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Chapter19-1


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Chapter19-2

CHAPTER19

MANAGERIALACCOUNTING

Accounting Principles, Eighth Edition


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Chapter19-3

1. Explain the distinguishing features of managerialaccounting.

2. Identify the 3 broad functions of management.

3. Define the 3 classes of manufacturing costs.

4. Distinguish between product and period costs.

5. Explain the differences between a merchandising

and a manufacturing income statement.

Study Objectives


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Chapter19-4

Study Objectives

6. Indicate how cost ofgoods manufactured isdetermined.

7. Explain the differencebetween a merchandisingand a manufacturingbalance sheet.

8. Identify trends inmanagerial accounting.


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Chapter19-5

Managerial Accounting BasicsCompare managerial and financial accounting

Management functions and Business Ethics

Managerial Cost Concepts

Manufacturing costsProduct vs. period costs

Manufacturing Costs in Financial Statements

Income Statement and Balance Sheet

Cost conceptsA review

Managerial Accounting Today

Service industry trends

Managerial accounting practices

Preview of Chapter


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Chapter19-6

Managerial Accounting

Managerial

Accounting

Basics

Managerial

Cost

Concepts

Managerial

Accounting

Today

CompareManagerial andFinancialAccounting

ManagementFunctions

Business Ethics

ManufacturingCosts

Product vsPeriod Costs

ServiceIndustryTrends

Managerial

AccountingPractices

Manufacturing

Costs in

Financial

Statements

IncomeStatement

Balance Sheet

Cost Concepts

A Review


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Chapter19-7

Managerial Accounting Basics

A field of accounting that provides economic and

financial information for managers and otherinternal users.

Also calledManagement Accounting

Definition of Managerial Accounting


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Chapter19-8


Managerial Accounting Activities

Explain manufacturing and nonmanufacturing costs andhow they are reported (Chapter 19)

Compute cost of providing a service or manufacturinga product. (Chapters 20 and 21)

Determine behavior of costs and expenses as activity

changes. (Chapter 22)


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Chapter19-9


Managerial Activities: Continued

Assist management in profit planning and formalizingthese plans in the form of budgets.(Chapter 23)

Help to control costs by comparing actual results withplanned objectives and standard costs. (Chapters 24 and 25)

Accumulate and present data for making decisions.(Chapter 26)


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Chapter19-10


Applies to all types of business -

Service, Merchandising, and ManufacturingApplies to all forms of businesses

Proprietorships, Partnerships, and Corporations

Applies to not-for-profit and profit oriented companies

Distinguishing Features

LO 1 Explain the distinguishing features of managerial accounting.


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Chapter19-11


More responsible for strategiccost management

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

Aid in making critical decisions

Distinguishing Features: Continued



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Chapter19-12

Comparing Managerial and Financial Accounting

Both deal with economic events of a business Thus, interests overlap

Both require that economic events bequantified and communicated tointerested parties

Determining unit cost is part of

managerial accounting,Reporting cost of goods manufacturedis a part of financial accounting

Similarities



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Chapter19-13

Comparing Managerial and Financial Accounting

Differences



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Chapter19-14

Managerial accounting:

a. Pertains to the entity as a whole and is highlyaggregated.

b. Places emphasis on special-purpose information.

c. Is limited to cost data.

d. Is governed by generally accepted accountingprinciples.

Review Question




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Chapter19-15


Managements activities and responsibilities can be

classified into the following three broad functions:

PlanningDirecting

Controlling

Management Functions

LO 2 Identify the 3 broad functions of management.


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Chapter19-16


Look ahead and establish objectives such as

Maximize short-term profitCommit to environmental protection

Key Objective: Add valueto the business

Valuemeasured by trading price of stockand by potential selling price of the company

Planning



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Chapter19-17


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



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Chapter19-18


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 judgmentin planning, directing, and controlling.

Controlling



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Chapter19-19

Business Ethics

Business scandals caused massive investmentlosses and employee layoffs.

Corporate fraud has increased 13% in last 5 years.

Employee fraud 60% of all fraud

Intentional misstatement of financial reports

Akafinancial reporting fraudMost costly to companies

Good EthicsGood Business


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Chapter19-20

Creating Proper Incentives

Systems to monitor and evaluate employeesmay produce incentives for unethical actions.

Employees may feel that they must succeed nomatter what.

Ineffective and unrealistic controls may result

in declining product quality.



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Chapter19-21

Sarbanes-Oxley Act of 2002

Clarifies managements responsibilities.

Certifications by CEO and CFO -fairness of financial statementsand

adequacy of internal control

Selection criteria for Board of Directors and Audit

CommitteeSubstantially increased penalties for misconduct

IMA Statement of Ethical Professional Practices


Code of Ethical Standards


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Chapter19-22

The management of an organization performs severalbroad functions. They are:

a. Planning, directing, and selling.

b. Directing, manufacturing, and controlling.

c. Planning, manufacturing, and controlling.

d. Planning, directing, and controlling.

Review Question




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Chapter19-23

Manufacturing Costs

Manufacturing consists of activities to convert rawmaterials into finished goods.

In contrast, a merchandising firm sells goods in the

form in which they were bought.Categories of manufacturing costs include:

Managerial Cost Concepts

LO 3Define the three classes of manufacturing costs.


