Accounting principles 10e by kieso chapter 19

Managerial Accounting Basics SO 2 Identify the three broad functions of management.. Managerial Accounting Basics SO 2 Identify the three broad functions of management... Managerial Acco

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CHAPTER 19

Managerial Accounting

19-3

economic and financial information for managers and other internal users Activities include:

Managerial Accounting Basics

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).

economic and financial information for managers and other

internal users Activities include:

Managerial Accounting Basics

4 Assisting management in profit planning and formalizing

these plans in the form of budgets (Chapter 23).

5 Providing a basis for controlling costs and expenses by

comparing actual results with planned objectives and standard costs (Chapters 24 and 25).

6 Accumulating and presenting data for management decision

making (Chapter 26).

Managerial Accounting Basics

Comparing Managerial and Financial

Accounting

Illustration 19-1

SO 1 Explain the distinguishing features of managerial accounting.

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

Question

SO 1 Explain the distinguishing features of managerial accounting.

Managerial Accounting Basics

Managerial Accounting Basics

SO 2 Identify the three broad functions of management.

environmental protection, and

 contributing to social programs.

Managerial Accounting Basics

SO 2 Identify the three broad functions of management.

 implementing planned objectives,

 providing necessary incentives to

Managerial Accounting Basics

SO 2 Identify the three broad functions of management.

 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.

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

Managerial Accounting Basics

Question

SO 2 Identify the three broad functions of management.

19-12 SO 2

 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

Business Ethics

Managerial Accounting Basics

SO 2 Identify the three broad functions of management.

 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

Managerial Accounting Basics

Business Ethics

Creating Proper Incentives

SO 2 Identify the three broad functions of management.

 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

Managerial Accounting Basics

Business Ethics

Code of Ethical Standards

SO 2 Identify the three broad functions of management.

19-17 SO 3 Define the three classes of manufacturing costs.

Managerial Cost Concepts

Manufacturing Costs

Activities and processes that convert raw materials into

finished goods

Illustration 19-3

19-18 SO 3 Define the three classes of manufacturing costs.

Manufacturing Costs

Direct Materials

Raw materials purchased that will be converted into finished

product

associated with the finished product

1 Do not become part of the finished product, or

2 Cannot be traced directly to the product

3 Part of manufacturing overhead.

19-19 SO 3 Define the three classes of manufacturing costs.

Manufacturing Costs

Direct Labor

 can be physically and directly associated with converting

raw materials into finished goods

 has no physical association with the finished product or

 for which it is impractical to trace to the goods produced

19-20 SO 3 Define the three classes of manufacturing costs.

Manufacturing Costs

Manufacturing Overhead

 Costs that are indirectly associated with manufacturing

the product

 Includes all manufacturing costs except direct materials

and direct labor

19-21

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

Manufacturing Costs

Question

SO 3 Define the three classes of manufacturing costs.

19-23 SO 4 Distinguish between product and 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

Manufacturing Costs

Product versus Period Costs

Period Costs

 Matched with revenue of a specific time period and

charged to expense as incurred

Product versus Period Costs

SO 4 Distinguish between product and period costs.

19-26 SO 5 Explain the difference between a merchandising

and a manufacturing income statement.

Manufacturing Costs

Income Statement

Illustration 19-5

19-27 SO 5 Explain the difference between a merchandising

and a manufacturing income statement.

Manufacturing Costs

Income Statement Illustration 19-6

Cost of goods sold sections of merchandising and manufacturing income statements

19-28 SO 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; all incurred in the current

19-30 SO 7 Explain the difference between a merchandising

and a manufacturing balance sheet.

Manufacturing Costs

Inventory accounts for

a manufacturer

Manufacturing Costs

Balance Sheet Illustration 19-10Current assets sections of

merchandising and manufacturing balance sheets

SO 7 Explain the difference between a merchandising

and a manufacturing balance sheet.

 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

Manufacturing Costs

Product Costing for Service Industries

SO 7 Explain the difference between a merchandising

and a manufacturing balance sheet.

19-33

SO 8 Identify trends in management accounting.

All activities associated with providing a product or service

Managerial Accounting Today

The Value Chain

Illustration 19-13

A manufacturer’s value chain

19-35 SO 8 Identify trends in management accounting.

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.

Managerial Accounting Today

Technological Change

19-36 SO 8 Identify trends in management accounting.

 Goods are manufactured or purchased just in time for

use

Managerial Accounting Today

Just-In-Time Inventory Methods

 JIT inventory system requires increased emphasis on

product quality

 Companies have installed total quality management

Quality

19-37 SO 8 Identify trends in management accounting.

 Allocates overhead based on use of activities

 Results in more accurate product costing and scrutiny of

all activities in the value chain

Managerial Accounting Today

Activity-Based Costing

 A specific approach used to identify and manage

constraints in order to achieve the company’s goals

Theory of Constraints

19-38 SO 8 Identify trends in management accounting.

 Evaluates operations in an integrated fashion

 Uses both financial and non-financial measures

 Links performance measures to overall company

objectives

Managerial Accounting Today

Balanced Scorecard

Which of the following managerial accounting techniques

attempts to allocate manufacturing overhead in a more

SO 8 Identify trends in management accounting.

Managerial Accounting Today

Question

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