CHAPTER 14 MANAGERIAL ACCOUNTING Accounting, Fourth Edition Chapter Preview
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Explain the distinguishing features of managerial accounting. Identify the 3 broad functions of management. Define the 3 classes of manufacturing costs. Distinguish between product in addition to period costs. Explain the differences between a merch in addition to ising in addition to a manufacturing income statement. Study Objectives Study Objectives Indicate how cost of goods manufactured is determined. Explain the difference between a merch in addition to ising in addition to a manufacturing balance sheet. Identify trends in managerial accounting. Managerial AccountingBasics Managerial Cost Concepts Managerial Accounting Today Comparing managerial in addition to financial accounting Management functions Organizational structure Business ethics Manufacturing costs Product vs. period costs Value Chain Technological change JIT Quality Activity-based costing Theory of constraints Balanced scorecard Manufacturing Costs in Financial Statements Income statement Cost of Goods Manufactured Balance sheet Cost concepts review Product Costing as long as Service Industries Managerial Accounting
Managerial Accounting Basics A field of accounting that provides economic in addition to financial in as long as mation as long as managers in addition to other internal users. Also called Management Accounting. Definition of Managerial Accounting Managerial Accounting Basics Applies to all types of business – Service, Merch in addition to ising, in addition to Manufacturing. Applies to all as long as ms of business organizations Proprietorships, Partnerships, in addition to Corporations. Applies to not- as long as -profit as well as profit-oriented companies. Distinguishing Features SO 1 Explain the distinguishing features of managerial accounting. Managerial Accounting Basics Changed role in collecting in addition to reporting costs to management as a result of increasingly automated business environment. Now more responsible as long as strategic cost management assisting in evaluating how well resources are employed by the company. Accountants now serve on teams with people from production, marketing,engineering, etc. Aid in making critical strategic decisions. Distinguishing Features (Continued) SO 1 Explain the distinguishing features of managerial accounting.
Comparing Managerial in addition to Financial Accounting Both managerial in addition to financial accounting deal with economic events of a business Thus, interests overlap. Both require that economic events be quantified in addition to communicated to interested parties Determining unit cost is part of managerial accounting, Reporting cost of goods manufactured is a part of financial accounting. Similarities SO 1 Explain the distinguishing features of managerial accounting. Comparing Managerial in addition to Financial Accounting Differences SO 1 Explain the distinguishing features of managerial accounting. Illustration 14-1 Managerial accounting: a. Is governed by the Securities in addition to Exchange Commission. b. Places emphasis on special-purpose in as long as mation. c. Pertains to the entity as a whole in addition to is highly aggregated. d. Is limited to cost data. Review Question Managerial Accounting Basics SO 1 Explain the distinguishing features of managerial accounting.
Managerial Accounting Basics Managements activities in addition to responsibilities can be classified into the following three broad functions: Planning, Directing, in addition to Controlling. Management Functions SO 2 Identify the 3 broad functions of management. Management Functions Look ahead in addition to establish objectives such as- Maximize short-term profit in addition to market share. Commit to environmental protection in addition to social programs. Key Objective: Add value to the business – Value measured by trading price of stock in addition to by potential selling price of the company. Planning SO 2 Identify the 3 broad functions of management. Management Functions Coordinate diverse activities in addition to human resources. Implement planned objectives. Provide incentives to motivate employees. Hire in addition to train employees including executives, managers, in addition to supervisors. Produce smooth-running operation. Directing SO 2 Identify the 3 broad functions of management.