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Chapter19-24

Manufacturing Costs

Materials

LO 3 Define the three classes of manufacturing costs.

Raw Materials

Basic materials used in manufacturing

Direct Materials

Raw materials that can be physically anddirectly associated with the finished product


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Chapter19-25

Manufacturing Costs

Materials


Indirect Materials

Raw materials that cannotbe easily associated

with the finished product

Not physically part of the finished product orthey are an insignificant part of finished

product in terms of costConsidered part of manufacturing overhead


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Chapter19-26

Manufacturing Costs

Labor


Direct Labor

Work of factory employees that can be

physically and directly associated withconverting raw materials into finished goods

Indirect Labor

Work of factory employees that has no

physical association with the finished productor for which it is impractical to trace to thegoods produced


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Chapter19-27

Manufacturing Costs


Manufacturing Overhead

Costs that are indirectlyassociated

with manufacturing the productIncludes all manufacturing costs exceptdirect materials and direct labor


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Chapter19-28

Which of the following is notan element ofmanufacturing overhead?:

a. Sales managers salary.b. Plant managers salary.

c. Factory repairmans wages.

d. Product inspectors salary.

Review Question

Manufacturing Costs



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Chapter19-29

Product Versus Period Costs

LO 4 Distinguish between product and period costs.

Product Costs

Components: direct material cost,direct labor cost, and manufacturing

overheadA necessary and integral part ofproducing the product

Recorded as inventorywhen incurredNot an expense until the finished goodsinventory is sold then cost of goods sold


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Chapter19-30


LO 4 Distinguish between product and period costs.

Period Costs

Matched with revenue of a specifictime period and charged to expense as

incurredNon-manufacturing costs

Deducted from revenues in period

incurred to determine net incomeIncludes all selling and administrativeexpenses


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Chapter19-31


LO 4 Distinguish between product costs and period costs.


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Chapter19-32


LO 5 Explain the difference between a merchandising


Income Statement

The income statement for a manufacturer is

similar to that of a merchandiser exceptfor the cost of goods sold section.


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Chapter19-33


Cost of Goods Sold ComponentsMerchandiser versus Manufacturer




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Chapter19-34


Cost of Goods Sold Section of the Income Statement




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Chapter19-35


Determining the Cost of Goods Manufactured

LO 6 Indicate how cost of goods manufactured is determined.

Work in Process partially completed units of product

Total Manufacturing Costs sum of direct material costs,direct labor costs, and manufacturing overhead; allincurred in the current period

M f i C i Fi i l S


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Chapter19-36


LO 6 Indicate how cost of goods manufactured is determined.


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Chapter19-37


Balance Sheet - Inventories

LO 7 Explain the difference between a merchandising and amanufacturing balance sheet.

Merchandising CompanyOne category ofinventory:Merchandise Inventory

Manufacturing CompanyMay have threeinventories:

Raw Materials

Work in ProcessFinished Goods


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Chapter19-38


Balance Sheet - Inventories

LO 7 Explain the difference between a merchandising and a

manufacturing balance sheet


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Chapter19-39

Direct Materials are a:

Product Manufacturing PeriodCost Overhead Cost

a. Yes Yes No

b. Yes No No

c. Yes Yes Yes

d. No No No

Review Question

Manufacturing Costs


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Chapter19-40


LO 8 Identify trends in management accounting.

Service Industry Trends

U.S. economy has shifted toward an emphasis onproviding servicesrather than goods

Over 50%of U.S. workers are now employed byservice companies

Trend is expected to continue in the future

Most of the techniques learned for manufacturingfirms are applicable to service companies


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Chapter19-41



Managerial Accounting PracticesValue Chain

Refers to all activities associated with providing a product or

serviceFor a manufacturing firm these include the following:


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Chapter19-42



Managerial Accounting PracticesJust-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 neededTotal Quality Management (TQM)

- a philosophy of zero defects -

l d


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Chapter19-43



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 integratedfashion

Uses both financial and non-financial measuresLinks performance measures to overall company

objectives


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Chapter19-44

Which of the following managerial accounting techniquesattempts to allocate manufacturing overhead in a moremeaningful manner?

a. Just-in-time inventory.

b. Total-quality management.

c. Balanced scorecard.

d. Activity-based costing.

Review Question




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Chapter19-45

Indicate whether each of the following costs of an

automobile manufacturer would be classified asdirect materials, direct labor, or manufacturingoverhead.

Chapter Review - Brief Exercise 19-5

______ a. Windshield

______ b. Engine______ c. Wages of assembly line worker

______ d. Depreciation of factory machinery

______ e. Factory machinery lubricants

______ f. Tires ______ g. Steering wheel

______ h. Salary of painting supervisor

DM

DMDL

MO

MO

DMDM

MO


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Chapter19-46

Identify whether each of the following costs

should be classified as product costs or periodcosts.

Chapter Review - Brief Exercise 19-6

____________ a. Manufacturing overhead

____________ b. Selling expenses ____________ c. Administrative expenses

____________ d. Advertising expense

____________ e. Direct labor

____________ f. Direct material

Product

PeriodPeriod

Period

Product

Product


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Chapter

Copyright 2008 John Wiley & Sons, Inc. All rights reserved.Reproduction or translation of this work beyond that permittedin Section 117 of the 1976 United States Copyright Act withoutthe express written permission of the copyright owner isunlawful. Request for further information should be addressed

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