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Chapter 19-1 CHAPTER 19 MANAGERIAL ACCOUNTING Accounting Principles, Eighth Edition Chapter 19-2 Study Study Objectives Objectives Explain the distinguishing features of managerial accounting Identify the broad functions of management Define the classes of manufacturing costs Distinguish between product and period costs Explain the differences between a merchandising and a manufacturing income statement Chapter 19-3 Study Study Objectives Objectives Chapter 19-4 Indicate how cost of goods manufactured is determined Explain the difference between a merchandising and a manufacturing balance sheet Identify trends in managerial accounting Preview Preview of of Chapter Chapter Managerial Accounting Basics Compare managerial and financial accounting Management functions and Business Ethics Managerial Cost Concepts Manufacturing costs Product vs period costs Manufacturing Costs in Financial Statements Income Statement and Balance Sheet Cost concepts – A review Managerial Accounting Today Service industry trends Chapter 19-5 Managerial accounting practices Managerial Managerial Accounting Accounting Managerial Managerial Accounting Accounting Basics Compare Managerial and Financial Accounting Management Functions Business Ethics Chapter 19-6 Managerial Managerial Cost Cost Concepts Manufacturing Costs Product vs Period Costs Manufacturing Manufacturing Costs Costs in in Financial Statements Statements Income Statement Balance Sheet Cost Concepts – A Review Managerial Managerial Accounting Today Today Service Industry Trends Managerial Accounting Practices Managerial Managerial Accounting Accounting Basics Basics Definition of Managerial Accounting A field of accounting that provides economic and financial information for managers and other internal users Also called Management Accounting Chapter 19-7 Managerial Managerial Accounting Accounting Basics Basics 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) Chapter 19-8 Managerial Managerial Accounting Accounting Basics Basics Managerial 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) Chapter 19-9 Managerial Managerial Accounting Accounting Basics Basics Distinguishing Features 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 Chapter 19-10 LO Explain the distinguishing features of managerial accounting Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements Cost of Goods Sold Components Merchandiser versus Manufacturer Chapter 19-33 LO Explain the difference between a merchandising and a manufacturing income statement Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements Cost of Goods Sold Section of the Income Statement Chapter 19-34 LO Explain the difference between a merchandising and a manufacturing income statement Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements Determining the Cost of Goods Manufactured 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 Chapter 19-35 LO Indicate how cost of goods manufactured is determined Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements Chapter 19-36 LO Indicate how cost of goods manufactured is determined Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements Balance Sheet - Inventories Merchandising Company One category of inventory: Merchandise Inventory Chapter 19-37 Manufacturing Company May have three inventories: Raw Materials Work in Process Finished Goods LO Explain the difference between a merchandising and a manufacturing balance sheet Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements Balance Sheet - Inventories Chapter 19-38 LO Explain the difference between a merchandising and a manufacturing balance sheet Manufacturing Manufacturing Costs Costs Review Question Direct Materials are a: Product Cost Period Cost a Yes Yes No b Yes No No c Yes Yes No No Yes d No Chapter 19-39 Manufacturing Overhead Managerial Managerial Accounting Accounting Today Today Service Industry Trends 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 Chapter 19-40 LO Identify trends in management accounting Managerial Managerial Accounting Accounting Today Today Managerial Accounting Practices Value Chain Refers to all activities associated with providing a product or service For a manufacturing firm these include the following: Chapter 19-41 LO Identify trends in management accounting Managerial Managerial Accounting Accounting Today Today Managerial Accounting Practices 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 Chapter 19-42 LO Identify trends in management accounting Managerial Managerial Accounting Accounting Today Today 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 integrated fashion Uses both financial and non-financial measures Links performance measures to overall company objectives Chapter 19-43 LO Identify trends in management accounting Managerial Managerial Accounting Accounting Today Today Review Question Which of the following managerial accounting techniques attempts to allocate manufacturing overhead in a more meaningful manner? Chapter 19-44 a Just-in-time inventory b Total-quality management c Balanced scorecard d Activity-based costing LO Identify trends in management