plans in the form of budgets.
(Chapter 23)
Help to control costs by comparing actual results with planned objectives and standard costs .
(Chapters 24 and 25)
Accumulate and present data for making decisions
. (Chapter 26)
Managerial Accounting Basics
Distinguishing Features Applies to all types of business -
Service, Merchandising, and Manufacturing
Applies to all forms of businesses –
Proprietorships, Partnerships, and Corporations
Applies to not-for-profit and profit oriented companies Chapter 19-10
LO 1 Explain the distinguishing features of managerial accounting.
Managerial Accounting Basics
Distinguishing Features: Continued More responsible for strategic cost management Teams with people from production, marketing, engineering, etc.
Aid in making critical decisions Chapter 19-11
LO 1 Explain the distinguishing features of managerial accounting.
Comparing Managerial and Financial Accounting
Chapter 19-12 Similarities Both deal with economic events of a business –
Thus, interests overlap
Both require that economic events be quantified and communicated to interested parties –
Determining unit cost is part of managerial accounting, Reporting cost of goods manufactured is a part of financial accounting
LO 1 Explain the distinguishing features of managerial accounting.
Comparing Managerial and Financial Accounting
Differences Chapter 19-13
LO 1 Explain the distinguishing features of managerial accounting .
Managerial Accounting Basics
Review Question
Managerial accounting: a. Pertains to the entity as a whole and is highly aggregated.
b. Places emphasis on special-purpose information. c. Is limited to cost data.
d. Is governed by generally accepted accounting principles.
Chapter 19-14
LO 1 Explain the distinguishing features of managerial accounting.
Chapter 19-15
Managerial Accounting Basics
Management Functions
Management’s activities and responsibilities can be classified into the following three broad functions: Planning Directing Controlling LO 2 Identify the 3 broad functions of management.
Chapter 19-16
Management Functions
Planning Look ahead and 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
LO 2 Identify the 3 broad functions of management.
Management Functions
Chapter 19-17 Directing Coordinate diverse activities and human resources Implement planned objectives Provide incentives to motivate employees Hire and train employees including executives, managers, and supervisors Produce smooth-running operation
LO 2 Identify the 3 broad functions of management.
Management Functions
Chapter 19-18 Controlling Keep 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
Good decision making is the outcome of good judgment in planning, directing, and controlling.
LO 2 Identify the 3 broad functions of management.
Chapter 19-19
Good Ethics – Good Business
Business Ethics
Business scandals caused massive investment losses and employee layoffs.
Corporate fraud has increased 13% in last 5 years.
Employee fraud – 60% of all fraud Intentional misstatement of financial reports Aka
financial reporting fraud
Most costly to companies
Chapter 19-20
Good Ethics – Good Business
Creating Proper Incentives
Systems to monitor and evaluate employees may produce incentives for unethical actions.
Employees may feel that they must succeed no matter what. Ineffective and unrealistic controls may result in declining product quality.
Chapter 19-21
Good Ethics – Good Business
Code of Ethical Standards Sarbanes-Oxley Act of 2002
Clarifies management’s responsibilities.
Certifications by CEO and CFO fairness of financial statements and
adequacy of internal control
Selection criteria for Board of Directors and Audit Committee Substantially increased penalties for misconduct IMA
Statement of Ethical Professional Practices
Management Functions
Review Question
The management of an organization performs several broad functions. They are: a. Planning, directing, and selling.
b. Directing, manufacturing, and controlling. c. Planning, manufacturing, and controlling.
d. Planning, directing, and controlling.
Chapter 19-22
LO 2 Identify the 3 broad functions of management.
Managerial Cost Concepts
Manufacturing Costs
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.
Categories of manufacturing costs include:
Chapter 19-23
LO 3 – Define the three classes of manufacturing costs.
Chapter 19-24
Manufacturing Costs
Materials
Raw Materials
Basic materials used in manufacturing
Direct Materials
Raw materials that can be physically and directly associated with the finished product
LO 3 Define the three classes of manufacturing costs.
Chapter 19-25
Manufacturing Costs
Materials
Indirect Materials
Raw materials that cannot be easily associated with the finished product Not physically part of the finished product or they are an insignificant part of finished product in terms of cost Considered part of
manufacturing overhead
LO 3 Define the three classes of manufacturing costs.
Chapter 19-26
Manufacturing Costs
Labor
Direct Labor
Work of factory employees that can be physically and directly associated with converting raw materials into finished goods
Indirect Labor
Work of factory employees that has no physical association with the finished product or for which it is impractical to trace to the goods produced
LO 3 Define the three classes of manufacturing costs.
