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Managerial Accounting
Historical perspective
Future emphasis
3. Verifiability
versus relevance
Emphasis on
verifiability
Emphasis on relevance
for planning and control
4. Precision versus
timeliness
Emphasis on
precision
Emphasis on
timeliness
5. Subject
Primary focus is on
the whole organization
Focuses on segments
of an organization
6. GAAP
Mandatory for
external reports
Not
Mandatory
1. Users
2. Time focus
7. Requirement
Slide 2
Direct
Labor
Manufacturing
Overhead
The Product
Slide 3
Administrative
Costs
Costs necessary to
secure the order and
deliver the product.
All executive,
organizational, and
clerical costs.
Slide 4
Inventory
Expense
Sale
Balance
Sheet
Income
Statement
Income
Statement
Slide 5
Direct
Labor
Prime
Cost
Manufacturing
Overhead
Conversion
Cost
Slide 6
Beginning
balance
Additions
to inventory
Ending
balance
Withdrawals
from
inventory
Slide 7
+
=
Beginning work in
process inventory
Manufacturing costs
for the period
Total work in process
for the period
Ending work in
process inventory
Cost of goods
manufactured
Finished Goods
Beginning finished
goods inventory
+ Cost of goods
manufactured
= Cost of goods
available for sale
- Ending finished
goods inventory
Cost of goods
sold
Slide 8
Balance Sheet
Inventories
Material Purchases
Raw Materials
Direct Labor
Work in
Process
Manufacturing
Overhead
Selling and
Administrative
Finished
Goods
Period Costs
Income
Statement
Expenses
Cost of
Goods
Sold
Selling and
Administrative
Slide 9
In Total
Per Unit
Variable
Fixed
Slide 10
Slide 11
Slide 12
Job-Order Costing
Part 02 - Chapter 3
Process
Costing
Job-order
Costing
Process
Costing
Job-order
Costing
Slide 15
Slide 16
POHR =
Slide 17
Underapplied OH
Overapplied OH
Slide 18
Disposition of
Under- or Overapplied Overhead
Cost
of Goods Sold
Unadjusted
Balance
$30,000
Adjusted
Balance
Mfg. Overhead
Actual
MOH
Applied
MOH
$650,000
$680,000
$30,000
$30,000
overapplied
Slide 19
If MOH is ...
Close to Cost
of Goods Sold
UNDERAPPLIED
INCREASE
OVERAPPLIED
DECREASE
Slide 20
Slide 21
Process Costing
Part 03 - Chapter 4
Slide 23
Slide 25
Weighted-Average An Example
Smith Company reported the following activity in
the Assembly Department for the month of June:
Percent Completed
Units
Work in process, June 1
300
6,000
5,400
900
Materials Conversion
40%
20%
60%
30%
Slide 26
Weighted-Average An Example
Equivalent units of production always equals:
Units completed and transferred
+ Equivalent units remaining in work in process
Materials
Units completed and transferred
out of the Department in June
5,400
Conversion
5,400
540
270
5,940
5,670
Slide 27
Cost per
equivalent =
unit
Cost of beginning
Work in Process + Cost added during
Inventory
the period
Equivalent units of production
Slide 28
6,000 units
5,400 units
$ 118,621
$ 81,130
900 units
Slide 29
Materials
Conversion
10,039
199,751
6,119
118,621
3,920
81,130
209,790
$ 124,740
85,050
Equivalent units
Cost per equivalent unit
5,940
$
21.00
5,670
$
15.00
Slide 31
Slide 32
Cost-Volume-Profit Relationships
Part 04 - Chapter 6
$350,000
Profit Area
$300,000
$250,000
$200,000
Sales
Total expenses
$150,000
Fixed expenses
$100,000
$50,000
$0
Loss Area
100
200
300
400
500
600
Units
Slide 35
Unit CM vs CM Ratio
Unit CM = SP per unit VE per unit
CM Ratio =
CM per unit
SP per unit
Slide 36
Slide 37
Break-even sales
Unit sales to
=
break even
Fixed expenses
CM per unit
Dollar sales to
Fixed expenses
=
break even
CM ratio
Slide 38
Degree of
operating leverage
Contribution margin
= Net operating income
Slide 39
Slide 41
6-5
6 - 12
Slide 42
Slide 43
Variable Costing
Part 05 - Chapter 7
Variable
Costing
Direct Materials
Product
Costs
Direct Labor
Product
Costs
Period
Costs
Period
Costs
Slide 45
Slide 46
Consistent with
CVP analysis.
Net operating income
is closer to
net cash flow.
Consistent with standard
costs and flexible budgeting.
Advantages
Easier to estimate profitability
of products and segments.
Impact of fixed
costs on profits
emphasized.
