Accounting principles 11e kieso kimmel chapter 019

Prepared by Coby Harmon University of California, Santa Barbara Westmont College 19-1 19 Managerial Accounting Learning Objectives After studying this chapter, you should be able to: [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 19-2 Preview of Chapter 19 Accounting Principles Eleventh Edition Weygandt Kimmel Kieso 19-3 Managerial Accounting Basics Managerial accounting provides economic and financial information for managers and other internal users Crucial activities for companies would include: 19-4  The need for accurate information about the cost of each product to know whether the company is making a profit (Chapters 20 and 21)  The need to adjust the quantity it produces in light of changes in economic conditions and consumer tastes The need to understand how changes in the quantity produced impacts its production costs and profitability (Chapter 22) LO Explain the distinguishing features of managerial accounting Managerial Accounting Basics Crucial activities for companies would include: 19-5  The need for managers to consider alternative courses of action (Chapter 26)  The preparation of budgets in order to plan for the future (Chapter 23)  Comparing budgeted numbers with actual results to evaluate performance and identify areas that need to change (Chapters 24 and 25)  The need to make substantial investment decisions, such as the building of a new plant or the purchase of new equipment (Chapter 26) LO Explain the distinguishing features of managerial accounting Managerial Accounting Basics Comparing Managerial and Financial Accounting 19-6 Illustration 19-1 LO Explain the distinguishing features of managerial accounting Managerial Accounting Basics Question Managerial accounting: a Is governed by generally accepted accounting principles b Places emphasis on special-purpose information c Pertains to the entity as a whole and is highly aggregated d Is limited to cost data 19-7 LO Explain the distinguishing features of managerial accounting Managerial Accounting Basics Management Functions Planning     19-8 Directing Maximize short-term profit and market share  Commitment to environmental protection  Coordinate diverse activities and human resources Implement planned objectives  Contributing to social programs Provide incentives to motivate employees  Add value to the business Hire and train employees  Produce smoothrunning operation Controlling  Keeping activities on track  Determine whether goals are met  Decide changes needed to get back on track  May use an informal or formal system of evaluations LO Identify the three broad functions of management 19-9 Managerial Accounting Basics Organizational Structure Illustration 19-2 Organization charts show the interrelationships of activities and the delegation of authority and responsibility within the company 19-10 LO Manufacturing Costs in Financial Statements Balance Sheet Current assets sections of merchandising and manufacturing balance sheets 19-38 Illustration 19-9 LO Explain the difference between a merchandising and a manufacturing balance sheet Manufacturing Costs in Financial Statements Question A cost of goods manufactured schedule shows beginning and ending inventories for: 19-39 a Raw materials and work in process only b Work in process only c Raw materials only d Raw materials, work in process, and finished goods LO Explain the difference between a merchandising and a manufacturing balance sheet Manufacturing Costs in Financial Statements Illustration: Suppose you started your own snowboard factory, Diamond Snowboards Here are some of the costs that your snowboard factory would incur Assign the following costs: Illustration 19-10 19-40 Advance slide in presentation mode to reveal answers LO Explain the difference between a merchandising and a manufacturing balance sheet Manufacturing Costs in Financial Statements Illustration 19-10 19-41 LO Manufacturing Costs in Financial Statements If Diamond produces 10,000 snowboards the first year, what would be the total manufacturing costs? Illustration 19-11 19-42 Advance slide in presentation mode to reveal answers LO Explain the difference between a merchandising and a manufacturing balance sheet Manufacturing Costs in Financial Statements Product Costing for Service Industries 19-43  Much of the U.S economy has shifted toward an emphasis on providing services  Over 50% of U.S workers are now employed by service companies  Like a manufacturer, service companies need to keep track of the costs of its services in order to know whether it is generating a profit LO Explain the difference between a merchandising and a manufacturing balance sheet 19-44 Product versus Period Costs Focus on the Value Chain Refers to all business processes associated with providing a product or performing a service For a manufacturing firm these include the following: Illustration 19-12 19-45 LO Identify trends in managerial accounting Product versus Period Costs Just-In-Time Inventory Methods  Inventory system in which goods are manufactured or purchased just in time for sale Total Quality Management (TQM)  Reduce defects in finished products, with the goal of zero defects Theory of Constraints  19-46 Identification of “bottlenecks”—constraints within the value chain that limit a company’s profitability LO Identify trends in managerial accounting Product versus Period Costs Enterprise Resource Planning (ERP) systems  A comprehensive, centralized, integrated source of information to manage all major business processes— from purchasing, to manufacturing, to sales, to human resources Activity-Based Costing (ABC)  19-47 Allocates overhead based on use of activities in making the product LO Identify trends in managerial accounting Product versus Period Costs Balanced Scorecard 19-48  Uses both financial and non-financial measures to evaluate all aspects of a company’s operations in an integrated fashion  Links performance to overall company objectives LO Identify trends in managerial accounting Product versus Period Costs 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 19-49 LO Identify trends in managerial accounting > DO IT! Match the descriptions that follow with the corresponding terms e All activities associated with providing a product or performing a service a A method of allocating overhead based on each product’s use of activities in making the product d Systems implemented to reduce defects in finished products with the goal of achieving zero defects 19-50 LO Identify trends in managerial accounting > DO IT! Match the descriptions that follow with the corresponding terms b A performance4 measurement approach that uses both financial and nonfinancial measures, tied to company objectives, to evaluate a company’s operations in an integrated fashion c Inventory system in which goods are manufactured or purchased just as they are needed for use 19-51 LO Identify trends in managerial accounting Copyright “Copyright © 2013 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.” 19-52 ... Identify trends in managerial accounting 19-2 Preview of Chapter 19 Accounting Principles Eleventh Edition Weygandt Kimmel Kieso 19-3 Managerial Accounting Basics Managerial accounting provides economic... managerial accounting Managerial Accounting Basics Comparing Managerial and Financial Accounting 19-6 Illustration 19-1 LO Explain the distinguishing features of managerial accounting Managerial Accounting. .. functions: cost accounting, budgeting, and internal control As a result of the Sarbanes-Oxley Act, managerial False accounting reports must now comply with generally accepted accounting principles