Transcript Chapter 19-1 Chapter Managerial Accounting Chapter 19-2 Accounting Principles, Ninth Edition Study Objectives 1. Explain the distinguishing features of managerial accounting. 2. Identify the three broad functions of management. 3. Define the three.

Chapter
19-1
Chapter
19
Managerial
Accounting
Chapter
19-2
Accounting Principles, Ninth Edition
Study Objectives
1.
Explain the distinguishing features of managerial
accounting.
2.
Identify the three broad functions of management.
3.
Define the three classes of manufacturing costs.
4.
Distinguish between product and period costs.
5.
Explain the difference between a merchandising and a
manufacturing income statement.
6.
Indicate how cost of goods manufactured is determined.
7.
Explain the difference between a merchandising and a
manufacturing balance sheet.
8.
Identify trends in managerial accounting.
Chapter
19-3
Managerial Accounting
Managerial
Accounting
Basics
Compare
Managerial and
Financial
Accounting
Management
Functions
Business Ethics
Chapter
19-4
Managerial Cost
Concepts
Manufacturing
Costs in
Financial
Statements
Managerial
Accounting
Today
Manufacturing
Costs
Income
Statement
Service Industry
Trends
Product vs.
Period Costs
Balance Sheet
Managerial
Accounting
Practices
Cost Concepts –
A Review
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
19-5
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
19-6
Managerial Accounting Basics
Managerial Accounting 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)
Chapter
19-7
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
19-8
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
19-9
Comparing Managerial and Financial Accounting
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
Chapter
19-10
SO 1 Explain the distinguishing features of managerial accounting.
Comparing Managerial and Financial Accounting
Differences
Chapter
19-11
Illustration 19-1
SO 1 Explain the distinguishing features of managerial accounting.
Comparing Managerial and Financial Accounting
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
19-12
SO 1 Explain the distinguishing features of managerial accounting.
Management Functions
Management Functions
Management’s activities and responsibilities can be
classified into the following three broad functions:
Planning
Chapter
19-13
Directing
Controlling
SO 2 Identify the 3 broad functions of management.
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
Chapter
19-14
SO 2 Identify the 3 broad functions of management.
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
Produce smooth-running operation
Chapter
19-15
SO 2 Identify the 3 broad functions of management.
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 formal system of evaluations
Good decision making is the outcome of good judgment
in planning, directing, and controlling.
Chapter
19-16
SO 2 Identify the 3 broad functions of management.
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
19-17
SO 2 Identify the 3 broad functions of management.
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
19-18
SO 2 Identify the 3 broad functions of management.
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
19-19
SO 2 Identify the 3 broad functions of management.
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
Chapter
19-20
SO 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:
Illustration 19-2
Chapter
19-21
SO 3 – Define the three classes of manufacturing costs.
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
Chapter
19-22
SO 3 Define the three classes of manufacturing costs.
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
Chapter
19-23
SO 3 Define the three classes of manufacturing costs.
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
Chapter
19-24
SO 3 Define the three classes of manufacturing costs.
Manufacturing Costs
Manufacturing Overhead
Costs that are indirectly associated
with manufacturing the product
Includes all manufacturing costs except
direct materials and direct labor
Chapter
19-25
SO 3 Define the three classes of manufacturing costs.
Manufacturing Costs
E19-2: Presented below is a list of costs and expenses usually incurred by
Burrand Corporation, a manufacturer of furniture, in its factory.
Classify the above items into the following categories: (a) direct
materials, (b) direct labor, and (c) manufacturing overhead.
1.
2.
3.
4.
5.
Salaries for assembly line inspectors.
Direct labor/Mfg. overhead
Manufacturing overhead
Insurance on factory machines.
Property taxes on the factory building.
Manufacturing overhead
Manufacturing overhead
Factory repairs.
Direct materials
Upholstery used in manufacturing furniture.
6.
7.
8.
9.
Wages paid to assembly line workers.
Direct labor
Manufacturing overhead
Factory machinery depreciation.
Manufacturing overhead
Glue, nails, paint used in production.
Manufacturing overhead
Factory supervisors’ salaries.
10. Wood used in manufacturing furniture.
Chapter
19-26
Direct materials
SO 3 Define the three classes of manufacturing costs.
Manufacturing Costs
Review Question
Which of the following is not an element of
manufacturing overhead?:
a.
Sales manager’s salary.
b. Plant manager’s salary.
c.
Factory repairman’s wages.
d. Product inspector’s salary.
Chapter
19-27
SO 3 Define the three classes of manufacturing costs.
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 record as cost of
goods sold
Chapter
19-28
SO 4 Distinguish between product and period costs.
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
Chapter
19-29
SO 4 Distinguish between product and period costs.
Product Versus Period Costs
Illustration 19-3
Chapter
19-30
SO 4 Distinguish between product costs and period costs.
Product Versus Period Costs
BE19-6: Identify whether each of the following costs
should be classified as product costs or period costs.
____________
Product
____________
Period
____________
Period
____________
Period
____________
Product
____________
Product
Chapter
19-31
a.
b.
c.
d.
e.
f.
Manufacturing overhead
Selling expenses
Administrative expenses
Advertising expense
Direct labor
Direct material
SO 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
SO 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
Illustration 19-4
SO 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
Illustration 19-5
Chapter
19-34
SO 5 Explain the difference between a merchandising
and a manufacturing income statement.
Manufacturing Costs in Financial Statements
Determining the Cost of Goods Manufactured
Illustration 19-6
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 period
Chapter
19-35
SO 6 Indicate how cost of goods manufactured is determined.
Manufacturing Costs in Financial Statements
Illustration 19-7
Chapter
19-36
SO 6 Indicate how cost of goods manufactured is determined.
Manufacturing Costs in Financial Statements
Chapter
19-37
Manufacturing Costs in Financial Statements
$ 12,000
$100,000
110,000
$60,000
23,000
14,000
97,000
307,000
319,000
15,500
$303,500
Chapter
19-38
$ 60,000
303,500
363,500
55,600
$307,900
Manufacturing Costs in Financial Statements
Balance Sheet - Inventories
Merchandising Company
One category of
inventory:
Merchandise Inventory
Illustration 19-8
Chapter
19-39
Manufacturing Company
May have three
inventories:
Raw Materials
Work in Process
Finished Goods
SO 7 Explain the difference between a merchandising and a
manufacturing balance sheet.
Manufacturing Costs in Financial Statements
Balance Sheet - Inventories
Illustration 19-9
Chapter
19-40
SO 7 Explain the difference between a merchandising and a
manufacturing balance sheet
Manufacturing Costs in Financial Statements
Review Question
Direct Materials are a:
Product
Cost
a.
Period
Cost
Yes
Yes
No
b. Yes
No
No
c.
Yes
Yes
No
No
Yes
d. No
Chapter
19-41
Manufacturing
Overhead
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
Chapter
19-42
SO 8 Identify trends in management accounting.
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:
Illustration 19-12
Chapter
19-43
SO 8 Identify trends in management accounting.
Managerial Accounting Today
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 Chapter
19-44
SO 8 Identify trends in management accounting.
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
Chapter
19-45
SO 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
19-46
SO 8 Identify trends in management accounting.
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Chapter
19-47