CHAPTER19. Acct202. Managerial Accounting 19-1

Transcription

1 CHAPTER19 Managerial Accounting Acct

2 PreviewofCHAPTER

3 Managerial Accounting Basics Managerial accounting, a field of accounting that provides economic and financial information for managers and other internal users. Activities include: 1. Explaining manufacturing and nonmanufacturing costs (Chapter 19). 2. Computing cost of providing a service or manufacturing a product (Chapters 20 and 21). 3. Determining the behavior of costs and expenses as activity levels change and analyzing cost volume profit relationships within a company (Chapter 22). 19-3

4 Managerial Accounting Basics Managerial accounting, a field of accounting that provides economic and financial information for managers and other internal users. Activities include: 4. Assisting management in profit planning and formalizing these plans in the form of budgets 5. Providing a basis for controlling costs and expenses by comparing actual results with planned objectives and standard costs 6. Accumulating and presenting data for management decision making 19-4

5 Managerial Accounting Basics Comparing Managerial and Financial Accounting Illustration SO 1 Explain the distinguishing features of managerial accounting.

6 Managerial Accounting Basics Question Managerial accounting: a. Pertains to the entity as a whole and is highly aggregated. b. Places emphasis on special-purpose information. c. Is limited to cost data. d. Is governed by generally accepted accounting principles SO 1 Explain the distinguishing features of managerial accounting.

7 Managerial Accounting Basics Management Functions Three broad functions: 1. Planning. 2. Directing. 3. Controlling. Requires managers to look ahead and to establish objectives. maximizing short-term profits and market share, maintaining a commitment to environmental protection, and contributing to social programs SO 2 Identify the three broad functions of management.

8 Managerial Accounting Basics Management Functions Three broad functions: 1. Planning. Involves coordinating diverse activities and human resources to produce a smoothrunning operation. This function relates to 2. Directing. 3. Controlling. implementing planned objectives, providing necessary incentives to motivate employees, selecting executives, appointing managers and supervisors, and hiring and training employees SO 2 Identify the three broad functions of management.

9 Managerial Accounting Basics Management Functions Three broad functions: 1. Planning. 2. Directing. Process of keeping the company s activities on track. 3. Controlling. Managers determine whether planned goals are being met. When there are deviations from targeted objectives, managers must decide what changes are needed to get back on track SO 2 Identify the three broad functions of management.

10 Managerial Accounting Basics Question The management of an organization performs several broad functions. They are: a. Planning, directing, and selling. b. Directing, manufacturing, and controlling. c. Planning, manufacturing, and controlling. d. Planning, directing, and controlling SO 2 Identify the three broad functions of management.

11 Managerial Accounting Basics Organizational Structure Illustration SO 2

12 Managerial Accounting Basics 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. Enron, Global; Crossing, WorldCom. Most costly to companies SO 2 Identify the three broad functions of management.

13 Managerial Accounting Basics Business Ethics 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 SO 2 Identify the three broad functions of management.

14 Managerial Accounting Basics Business Ethics Code of Ethical Standards Sarbanes-Oxley Act of 2002 Clarifies management s responsibilities. Certifications by CEO and CFO. Selection criteria for Board of Directors and Audit Committee. Substantially increased penalties for misconduct. IMA Statement of Ethical Professional Practices SO 2 Identify the three broad functions of management.

15 Managerial Cost Concepts Manufacturing Costs Activities and processes that convert raw materials into finished goods. Illustration SO 3 Define the three classes of manufacturing costs.

16 Manufacturing Costs Direct Materials Raw materials purchased that will be converted into finished product. Direct materials can be physically and directly associated with the finished product. Indirect materials: 1. Do not become part of the finished product, or 2. Cannot be traced directly to the product. 3. Part of manufacturing overhead SO 3 Define the three classes of manufacturing costs.

17 Manufacturing Costs Direct Labor Direct Labor - Work of factory employees that can be physically and directly associated with converting raw materials into finished goods. Indirect Labor - Work of factory employees that has no physical association with the finished product or for which it is impractical to trace to the goods produced SO 3 Define the three classes of manufacturing costs.

18 Manufacturing Costs Manufacturing Overhead Costs that are indirectly associated with manufacturing the product. Includes all manufacturing costs except direct materials and direct labor SO 3 Define the three classes of manufacturing costs.