Management Functions Process of keeping activities on track. Determine whether goals are met. Decide changes needed to get back on track. May use an in as long as mal or as long as mal system of evaluations. Decision making is not a separate management function, but the OUTCOME of the exercise of good judgment in planning, directing, in addition to controlling. Controlling SO 2 Identify the 3 broad functions of management. Within a company, an organization chart shows: The interrelationships of activities in addition to The delegation of authority in addition to responsibility. Organizational Structure Illustration 14-2 Business Ethics: All employees are expected to act ethically. An increasing number of organizations have codes of business ethics. Despite organizational ef as long as ts: Business sc in addition to als have caused massive investment losses in addition to employee layoffs. Corporate fraud has increased 13% in last 5 years. Employee fraud 60% of all fraud. Financial reporting fraud (intentional misstatement of financial reports) is most costly. Good Ethics Good Business
Creating Proper Incentives: Companies like Motorola, IBM, in addition to Nike expend substantial resources to monitor in addition to evaluate the actions of employees in addition to managers. Monitoring can have the negative result of producing incentives as long as unethical actions. Employees may feel that they must succeed no matter what. Ineffective in addition to unrealistic controls may also result in declining product quality. Good Ethics Good Business Sarbanes-Oxley Act of 2002 Clarifies managements responsibilities. Certifications by CEO in addition to CFO – Fairness of financial statements in addition to adequacy of internal control. Selection criteria as long as Board of Directors in addition to Audit Committee. Substantially increased penalties as long as misconduct. IMA Statement of Ethical Professional Practices. Provides guidance as long as managerial accountants. Good Ethics Good Business Code of Ethical St in addition to ards The management of an organization per as long as ms several broad functions. They are: a. Planning, directing, in addition to selling. b. Directing, manufacturing, in addition to controlling. c. Planning, manufacturing, in addition to controlling. d. Planning, directing, in addition to controlling. Review Question Management Functions SO 2 Identify the 3 broad functions of management.
Manufacturing Costs Manufacturing consists of activities in addition to processes to convert raw materials into finished goods. In contrast, a merch in addition to ising firm sells goods in the as long as m in which they were purchased. Manufacturing costs are typically classified as: Managerial Cost Concepts SO 3 Define the 3 classes of manufacturing costs. Illustration 14-3 Manufacturing Costs Materials SO 3 Define the 3 classes of manufacturing costs. Raw Materials: Basic materials in addition to parts used in the manufacturing process. Direct Materials : Raw materials that can be physically in addition to directly associated with the finished product during the manufacturing process. Manufacturing Costs Materials SO 3 Define the 3 classes of manufacturing costs. Indirect Materials: Raw materials that cannot be easily associated with the finished product. Not physically part of the finished product or they are an insignificant part of finished product in terms of cost. Considered part of manufacturing overhead.
Manufacturing Costs Labor SO 3 Define the 3 classes of manufacturing costs. Direct Labor: Work of factory employees that can be physically in addition to 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 as long as which it is impractical to trace costs to the goods produced. Manufacturing Costs SO 3 Define the 3 classes of manufacturing costs. Manufacturing Overhead Costs that are indirectly associated with manufacturing the finished product. Includes all manufacturing costs except direct materials in addition to direct labor. Allocation of manufacturing overhead to products can present problems. Also called factory overhead, indirect manufacturing costs, or burden. Which of the following is not an element of manufacturing overhead a. Sales managers salary. b. Plant managers salary. c. Factory repairmans wages. d. Product inspectors salary. Review Question Manufacturing Costs SO 3 Define the 3 classes of manufacturing costs.
Product Versus Period Costs SO 4 Distinguish between product in addition to period costs. Product Costs Components: Direct material cost, direct labor cost, in addition to manufacturing overhead. Costs that are a necessary in addition to integral part of producing the product. Recorded as inventory when incurred, thus may be called inventoriable costs. When the finished goods inventory is sold, it then becomes an expense called cost of goods sold. Product Versus Period Costs SO 4 Distinguish between product in addition to period costs. Period Costs Matched with revenue of a specific time period in addition to charged to expense as incurred. Non-manufacturing costs. Deducted from revenues in period incurred to determine net income. Includes all selling in addition to administrative expenses. Product Versus Period Costs SO 4 Distinguish between product costs in addition to period costs. Illustration 14-4
Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials, direct labor, or manufacturing overhead. Chapter Review – Brief Exercise 14-5 — 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 DM DL MO MO DM DM MO Identify whether each of the following costs should be classified as product costs or period costs. Chapter Review – Brief Exercise 14-6 — a. Manufacturing overhead — b. Selling expenses — c. Administrative expenses — d. Advertising expense — e. Direct labor — f. Direct material Product Period Period Period Product Product Copyright © 2011 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request as long as further in as long as mation should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies as long as his/her own use only in addition to not as long as distribution or resale. The Publisher assumes no responsibility as long as errors, omissions, or damages, caused by the use of these programs or from the use of the in as long as mation contained herein. Copyright
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