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19CHAPTER

Managerial

AccountingConcepts and

Principles

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Managerial and FinancialAccounting

Managerialaccountingprovides informationfor managers of an

organization whoplanandcontrolits operations.

Financialaccountingprovides information

to stockholders,

creditors and otherswho are outsidethe organization.

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Nature of Managerial Accounting

Financial Accounting Managerial Accounting

1. Users and Investors, creditors and Managers, employees and

decision makers other external users other internal users

2. Purpose of Making investment, credit Planning, decision

information and other decisions making and control

3. Flexibility Structured and often Relatively flexible

of practice controlled by GAAP (no GAAP)

4. Timeliness of Often available only Available quickly without

information after audit is complete need to wait for audit

5. Time dimension Historical information Many projections

with minimum predictions and estimates

6. Focus of Emphasis on Projects, processes and

information whole organization segments of an organization

7. Nature of Monetary Monetary and

information information nonmonetary information

Exh.

19-2

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Reporting Manufacturing Activities

Merchandisers . . .

Buy finished goods.

Sell finished goods.

Manufacturers . . .

Buy raw materials.

Produce and sellfinished goods.

SaleMart

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Balance Sheet of a Manufacturer

Manufacturing

Inventory

Classifications

Raw

Materials

Finished

Goods

Goods in

Process

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Balance Sheet of a Manufacturer

Raw

Materials

Finished

Goods

Goods in

Process

Partially completeproducts.

Material to whichsome labor and/or

overhead havebeen added.

Completed

productsfor sale.

Materials

waiting to beprocessed.

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Balance Sheet of a Manufacturer

MERCHANDISER

Current Assets

Cash

Receivables

Merchandise

Inventory

MANUFACTURER

Current Assets

Cash

Receivables

Inventories

Raw MaterialsGoods in Process

Finished Goods

The only difference is inventory.

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Income Statement of aManufacturer

Exh.

19-6

BeginningMerchandise

Inventory

BeginningFinished Goods

Inventory

Cost of GoodsPurchased

Cost of GoodsManufactured

EndingMerchandise

Inventory

EndingFinished Goods

Inventory

Cost of Goods

Sold

Merchandiser Manufacturer

+

_

+

==

_

The major

difference

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Income Statement of aManufacturer

Manufacturing Company

Cost of goods sold: Beg. finished

goods inv. 14,200$

+ Cost of goods

manufactured 234,150

= Goods available

for sale 248,350$ - Ending

finished goods

inventory (12,100)

= Cost of goods

sold 236,250$

Merchandising Company

Cost of goods sold: Beg. merchandise

inventory 14,200$

+ Purchases 234,150

= Goods available

for sale 248,350$

- Ending merchandise

inventory (12,100)

= Cost of goods

sold 236,250$

Exh.

19-7

Cost of goods sold for manufacturers differs onlyslightly from cost of goods sold for merchandisers.

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Income Statement of aManufacturer

Direct Materials

Materials that are clearly and easily

identified with a particular product.

Example:

Steel used to

manufacture

the automobile.

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Income Statement of aManufacturer

Direct Labor

Labor costs that are clearly traceableto, or readily identifiable with, the

finished product.

Example:

Wages paid to an

automobile assembly

worker.

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Income Statement of aManufacturer

Factory Overhead

All factory costs exceptdirect material and direct labor.

Factory coststhat cannot betraced directly to specific units produced.

Examples:

Indirect labor

maintenanceIndirect material cleaning supplies

Factory utility costs

Supervisory costs

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Question

What type of account is the manufacturing

goods in process account?

a. Income statement expense account.

b. Balance sheet inventory account.

c. Temporary clearing account for direct

material and direct labor.

d. Holding account for manufacturing

overhead and direct labor.

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What type of account is the manufacturing

goods in process account?

a. Income statement expense account.

b. Balance sheet inventory account.

c. Temporary clearing account for direct

material and direct labor.

d. Holding account for manufacturing

overhead and direct labor.

QuestionQuestion

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Cost Accounting Concepts

Behavior

TraceabilityControllability

Relevance

Function

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Classification by Behavior

Cost behavior meanshow a cost will react tochanges in the level of

business activity. Totalfixed costs do

not change whenactivity changes.

Totalvariable costschange in proportionto activity changes.

Activity

Cost

Activity

Cost

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Classification by Traceability

Direct costs

Costs that can beeasily and conveniently

traced to a unit ofproduct or other costobjective.

Examples: direct

material and direct labor

Indirect costs

Costs that must beallocated to a unit of

product or other costobjective.

Example:

manufacturingoverhead

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Classification by Traceability

Direct

material

Direct

labor

A product, process,department, or

customer to whichcosts are assigned.

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Classification by Relevance:Opportunity Costs

The potential benefitthat is given up whenone alternative is

selected over another. Example: If you were

not attending college,you could be earning

$15,000 per year.Your opportunity costof attending college forone year is $15,000.

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Classification by Function:Product Costs

TheProduct

DirectLabor

DirectMaterial

ManufacturingOverhead

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Period costs are expenses

not charged to the product.

Classification by Function:Period Costs

Administrative Costs

Nonmanufacturing costs

of staff support andadministrative functions

accounting, data processing,

personnel, research

and development.

Selling Costs

Costs incurred to obtain

customer orders and todeliver finished goods

to customers

advertising and shipping.

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Question

The primary distinction between product

and period costs is . . .

a. Product costs are expensed in the period

incurred.

b. Product costs are directly traceable to

product units.c. Product costs are inventoriable.

d. Period costs are inventoriable.

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The primary distinction between product

and period costs is . . .

a. Product costs are expensed in the period

incurred.

b. Product costs are directly traceable to

product units.c. Product costs are inventoriable.

d. Period costs are inventoriable.

QuestionQuestion

Exh

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Manufacturing ManagementPrinciples

Exh.

19-15

CustomerOrientationin a GlobalEconomy

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Complete products

just in time to

ship customers.

Complete parts

just in time for

assembly into products.

Receive materials

just in time for

production.

Schedule

production.

Just-In-Time (JIT) Manufacturing

Receive

customer

orders.

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Theory of Constraints

A sequential process of identifying andremoving constraints in a system.

Restrictions or barriers that impedeprogress toward an objective.

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Continuous Improvement

New ways to

improveoperations

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End Of Chapter 19