Embed Size (px)
Citation preview
Managerial Accounting and Cost Concepts
Chapter 2
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Planning
Identifyalternatives.
Select alternative that does the best job of furtheringorganization’s objectives.
Develop budgets to guideprogress toward theselected alternative.
2-2
Directing and Motivating
Directing and motivating involves managing day-to-day activities to keep the organization running smoothly. Employee work assignments. Routine problem solving. Conflict resolution. Effective communications.
2-3
Controlling
The control function ensuresthat plans are being followed.
Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.
2-4
Planning and Control Cycle
DecisionMaking
Formulating long-and short-term plans
(Planning)
Measuringperformance (Controlling)
Implementingplans (Directing and Motivating)
Comparing actualto planned
performance (Controlling)
Begin
2-5
Comparison of Financial and Managerial Accounting
Financial Accounting Managerial Accounting1. Users External persons who Managers who plan for
make financial decisions and control an organization
2. Time focus Historical perspective Future emphasis
3. Verifiability Emphasis on Emphasis on relevance versus relevance verifiability for planning and control
4. Precision versus Emphasis on Emphasis on timeliness precision timeliness
5. Subject Primary focus is on Focuses on segments the whole organization of an organization
6. GAAP Must follow GAAP Need not follow GAAPand prescribed formats or any prescribed format
7. Requirement Mandatory for Notexternal reports Mandatory
2-6
Direct Materials
Raw materials that become an integral part of the product and that can be conveniently traced directly to it.
Example: A radio installed in an automobile
2-7
Direct Labor
Those labor costs that can be easily traced to individual units of product.
Example: Wages paid to automobile assembly workers
2-8
Manufacturing costs that cannot be traced directly to specific units produced.
Manufacturing Overhead
Examples: Indirect materials and indirect labor
Wages paid to employees who are not directly
involved in production work.
Examples: maintenance workers, janitors and
security guards.
Materials used to support the production process.
Examples: lubricants and cleaning supplies used in the automobile assembly plant.
2-9
Nonmanufacturing Costs
Selling Costs
Costs necessary to secure the order and deliver the product.
Administrative Costs
All executive, organizational, and
clerical costs.
2-10
Product Costs Versus Period Costs
Product costs include direct materials, direct
labor, and manufacturing
overhead.
Period costs include all selling costs and
administrative costs.
Inventory Cost of Good Sold
BalanceSheet
IncomeStatement
Sale
Expense
IncomeStatement
2-11
Balance Sheet
MerchandiserCurrent assetsCashReceivablesMerchandise Inventory
ManufacturerCurrent AssetsCashReceivables Inventories
• Raw Materials• Work in Process• Finished Goods
2-12
MerchandiserCurrent assetsCashReceivablesMerchandise Inventory
ManufacturerCurrent AssetsCashReceivables Inventories
• Raw Materials• Work in Process• Finished Goods
Balance Sheet
Partially complete products – some material, labor, or
overhead has been added.
Completed products awaiting sale.
Materials waiting to be processed.
2-13
The Income Statement
Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.
Manufacturing CompanyCost 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 CompanyCost 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$
2-14
Basic Equation for Inventory Accounts
Beginningbalance
Additionsto inventory++ == Ending
balance
Withdrawalsfrom
inventory++
2-15
Schedule of Cost of Goods Manufactured
Calculates the cost of raw material, direct labor, and manufacturing overhead
used in production.
Calculates the manufacturing costs associated with goods that were finished during the
period.
2-16
Manufacturing Cost Flows
FinishedGoods
Cost of GoodsSold
Selling andAdministrative
Period CostsSelling andAdministrative
ManufacturingOverhead
Work inProcess
Direct Labor
Balance SheetCosts Inventories
Income StatementExpensesMaterial Purchases Raw Materials
2-17
Cost Classifications for Predicting Cost Behavior
How a cost will react to How a cost will react to changes in the level of
activity within the relevant range.
Total variable costschange when activity changes.
Total fixed costs remain unchanged when activity changes.
2-18
Variable Cost
Your total texting bill is based on how many texts you send.
Number of Texts Sent
Tota
l Tex
ting
Bill
2-19
Variable Cost Per Unit
Number of Texts SentC
ost P
er T
ext S
ent
The cost per text sent is constant at 5 cents per text.
2-20
Fixed CostYour monthly contract fee for your cell phone is fixed
for the number of monthly minutes in your contract. The monthly contract fee does not change based on
the number of calls you make.
Number of Minutes UsedWithin Monthly Plan
Mon
thly
Cel
l Pho
ne
Con
trac
t Fee
2-21
Fixed Cost Per Unit
Number of Minutes UsedWithin Monthly Plan
Mon
thly
Cel
l Pho
ne
Con
trac
t Fee
Within the monthly contract allotment, the average fixed cost per cell phone call made decreases as
more calls are made.
2-22
Cost Classifications for Predicting Cost Behavior
Behavior of Cost (within the relevant range)Cost In Total Per Unit
Variable Total variable cost changes Variable cost per unit remainsas activity level changes. the same over wide ranges
of activity.
Fixed Total fixed cost remains Average fixed cost per unit goesthe same even when the down as activity level goes up.
activity level changes.
2-23
End of Chapter 2
2-24