19 Manufacturing Overhead Includes only indirect costs related to manufacturing Does NOT include costs for selling, general, or administrative functions Examples: Indirect materials Become part of finished product, but cannot be conveniently or costeffectively traced Indirect labor Manufacturing wages not easily traced to products Plant managers & maintenance Other costs related to the manufacturing facility and plant assets Repairs & maintenance Utilities Rent & insurance Property taxes Depreciation

20 19-20

21 Manufacturing Costs Question Which of the following is not an element of manufacturing overhead? a. Sales manager s salary. b. Plant manager s salary. c. Factory repairman s wages. d. Product inspector s salary SO 3 Define the three classes of manufacturing costs.

22 Manufacturing Costs Product versus Period Costs Product Costs Components: direct material cost, direct labor cost, and manufacturing overhead. Necessary and integral part of producing the product. Recorded as inventory when incurred. Not an expense until the finished goods inventory is sold, then record as cost of goods sold SO 4 Distinguish between product and period costs.

23 Manufacturing Costs Product versus Period Costs Period Costs Matched with revenue of a specific time period and charged to expense as incurred. Non-manufacturing costs. Deducted from revenues in period incurred to determine net income. Includes all selling and administrative expenses SO 4 Distinguish between product and period costs.

24 Product versus Period Costs Illustration SO 4 Distinguish between product and period costs.

25 Product versus Period Costs Product costs include (in the case of manufactured goods) direct materials, direct labor, and manufacturing overhead. Period costs include all selling and administrative costs Manufacturing Costs Direct Materials Direct Labor Manufacturing Overhead Nonmanufacturing Costs Selling and Administrative Balance Sheet Work in Process Inventory Finished Goods Inventory Expensed During Period Incurred Income Statement Cost of Goods Sold Period Expenses Slide 25

26 19-26 Example

27 Manufacturing Costs Income Statement Illustration SO 5 Explain the difference between a merchandising and a manufacturing income statement.

28 Manufacturing Costs Income Statement Illustration 19-6 Cost of goods sold sections of merchandising and manufacturing income statements SO 5 Explain the difference between a merchandising and a manufacturing income statement.

29 Manufacturing Costs Cost of Goods Manufactured Illustration 19-7 Work in Process partially completed units of product. Total Manufacturing Costs sum of direct material costs, direct labor costs, and manufacturing overhead; all incurred in the current period SO 6 Indicate how cost of goods manufactured is determined.

30 Manufacturing Costs Illustration 19-8 Cost of goods manufactured schedule SO 6

31 Manufacturing Costs Balance Sheet Illustration 19-9 Inventory accounts for a manufacturer SO 7 Explain the difference between a merchandising and a manufacturing balance sheet.

32 Manufacturing Costs Balance Sheet Illustration Current assets sections of merchandising and manufacturing balance sheets SO 7 Explain the difference between a merchandising and a manufacturing balance sheet.

33 Manufacturing Costs Product Costing for Service Industries U.S. economy has shifted toward an emphasis on providing services rather than goods. Over 50% of U.S. workers are now employed by service companies. Trend is expected to continue in the future. Most of the techniques learned for manufacturing firms are applicable to service companies SO 7 Explain the difference between a merchandising and a manufacturing balance sheet.

34 Managerial Accounting Today The Value Chain All activities associated with providing a product or service. Illustration A manufacturer s value chain SO 8 Identify trends in management accounting.

35 Managerial Accounting Today Technological Change Enterprise Resource Planning (ERP) systems provide a comprehensive, centralized, integrated source of information that companies can use to manage all major business processes, from purchasing to manufacturing to human resources. Computer-Integrated Manufacturing (CIM) allows companies to manufacture products that are untouched by human hands. Business-to-Business (B2B) e-commerce on the Internet SO 8 Identify trends in management accounting.

36 Managerial Accounting Today Just-In-Time Inventory Methods Goods are manufactured or purchased just in time for use. Quality JIT inventory system requires increased emphasis on product quality. Companies have installed total quality management (TQM) systems to reduce defects in finished products SO 8 Identify trends in management accounting.

37 Managerial Accounting Today Activity-Based Costing Allocates overhead based on use of activities. Results in more accurate product costing and scrutiny of all activities in the value chain. Theory of Constraints A specific approach used to identify and manage constraints in order to achieve the company s goals SO 8 Identify trends in management accounting.

38 Managerial Accounting Today Balanced Scorecard Evaluates operations in an integrated fashion. Uses both financial and non-financial measures. Links performance measures to overall company objectives SO 8 Identify trends in management accounting.

39 Managerial Accounting Today Question Which of the following managerial accounting techniques attempts to allocate manufacturing overhead in a more meaningful manner? a. Just-in-time inventory. b. Total-quality management. c. Balanced scorecard. d. Activity-based costing SO 8 Identify trends in management accounting.