Chapter 19-1

Chapter 19

Managerial

Accounting

Accounting Principles, Ninth Edition

Chapter 19-2

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.

Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives

Chapter 19-3

Managerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting Basics

A field of accounting that provides economic A field of accounting that provides economic and financial information for managers and and financial information for managers and

other internal users.other internal users.

Also calledAlso called Management AccountingManagement Accounting

Definition of Managerial Accounting

Chapter 19-4

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)

Managerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting Basics

Chapter 19-5

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)

Managerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting Basics

Chapter 19-6

Managerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting Basics

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

Distinguishing Features

Chapter 19-7

More responsible for strategic cost management

Teams with people from production, marketing, engineering, etc.

Aid in making critical decisions

Distinguishing Features: Continued

Managerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting Basics

Chapter 19-8

Both deal with economic events of a business –

Thus, interests overlap

Both require that economic events be quantified and communicated tointerested parties –

Determining unit cost is part of managerial accounting,

Reporting cost of goods manufactured

is a part of financial accounting

Similarities

SO 1 Explain the distinguishing features of managerial accounting.SO 1 Explain the distinguishing features of managerial accounting.

Comparing Managerial and Financial Comparing Managerial and Financial AccountingAccountingComparing Managerial and Financial Comparing Managerial and Financial AccountingAccounting

Chapter 19-9

Differences

SO 1 Explain the distinguishing features of managerial accountingSO 1 Explain the distinguishing features of managerial accounting ..

Comparing Managerial and Financial Comparing Managerial and Financial AccountingAccountingComparing Managerial and Financial Comparing Managerial and Financial AccountingAccounting

Illustration 19-1

Chapter 19-10

Managerial accounting:Managerial accounting:

a.a. Pertains to the entity as a whole and is highly Pertains to the entity as a whole and is highly aggregatedaggregated.

b. Places emphasis on special-purpose information.

c. Is limited to cost data.

d. Is governed by generally accepted accounting principles.

Review Review QuestionQuestion

SO 1 Explain the distinguishing features of managerial SO 1 Explain the distinguishing features of managerial accounting.accounting.

Comparing Managerial and Financial Comparing Managerial and Financial AccountingAccountingComparing Managerial and Financial Comparing Managerial and Financial AccountingAccounting

Chapter 19-11

Management’s activities and responsibilities Management’s activities and responsibilities can be classified into the following three can be classified into the following three

broad functions:broad functions:

PlanningPlanning DirectingDirecting

ControllingControlling

Management Functions

SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.

Management FunctionsManagement FunctionsManagement FunctionsManagement Functions

Chapter 19-12

Management FunctionsManagement FunctionsManagement FunctionsManagement Functions

Look ahead and establish objectives such as –

Maximize short-term profitCommit 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

Planning

SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.

Chapter 19-13

Management FunctionsManagement FunctionsManagement FunctionsManagement Functions

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

Directing

SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.

Chapter 19-14

Management FunctionsManagement FunctionsManagement FunctionsManagement Functions

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.

Controlling

SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.

Chapter 19-15

The management of an organization performs The management of an organization performs several broad functions. They are:several broad functions. They are:

a.a. Planning, directing, and sellingPlanning, directing, and selling.

b. Directing, manufacturing, and controlling.

c. Planning, manufacturing, and controlling.

d. Planning, directing, and controlling.

Review Review QuestionQuestion

Management FunctionsManagement FunctionsManagement FunctionsManagement Functions

SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.

Chapter 19-16

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

Good Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good Business

SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.

Chapter 19-17

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.

Good Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good Business

SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.

Chapter 19-18

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

Good Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good Business

Code of Ethical Standards

SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.