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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 Basics
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 Accounting Basics
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
Managerial Accounting Basics
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
Managerial Accounting Basics
More responsible for strategiccost management
Teams with people from production,marketing, engineering, etc.
Aid in making critical decisions
Distinguishing Features: Continued
LO 1 Explain the distinguishing features of managerial accounting.
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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
LO 1 Explain the distinguishing features of managerial accounting.
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Chapter19-13
Comparing Managerial and Financial Accounting
Differences
LO 1 Explain the distinguishing features of managerial accounting.
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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
Managerial Accounting Basics
LO 1 Explain the distinguishing features of managerial accounting.
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Chapter19-15
Managerial Accounting Basics
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
Management Functions
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
LO 2 Identify the 3 broad functions of management.
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Chapter19-17
Management 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
LO 2 Identify the 3 broad functions of management.
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Chapter19-18
Management 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 judgmentin planning, directing, and controlling.
Controlling
LO 2 Identify the 3 broad functions of management.
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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.
Good EthicsGood Business
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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
Good EthicsGood Business
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
Management Functions
LO 2 Identify the 3 broad functions of management.
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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
LO 3 Define the three classes of manufacturing costs.
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
LO 3 Define the three classes of manufacturing costs.
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
LO 3 Define the three classes of 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
LO 3 Define the three classes of 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
Product Versus Period Costs
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
Product Versus Period Costs
LO 4 Distinguish between product costs and period costs.
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Chapter19-32
Manufacturing Costs in Financial Statements
LO 5 Explain the difference between a merchandising
and a manufacturing income statement.
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
Manufacturing Costs in Financial Statements
Cost of Goods Sold ComponentsMerchandiser versus Manufacturer
LO 5 Explain the difference between a merchandising
and a manufacturing income statement.
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Chapter19-34
Manufacturing Costs in Financial Statements
Cost of Goods Sold Section of the Income Statement
LO 5 Explain the difference between a merchandising
and a manufacturing income statement.
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Chapter19-35
Manufacturing Costs in Financial Statements
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
Manufacturing Costs in Financial Statements
LO 6 Indicate how cost of goods manufactured is determined.
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Chapter19-37
Manufacturing Costs in Financial Statements
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
Manufacturing Costs in Financial Statements
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
Managerial Accounting Today
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 Today
LO 8 Identify trends in management accounting.
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 Today
LO 8 Identify trends in management accounting.
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 Today
LO 8 Identify trends in management accounting.
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
Managerial Accounting Today
LO 8 Identify trends in management accounting.
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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
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