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19
Managerial
Accounting
Chapter
19-1
Study
Study Objectives
Objectives
1.
2.
3.
4.
5.
6.
7.
8.
Chapter
19-2
Managerial
Managerial Accounting
Accounting
Managerial
Accounting
Basics
Compare
Managerial and
Financial
Accounting
Management
Functions
Business Ethics
Chapter
19-3
Managerial Cost
Concepts
Manufacturing
Costs
Product vs.
Period Costs
Manufacturing
Costs in
Financial
Statements
Managerial
Accounting
Today
Income
Statement
Balance Sheet
Service Industry
Trends
Managerial
Accounting
Practices
Cost Concepts
A Review
Managerial
Managerial Accounting
Accounting Basics
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
19-4
Managerial
Managerial Accounting
Accounting Basics
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
19-5
Managerial
Managerial Accounting
Accounting Basics
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
19-6
Managerial
Managerial Accounting
Accounting Basics
Basics
Distinguishing Features
Applies to all types of business Service, Merchandising, and Manufacturing
Chapter
19-7
Managerial
Managerial Accounting
Accounting Basics
Basics
Distinguishing Features: Continued
More responsible for strategic cost management
Teams with people from production, marketing,
engineering, etc.
Aid in making critical decisions
Chapter
19-8
Comparing
Comparing Managerial
Managerial and
and Financial
Financial Accounting
Accounting
Similarities
Both deal with economic events of a business
Thus, interests overlap
Comparing
Comparing Managerial
Managerial and
and Financial
Financial Accounting
Accounting
Differences
Chapter
19-10
Illustration 19-1
Comparing
Comparing Managerial
Managerial and
and Financial
Financial Accounting
Accounting
Review Question
Managerial accounting:
a. Pertains to the entity as a whole and is highly
aggregated.
aggregated
b. Places emphasis on special-purpose information.
c.
Management
Management Functions
Functions
Management Functions
Managements activities and responsibilities can be
classified into the following three broad functions:
Planning
Chapter
19-12
Directing
Controlling
Management
Management Functions
Functions
Planning
Look ahead and establish objectives such as
Maximize short-term profit
Commit to environmental protection
Chapter
19-13
Management
Management Functions
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
19-14
Management
Management Functions
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
Management
Management Functions
Functions
Review Question
The management of an organization performs several
broad functions. They are:
a. Planning, directing, and selling.
selling
b. Directing, manufacturing, and controlling.
c.
Chapter
19-16
Good
Good Ethics
Ethics Good
Good Business
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
19-17
Good
Good Ethics
Ethics Good
Good Business
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
19-18
Good
Good Ethics
Ethics Good
Good Business
Business
Code of Ethical Standards
Sarbanes-Oxley Act of 2002
Clarifies managements responsibilities.
Certifications by CEO and CFO fairness of financial statements and
adequacy of internal control
Managerial
Managerial Cost
Cost Concepts
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
19-20
Manufacturing
Manufacturing Costs
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
19-21
Manufacturing
Manufacturing Costs
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
19-22
Manufacturing
Manufacturing Costs
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
19-23
Manufacturing
Manufacturing Costs
Costs
Manufacturing Overhead
Costs that are indirectly associated
with manufacturing the product
Includes all manufacturing costs except
direct materials and direct labor
Chapter
19-24
Manufacturing
Manufacturing Costs
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. Salaries for assembly line inspectors.
Direct labor/Mfg. overhead
Manufacturing overhead
2. Insurance on factory machines.
Manufacturing overhead
3. Property taxes on the factory building.
Manufacturing overhead
4. Factory repairs.
Direct materials
5. Upholstery used in manufacturing furniture.
Direct labor
6. Wages paid to assembly line workers.
7. Factory machinery depreciation.
Manufacturing overhead
Manufacturing overhead
8. Glue, nails, paint used in production.
9. Factory supervisors salaries.
Manufacturing overhead
Direct materials
10. Wood used in manufacturing furniture.
Chapter
19-25
Manufacturing
Manufacturing Costs
Costs
Review Question
Chapter
19-26
Product
Product Versus
Versus Period
Period Costs
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
19-27
Product
Product Versus
Versus Period
Period Costs
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
19-28
Product
Product Versus
Versus Period
Period Costs
Costs
Illustration 19-3
Chapter
19-29
Product
Product Versus
Versus Period
Period Costs
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
19-30
a.
b.
c.
d.
e.
f.
Manufacturing overhead
Selling expenses
Administrative expenses
Advertising expense
Direct labor
Direct material
Manufacturing
Manufacturing Costs
Costs in
in Financial
Financial Statements
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
19-31
Manufacturing
Manufacturing Costs
Costs in
in Financial
Financial Statements
Statements
Cost of Goods Sold Components
Merchandiser versus Manufacturer
Chapter
19-32
Illustration 19-4
Manufacturing
Manufacturing Costs
Costs in
in Financial
Financial Statements
Statements
Cost of Goods Sold Section of the Income Statement
Illustration 19-5
Chapter
19-33
Manufacturing
Manufacturing Costs
Costs in
in Financial
Financial Statements
Statements
Determining the Cost of Goods Manufactured
Illustration 19-6
Manufacturing
Manufacturing Costs
Costs in
in Financial
Financial Statements
Statements
Illustration 19-7
Chapter
19-35
Manufacturing
Manufacturing Costs
Costs in
in Financial
Financial Statements
Statements
Chapter
19-36
Manufacturing
Manufacturing Costs
Costs in
in Financial
Financial Statements
Statements
$100,000
110,000
$ 12,000
$60,000
23,000
14,000
97,000
307,000
319,000
15,500
$303,500
Chapter
19-37
$ 60,000
303,500
363,500
55,600
$307,900
Manufacturing
Manufacturing Costs
Costs in
in Financial
Financial Statements
Statements
Balance Sheet - Inventories
Merchandising Company
One category of
inventory:
Merchandise Inventory
Illustration 19-8
Chapter
19-38
Manufacturing Company
May have three
inventories:
Raw Materials
Work in Process
Finished Goods
Manufacturing
Manufacturing Costs
Costs in
in Financial
Financial Statements
Statements
Balance Sheet - Inventories
Illustration 19-9
Chapter
19-39
Manufacturing
Manufacturing Costs
Costs in
in Financial
Financial Statements
Statements
Review Question
Direct Materials are a:
Product
Cost
Period
Cost
a. Yes
Yes
No
b. Yes
No
No
c.
Yes
Yes
No
No
Yes
d. No
Chapter
19-40
Manufacturing
Overhead
Managerial
Managerial Accounting
Accounting Today
Today
Service Industry Trends
U.S. economy has shifted toward an emphasis on
providing services rather than goods
Managerial
Managerial Accounting
Accounting Today
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:
Chapter
19-42
Illustration 19-12
Managerial
Managerial Accounting
Accounting Today
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
Managerial
Managerial Accounting
Accounting Today
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
19-44
Managerial
Managerial Accounting
Accounting Today
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
19-45
Copyright
Copyright
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caused by the use of these programs or from the use of the
information contained herein.
Chapter
19-46