Slide 48
7-2
7-5
Slide 49
Slide 50
Profit Planning
Part 06 - Chapter 9
Direct materials
budget
Production budget
Direct labor
budget
Selling and
administrative
budget
Manufacturing
overhead budget
Cash Budget
Budgeted
income
statement
Budgeted
balance sheet
Slide 52
Slide 54
Slide 55
9-5
9-6
9-7
Slide 56
Slide 57
Flexible Budgets
Part 07 - Chapter 10
Activity Variances
Planning
budget revenues
and expenses
Flexible
budget revenues
and expenses
Actual revenue
Actual cost
10 - 2
10 - 8
10 - 9
Slide 62
Slide 63
Standard Costs
Part 08 - Chapter 11
Standard Costs
Standards are benchmarks for
measuring performance.
Two types of standards are commonly used.
Quantity standards
specify how much of an
input should be used to
make a product or
provide a service.
Price standards
specify how much
should be paid for
each unit of the
input.
Standard Costs
Amount
Standard
Direct
Labor
Direct
Material
Manufacturing
Overhead
Price Variance
Quantity Variance
Difference between
actual price and
standard price
Difference between
actual quantity and
standard quantity
Slide 67
Price Variance
Quantity Variance
Actual Price
Actual Quantity
Standard Price
Price Variance
Standard Quantity
Standard Price
Quantity Variance
AQ = Actual Quantity
AP = Actual Price
SP = Standard Price
SQ = Standard Quantity
Slide 69
Production Manager
Quality of training
provided to employees.
Slide 70
Quick Check
Zippy
Slide 71
Quick Check
Zippy
Slide 72
Quick Check
Zippy
Slide 73
Learning Objective 5
Slide 74
Wait Time
Production
Started
Goods
Shipped
Wait Time
Production
Started
Goods
Shipped
Manufacturing
Cycle
=
Efficiency
Value-added time
Manufacturing cycle time
Slide 76
Quick Check
A TQM team at Narton Corp has recorded the
following average times for production:
Wait
3.0 days
Inspection 0.4 days
Process 0.2 days
Quick Check
A TQM team at Narton Corp has recorded the
following average times for production:
Wait
3.0 days
Inspection 0.4 days
Process 0.2 days
Quick Check
A TQM team at Narton Corp has recorded the
following average times for production:
Wait
3.0 days
Inspection 0.4 days
Process 0.2 days
Slide 80
Segment Reporting
Part 09 - Chapter 12
Cost
Center
Cost, profit,
and investment
centers are all
known as
responsibility
centers.
Profit
Center
Investment
Center
Responsibility
Center
Slide 82
Omission of Costs
Costs assigned to a segment should include all
costs attributable to that segment from the
companys entire value chain.
Business Functions
Making Up The
Value Chain
R&D
Product
Design
Customer
Manufacturing Marketing Distribution Service
Slide 83
Acquisition cost
Less: Accumulated depreciation
Net book value
Slide 85
Understanding ROI
Increasing ROI
There are three ways to increase ROI . . .
Reduce
Increase Expenses Reduce
Sales
Assets
Slide 87
$ 30,000
$ 200,000
$ 500,000
$ 470,000
Sales
Average operating assets
Slide 88
$30,000
ROI =
$500,000
Sales
Average operating assets
$500,000
$200,000
Slide 89
$ 50,000
$ 230,000
$ 535,000
$ 485,000
ROI = $50,000
$535,000
Sales
Average operating assets
$535,000
$230,000
Criticisms of ROI
In the absence of the balanced
scorecard, management may
not know how to increase ROI.
Managers often inherit many
committed costs over which
they have no control.
Managers evaluated on ROI
may reject profitable
investment opportunities.
Slide 92
Slide 93
Slide 95
Slide 96
Slide 97
Slide 98
Slide 99
Slide 100
Slide 102
1
Selling price per unit
Less variable expenses per unit
Contribution margin per unit
Current demand per week (units)
Contribution margin ratio
Processing time required
on machine A1 per unit
60
36
$ 24
2,000
40%
1.00 min.
50
35
$ 15
2,200
30%
0.50 min.
Slide 103
24
$
15
1.00 min.
0.50 min.
$
24
$
30
2,200 units
0.50 min.
1,100 min.
2,400
1,100
1,300
1.00
1,300
min.
min.
min.
min.
units
Slide 106
Product 1
1,300
$
24
$ 31,200
Product 2
2,200
$
15
$ 33,000
Slide 107
Managing Constraints
It is often possible for a manager to increase the capacity of a
bottleneck, which is called relaxing (or elevating) the constraint,
in numerous ways such as:
1. Working overtime on the bottleneck.
2. Subcontracting some of the processing that would be done
at the bottleneck.
3. Investing in additional machines at the bottleneck.
4. Shifting workers from non-bottleneck processes to the
bottleneck.
5. Focusing business process improvement efforts on the
bottleneck.
6. Reducing defective units processed through the bottleneck.
These methods and ideas are all consistent with the Theory
of Constraints.
Slide 108
13 - 5
13 - 12
Slide 109
Slide 110