Chapter 19-27
Manufacturing Costs
Manufacturing Overhead
Costs that are
indirectly
associated with manufacturing the product Includes all manufacturing costs
except
direct materials and direct labor
LO 3 Define the three classes of manufacturing costs.
Manufacturing Costs
Review Question
Which of the following is
not
manufacturing overhead?: an element of a. Sales manager’s salary.
b. Plant manager’s salary. c. Factory repairman’s wages.
d. Product inspector’s salary.
Chapter 19-28
LO 3 Define the three classes of manufacturing costs.
Chapter 19-29
Product Versus Period Costs
Product Costs
Components:
direct material cost
,
direct labor cost
, and
manufacturing overhead
A necessary and integral part of producing the product Recorded as
inventory
when incurred Not an expense until the finished goods inventory is sold then cost of goods sold
LO 4 Distinguish between product and period costs.
Chapter 19-30
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 Includes all selling and administrative expenses
LO 4 Distinguish between product and period costs.
Product Versus Period Costs
Chapter 19-31
LO 4 Distinguish between product costs and period costs .
Manufacturing Costs in Financial Statements
Income Statement
The income statement for a manufacturer is similar to that of a merchandiser
except
for the
cost of goods sold section.
Chapter 19-32
LO 5 Explain the difference between a merchandising and a manufacturing income statement.
Manufacturing Costs in Financial Statements
Cost of Goods Sold Components Merchandiser versus Manufacturer Chapter 19-33
LO 5 Explain the difference between a merchandising and a manufacturing income statement.
Manufacturing Costs in Financial Statements
Cost of Goods Sold Section of the Income Statement Chapter 19-34
LO 5 Explain the difference between a merchandising and a manufacturing income statement .
Manufacturing Costs in Financial Statements
Determining the Cost of Goods Manufactured
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 period Chapter 19-35
LO 6 Indicate how cost of goods manufactured is determined .
Manufacturing Costs in Financial Statements
Chapter 19-36
LO 6 Indicate how cost of goods manufactured is determined .
Manufacturing Costs in Financial Statements
Balance Sheet - Inventories Merchandising Company One category of inventory:
Merchandise Inventory
Manufacturing Company May have three inventories:
Raw Materials Work in Process Finished Goods
Chapter 19-37
LO 7 Explain the difference between a merchandising and a manufacturing balance sheet.
Manufacturing Costs in Financial Statements
Balance Sheet - Inventories Chapter 19-38
LO 7 Explain the difference between a merchandising and a manufacturing balance sheet
Chapter 19-39
Manufacturing Costs
Review Question
Direct Materials are a:
Product Manufacturing Period Cost Overhead Cost
a. Yes Yes No b. Yes No No c. Yes Yes Yes d. No No No
Chapter 19-40
Managerial Accounting Today
Service Industry Trends
U.S. economy 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
LO 8 Identify trends in management accounting.
Chapter 19-41
Managerial Accounting Today
Managerial Accounting Practices Value Chain
Refers to all activities associated with providing a product or service For a manufacturing firm these include the following:
LO 8 Identify trends in management accounting.
Managerial Accounting Today
Chapter 19-42 Managerial 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 -
LO 8 Identify trends in management accounting.
Chapter 19-43
Managerial Accounting Today
Managerial Accounting Practices Activity-Based-Costing (ABC)
Allocates overhead based on use of activities Results in more accurate product costing and scrutiny of all activities in the value chain
Balanced Scorecard
Evaluates operations in an integrated fashion Uses both financial and non-financial measures Links performance measures to overall company objectives
LO 8 Identify trends in management accounting.
Managerial Accounting Today
Review Question
Which of the following managerial accounting techniques attempts to allocate manufacturing overhead in a more meaningful manner?
a. Just-in-time inventory.
b. Total-quality management.
c. Balanced scorecard.
d. Activity-based costing.
Chapter 19-44
LO 8 Identify trends in management accounting.
Chapter Review - Brief Exercise 19-5
Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials, direct labor, or manufacturing overhead.
______ a. Windshield ______ b. Engine ______ c. Wages of assembly line worker ______ d. Depreciation of factory machinery ______ e. Factory machinery lubricants ______ f. Tires ______ g. Steering wheel ______ h. Salary of painting supervisor
Chapter 19-45
Chapter Review - Brief Exercise 19-6
Identify whether each of the following costs should be classified as product costs or period costs.
____________ a. Manufacturing overhead ____________ b. Selling expenses ____________ c. Administrative expenses ____________ d. Advertising expense ____________ e. Direct labor ____________ f. Direct material
Chapter 19-46
Chapter 19-47
Copyright
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