accounting Chapter Chapter Review Review Brief Brief Exercise Exercise 19-5 19-5 Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials, direct labor, or manufacturing overhead DM DM DL MO MO DM DM MO Chapter 19-45 a b c d e f g h Windshield Engine Wages of assembly line worker Depreciation of factory machinery Factory machinery lubricants Tires Steering wheel Salary of painting supervisor Chapter Chapter Review Review Brief Brief Exercise Exercise 19-6 19-6 Identify whether each of the following costs should be classified as product costs or period costs Product Period Period Period Product Product Chapter 19-46 a b c d e f Manufacturing overhead Selling expenses Administrative expenses Advertising expense Direct labor Direct material Copyright Copyright Copyright © 2008 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 for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein Chapter 19-47 [...]... of managerial accounting, Reporting cost of goods manufactured is a part of financial accounting Chapter 19 -12 LO 1 Explain the distinguishing features of managerial accounting Comparing Comparing Managerial Managerial and and Financial Financial Accounting Accounting Differences Chapter 19 -13 LO 1 Explain the distinguishing features of managerial accounting Managerial Managerial Accounting Accounting... Is governed by generally accepted accounting principles Chapter 19 -14 LO 1 Explain the distinguishing features of managerial accounting Managerial Managerial Accounting Accounting Basics Basics Management Functions Management’s activities and responsibilities can be classified into the following three broad functions: Planning Chapter 19 -15 Directing Controlling LO 2 Identify the 3 broad functions of... Chapter 19 -18 LO 2 Identify the 3 broad functions of management Good Good Ethics Ethics –– Good Good Business Business 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 Aka financial reporting fraud Most costly to companies Chapter 19 -19 ... price of the company Chapter 19 -16 LO 2 Identify the 3 broad functions of management Management Management Functions Functions Directing 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 Chapter 19 -17 LO 2 Identify the 3 broad... Basics Basics Distinguishing Features: Continued More responsible for strategic cost management Teams with people from production, marketing, engineering, etc Aid in making critical decisions Chapter 19 -11 LO 1 Explain the distinguishing features of managerial accounting Comparing Comparing Managerial Managerial and and Financial Financial Accounting Accounting Similarities Both deal with economic events... of Ethical Professional Practices Chapter 19 - 21 Management Management Functions Functions Review Question The management of an organization performs several broad functions They are: a Planning, directing, and selling selling b Directing, manufacturing, and controlling c Planning, manufacturing, and controlling d Planning, directing, and controlling Chapter 19 -22 LO 2 Identify the 3 broad functions... Non-manufacturing costs Deducted from revenues in period incurred to determine net income Includes all selling and administrative expenses Chapter 19 -30 LO 4 Distinguish between product and period costs Product Product Versus Versus Period Period Costs Costs Chapter 19 - 31 LO 4 Distinguish between product costs and period costs Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements... for which it is impractical to trace to the goods produced Chapter 19 -26 LO 3 Define the three classes of manufacturing costs Manufacturing Manufacturing Costs Costs Manufacturing Overhead Costs that are indirectly associated with manufacturing the product Includes all manufacturing costs except direct materials and direct labor Chapter 19 -27 LO 3 Define the three classes of manufacturing costs Manufacturing... Chapter 19 -28 LO 3 Define the three classes of manufacturing costs Product Product Versus Versus Period Period Costs Costs Product Costs Components: direct material cost, direct labor cost, and manufacturing overhead 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 cost of goods sold Chapter 19 -29... were bought Categories of manufacturing costs include: Chapter 19 -23 LO 3 – Define the three classes of manufacturing costs Manufacturing Manufacturing Costs Costs Materials Raw Materials Basic materials used in manufacturing Direct Materials Raw materials that can be physically and directly associated with the finished product Chapter 19 -24 LO 3 Define the three classes of manufacturing costs Manufacturing ... Chapter 19 -12 LO Explain the distinguishing features of managerial accounting Comparing Comparing Managerial Managerial and and Financial Financial Accounting Accounting Differences Chapter 19 -13 ... people from production, marketing, engineering, etc Aid in making critical decisions Chapter 19 -11 LO Explain the distinguishing features of managerial accounting Comparing Comparing Managerial... has increased 13 % in last years Employee fraud – 60% of all fraud Intentional misstatement of financial reports Aka financial reporting fraud Most costly to companies Chapter 19 -19 Good Good Ethics