Weygandt6e Interactive Tutorial Ch01

8/19/2019 Weygandt6e Interactive Tutorial Ch01

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Weygandt_Managerial_Accounting_6e

Interactive Tutorial: Chapter 1

Learning Objective 1

Narrator: Learning Objective 1.

Managerial Accounting Basics

Narrator: Managerial accounting is a field of accounting that provides economic and

financial information for managers and other internal users.

The activities that are part of managerial accounting are as follows:

1. explaining manufacturing and nonmanufacturing costs and how they are reported

in the financial statements,

2. computing the cost of providing a service or manufacturing a product,

3.

determining the behavior of costs and expenses as activity levels change, andanalyzing cost-volume-profit relationships within a company.

4. accumulating and presenting relevant data for management decision making,

5. determining prices for external and internal transactions,

6. assisting management in profit planning and formalizing these plans in the formof budgets,

7. providing a basis for controlling costs and expenses by comparing actual results

with planned objectives and standard costs,8. accumulating and presenting data for capital expenditure decisions.

Differences Between Financial and Managerial Accounting

Narrator: There are both similarities and differences between managerial and financial

accounting. Both of these accounting fields deal with economic events, but the users ofinformation and reporting structure differ. These differences are illustrated here.

Financial reports are prepared in accordance with generally accepted accounting principles, and are audited by certified public accountants.

In contrast, managerial accounting provides internal reports for officers and managers.

These internal reports must be relevant to management decisions, but do not require

independent audits.


Narrator: Learning Objective 2.

Management Functions


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Narrator: Management’s activities and responsibilities can be classified into three broadfunctions, planning, directing, and controlling.

Planning requires management to look ahead and establish objectives. A key modern

management objective is to add value to the business under its control. Value is usuallymeasured by the trading price of the company’s stock, and the potential selling price of

the company.

Directing and motivating involves coordinating diverse activities and human resources to

produce a smooth-running operation. This function relates to implementing planned

objectives. Directing also involves selecting executives, appointing managers andsupervisors, and hiring and training employees.

Controlling is the process of keeping the firm’s activities on track. In controlling

operations, managers determine whether planned goals are being met, and, when there

are deviations from targeted objectives, they decide what changes are needed to get backon track.

Corporation Organization Chart

Narrator: In order to assist in carrying out management functions, most companies prepare organizational charts to show the interrelationships of activities, and the

delegation of authority within the company. The chief executive officer, CEO, has

overall responsibility for managing the business. The chief financial officer, CFO, isresponsible for all the accounting and finance issues the company faces.

Business Ethics

Narrator: In recent years, financial scandals resulted in a general mistrust of financial

reporting. In 2002, Congress passed the Sarbanes-Oxley Act to try to reduce unethicalcorporate behavior. The major provisions of SOX are shown here. All employees within

an organization are expected to act ethically in their business activities. Given the

importance of ethical behavior to corporations and their owners, an increasing number oforganizations provide codes of business ethics for their employees. In response to

corporate scandals in 2000 and 2001, the U.S. Congress enacted the Sarbanes-Oxley Act

of 2002

Managerial Cost Concepts

Narrator: To perform the three management functions effectively, management needs

information. One very important type of information is related to costs. The following

questions need answering. What costs are involved in making the product or providing a

service? If production volume is decreased, will costs decrease? What impact willautomation have on total costs? How can costs best be controlled?


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Narrator: Learning Objective 3

Managerial Cost Concepts

Narrator: Manufacturing consists of activities and processes that convert raw materials

into finished goods.

Classifications of Manufacturing Costs

Narrator: Manufacturing costs are usually classified as follows: direct materials, directlabor, and manufacturing overhead

Manufacturing Costs

Narrator: Raw materials are the basic materials and parts that are to be used in themanufacturing process. Raw materials that can be physically and directly associated with

the finished product during the manufacturing process are called direct materials.

Some raw materials cannot be easily associated with the finished product. These are

considered indirect materials. Indirect materials do not physically become part of thefinished product. They cannot be traced because their physical association with the

finished product is too small in terms of cost. Indirect materials are accounted for as part

of manufacturing overhead.

