Accounting principles 9e willey kieso chapter 19

Period Costs Service Industry Trends Managerial Accounting Practices Income Statement Balance Sheet Cost Concepts – Managerial Cost Concepts Manufacturing Costs in Financial Statements

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Chapter 19-1

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Chapter

19-2

Managerial Accounting

Accounting Principles, Ninth Edition

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Chapter

19-3

1 Explain the distinguishing features of managerial

accounting.

2 Identify the three broad functions of management.

3 Define the three classes of manufacturing costs.

4 Distinguish between product and period costs.

5 Explain the difference between a merchandising and a

manufacturing income statement.

6 Indicate how cost of goods manufactured is determined

7 Explain the difference between a merchandising and a

manufacturing balance sheet.

8 Identify trends in managerial accounting.

Study Objectives Study Objectives

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Product vs

Period Costs

Service Industry Trends

Managerial Accounting Practices

Income Statement Balance Sheet Cost Concepts –

Managerial Cost Concepts

Manufacturing Costs in Financial Statements

Managerial Accounting Today

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Chapter

19-5

Managerial Accounting Basics

A field of accounting that provides economic and financial information for managers and other

internal users.

Also called Management Accounting Management Accounting

Definition of Managerial Accounting

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Chapter

19-6

Managerial Accounting Activities

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

Compute cost of providing a service or manufacturing

a product (Chapters 20 and 21)

Determine behavior of costs and expenses as activity changes (Chapter 22)

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Chapter

19-7

Managerial Accounting Activities (continued)

Assist management in profit planning and formalizing these plans in the form of budgets (Chapter 23)

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

Accumulate and present data for making decisions

(Chapter 26)

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Chapter

19-8

Applies to all types of business

-Service, Merchandising, and Manufacturing

Applies to all forms of businesses –

Proprietorships, Partnerships, and Corporations

Applies to not-for-profit and profit oriented companies

Distinguishing Features

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Chapter

19-9

More responsible for strategic cost management

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

Aid in making critical decisions

Distinguishing Features: Continued

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Chapter

19-10

Both deal with economic events of a business –

Thus, interests overlap

Both require that economic events be

quantified and communicated to

interested parties –

Determining unit cost is part of

managerial accounting, Reporting cost of goods manufactured

is a part of financial accounting

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Chapter

19-11

Differences

SO 1 Explain the distinguishing features of managerial accounting.

Comparing Managerial and Financial Accounting

Illustration 19-1

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b Places emphasis on special-purpose information

c Is limited to cost data.

d Is governed by generally accepted accounting

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Chapter

19-14

Management Functions

Look ahead and establish objectives such as –

Maximize short-term profit Commit to environmental protection

Key Objective: Add value to the business

Value measured by trading price of stock and by potential selling price of the company

Planning

SO 2 Identify the 3 broad functions of management.

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Chapter

19-15

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

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Good decision making is the outcome of good judgment

in planning, directing, and controlling.

Controlling

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Chapter

19-17

The management of an organization performs several

broad functions They are:

a Planning, directing, and selling Planning, directing, and selling

b Directing, manufacturing, and controlling

c Planning, manufacturing, and controlling.

d Planning, directing, and controlling

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Intentional misstatement of financial reports

Aka financial reporting fraud

Most costly to companies

Good Ethics – Good Business

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Chapter

19-19

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

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Chapter

19-20

Sarbanes-Oxley Act of 2002

Clarifies management’s responsibilities

Certifications by CEO and CFO

-fairness of financial statements and

adequacy of internal control Selection criteria for Board of Directors and Audit Committee

Substantially increased penalties for misconduct

Code of Ethical Standards

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Chapter

19-21

Manufacturing Costs

Manufacturing consists of activities to convert raw

materials 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

SO 3 – Define the three classes of manufacturing costs.

Illustration 19-2

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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

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Includes all manufacturing costs except

direct materials and direct labor

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Chapter

19-26

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

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Chapter

19-27

Product Versus Period Costs

SO 4 Distinguish between product and period costs.

Product Costs

Components: direct material cost, direct

A 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

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Chapter

19-28

SO 4 Distinguish between product and period costs.

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Chapter

19-29

SO 4 Distinguish between product costs and period

costs.

Illustration 19-3

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Chapter

19-30

Manufacturing Costs in Financial Statements Manufacturing Costs in Financial Statements

SO 5 Explain the difference between a merchandising

and a manufacturing income statement.

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Chapter

19-31

Cost of Goods Sold Components

Merchandiser versus Manufacturer

and a manufacturing income statement.

Illustration 19-4

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Chapter

19-32

Cost of Goods Sold Section of the Income Statement

and a manufacturing income statement.

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Chapter

19-33

Determining the Cost of Goods Manufactured

SO 6 Indicate how cost of goods manufactured is determined.

direct labor costs, and manufacturing overhead; all incurred in the current period

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Chapter

19-35

Balance Sheet - Inventories

SO 7 Explain the difference between a merchandising and a

manufacturing balance sheet.

Merchandising Company

One category of inventory:

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Chapter

19-36

Balance Sheet - Inventories

SO 7 Explain the difference between a merchandising and a

manufacturing balance sheet

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Chapter

19-37

Direct Materials are a:

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Chapter

19-38

SO 8 Identify trends in management accounting.

Service Industry Trends

U.S economy has shifted toward an emphasis on

service companiesTrend is expected to continue in the future

Most of the techniques learned for manufacturing firms are applicable to service companies

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Chapter

19-39 SO 8 Identify trends in management accounting.

Managerial Accounting Practices

Value Chain

Refers to all activities associated with providing a product or service

For a manufacturing firm these include the following:

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Chapter

19-40 SO 8 Identify trends in management accounting.

Just-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 needed

Total Quality Management (TQM)

a philosophy of zero defects

-Managerial Accounting Today

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Chapter

19-41

SO 8 Identify trends in management accounting.

objectives

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Chapter

19-43

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