Direct labor is the work of factory employees that can be physically and directlyassociated with converting raw materials into finished goods. The wages of maintenance

people, timekeepers, and supervisors are usually identified as indirect labor. Their efforts

have no physical association with the finished product. Like indirect materials, indirect

labor is part of manufacturing overhead.

Manufacturing overhead consists of costs that are indirectly associated with the

manufacture of the finished product. These costs may also be manufacturing costs thatcannot be classified as direct materials or direct labor. Manufacturing overhead includes:

1. indirect materials

2. indirect labor3. depreciation on factory buildings and machines

4. insurance, taxes, and maintenance on factory facilities.

Manufacturing Cost Concepts




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Product Costs Versus Period Costs

Narrator: Product costs include each of the manufacturing cost elements (direct

materials, direct labor, and manufacturing overhead.) They are costs that are a necessary

and integral part of producing the finished product. These costs are not expensed to cost

of goods sold under the matching principle until the finished goods inventory is sold.Period costs are matched to the revenue of a specific time period, relate to

nonmanufacturing costs, and include selling and administrative expenses.

Product Versus Period Costs

Narrator: The relationships between product and period costs are summarized here.



Cost of Goods Sold

Narrator: Under a periodic inventory system, the income statements of a merchandiser

and a manufacturer differ in the cost of goods sold section. For a merchandiser, cost of

goods sold is computed by adding the beginning merchandise inventory to the cost ofgoods purchased and subtracting the ending merchandise inventory. For a manufacturer,

cost of goods sold is computed by adding the beginning finished goods inventory to the

cost of goods manufactured and subtracting the ending finished goods inventory.

Cost of goods sold components are shown here.

Cost of Goods Sold Sections

Narrator: Here is an illustration of a cost of goods sold section for a merchandisingcompany. Here is an illustration of a cost of goods sold section for a manufacturing

company. The other sections of an income statement are similar for merchandisers and

manufacturers.



Cost of Goods Manufactured Formula

Narrator: The total cost of work in process for the year is equal to the sum of the cost of

the beginning work in process inventory, and the total manufacturing costs for the current

period. To find the cost of goods manufactured, we subtract the cost of the ending workin process inventory from the total cost of work in process.


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Cost of Goods Manufactured Schedule

Narrator: The cost of goods manufactured schedule is an internal financial schedule that

shows each of the cost elements.

Cost of Goods Manufactured



Current Assets Sections

Narrator: The balance sheet for a merchandiser shows just one inventory category. In

contrast, the balance sheet of a manufacturer may have three inventory accounts:

1. Finished Goods Inventory, which shows the cost of completed goods on hand,

2.

Work in Process Inventory, which shows the cost applicable to units that have been started into production but are only partially completed, and

3. Raw Materials Inventory, which shows the cost of raw materials on hand.

Here is a typical current assets section of a merchandising balance sheet. Here are the

current assets for a manufacturing company.

Service Industry Trends

Narrator: Although much of this chapter focused on accounting for manufacturing firms,

most of these techniques are also applicable to service companies.



Managerial Accounting Today

Narrator: In recent years, the competitive environment for U.S. business has changed

significantly. Managerial accountants must be forward-looking, acting as advisors and

information providers to different members of the organization.

Today, there is increased focus on value chain management. The value chain is the term

that describes all activities associated with providing a product or service. Activities inthe value chain include research and development, ordering raw materials,

manufacturing, marketing, delivery, and customer relations.

Technology has played a large part in the value chain. Computerization and automationhave permitted companies to be more effective in streamlining production, and thus

enhancing the value chain.


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Many companies have significantly lowered inventory levels and costs using Just-in-Time inventory methods. The use of Just-in-Time inventory requires an increased

emphasis on product quality. In recent years overhead costs have become an increasingly

large component of product and service costs. In order to obtain more accurate costs,

many companies now allocate overhead using activity-based costing, or ABC.

The theory of constraints is a specific approach used to identify and manage constraints,

in order to achieve the company’s goals.

The balanced scorecard is a performance measurement approach that uses both financial

and non-financial measures to evaluate all aspects of a company’s operations in anintegrated fashion.

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Weygandt6e Interactive Tutorial Ch01