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Lesson 1Lesson 1
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Managerial Managerial Accounting Accounting
Concepts and Concepts and PrinciplesPrinciples
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1. Describe managerial accounting and the role of managerial accounting in a business.
After studying this chapter, you should be able to:
2. Describe and illustrate the following costs: direct and indirect, direct materials, direct labor, factory overhead, and product and period costs.
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3. Describe and illustrate the statement of cost of goods manufactured, income statement, and balance sheet for a manufacturing business.
After studying this chapter, you should be able to:
4. Describe the uses of managerial accounting information.
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Describe managerial accounting and the role of managerial
accounting in a business.
Objective 1Objective 1Objective 1Objective 1
1-1
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The Difference Between Managerial and Financial Accounting
1-1
Financial accounting information is reported in statements that are useful for persons or institutions who are “outside”
or external to the organization. Management also uses these financial
statements in directing current operations and planning future operations.
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1-1
Managerial accounting information is provided to meet
the specific needs of a company’s management, such as
historical data and subjective estimates about future decisions.
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Financial Accounting Managerial Accounting
Shareholders Creditors Government Agencies General Public Management
Management
Users of Accounting Information
Example of Users 1-1
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Financial Accounting and Managerial Accounting
1-1
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1-1Partial Organizational Chart for Callaway Golf Company
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1-1Planning
Planning is used by management to develop the
organization’s objectives (goals) and to translate
these objectives into courses of action.
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Strategic planning is developing long-range courses
of action to achieve goals. Long-range courses of action,
called strategies, can often involve periods ranging from
five to ten years.
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Directing is the process by which managers, given their
assigned level of responsibilities, run day-to-
day operations.
Directing
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Controlling, sometimes called management by exception, consists of monitoring the
operating results of implemented plans and
comparing the actual results with the expected results.
Controlling
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1-1
Comparing actual results with expected results (feedback)
allows management to isolate significant departures from
plans for further investigation and possible remedial action.
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1-1
Continuous process improvement is the
philosophy of continually improving employees, business processes, and
products.
Improving
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Example Exercise 1-1
Three aspects of the management process are listed below. Match each phase to the appropriate description.
1-1
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Phase of management process Description___Planning a. Monitoring the operating ___Controlling results of implemented plans ___Continuous and comparing the actual
Improvement results with expected results.
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Example Exercise 1-1 (continued)
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Description___Planning b. Rejects solving individual ___Controlling problems with temporary ___Continuous solutions that fail to address
Improvement the root cause of the problem.
c. Used by management todevelop the company’sobjectives.
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Phase of management process
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For Practice: PE 18-1A, PE 18-1B19
Follow My Example 1-1
1-1
Aspect of management process
___Planning
___Controlling
___Continuous Improvement
c
a
b
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Describe and illustrate the following costs: direct and
indirect, direct materials, direct labor, factory overhead, and
product and period costs.
Objective 2Objective 2Objective 2Objective 2
1-2
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1-2Direct and Indirect Costs
Costs are often classified in terms of how they relate to an object or segment of
operations, called a cost object. It may be a product, a sales territory, a
department, or some activity. Costs are identified with cost objects as either
direct costs or indirect costs.
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1-2
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1-2Direct Materials Cost
The cost of any material that is an integral part of
the final product is classified as a direct
materials cost.
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1-2Direct Labor Cost
The wages of each employee who is directly
involved in converting materials into the final
product are classified as direct labor cost.
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1-2Factory Overhead Cost
Costs, other than direct materials cost and direct labor cost, that are
incurred in the manufacturing process are combined and
classified as factory overhead cost (sometimes also called
manufacturing overhead or factory burden).
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1-2Examples of Factory Overhead Cost
Heating and lighting the factory Repairing and maintaining
factory equipment Property taxes Insurance Depreciation of factory plant and
equipment
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Example Exercise 1-2
Identify the following costs as (a) direct materials, (b) direct labor, or (c) factory overhead for a baseball glove manufacturer.
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1. _______________ Leather used to make a baseball glove
2. _______________ Coolants for machines that sew baseball gloves
3. _______________ Wages of assembly line employees4. _______________ Ink used to print a player’s
autograph on the baseball glove
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Identify the following costs as (a) direct materials, (b) direct labor, or (c) factory overhead for a baseball glove manufacturer.
1-2
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1. _______________ Leather used to make a baseball glove
2. _______________ Coolants for machines that sew baseball gloves
3. _______________ Wages of assembly line employees4. _______________ Ink used to print a player’s
autograph on the baseball glove
Follow My Example 1-2
For Practice: PE 18-2A, PE 18-2B
(a) Direct materials
(c) Factory overhead
(b) Direct labor
(c) Factory overhead
Left click mouse for answers.
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1-2Prime Costs and Conversion Costs
FactoryFactoryOverheadOverheadFactoryFactory
OverheadOverhead
DirectMaterials
DirectMaterials
DirectDirectLaborLaborDirectDirectLaborLabor
Prime Costs
Conversion Costs
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1-2
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Example Exercise 1-3
Identify the following costs as a (a) prime cost, (b) conversion cost, or (c) both for a baseball glove manufacturer.
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1. _______________ Leather used to make a baseball glove
2. _______________ Coolants for machines that sew baseball gloves
3. _______________ Wages of assembly line employees4. _______________ Ink used to print a player’s
autograph on the baseball glove
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For Practice: PE 18-3A, PE 18-3B32
Follow My Example 1-3
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Identify the following costs as a (a) prime cost, (b) conversion cost, or (c) both for a baseball glove manufacturer.1. _______________ Leather used to make a baseball
glove2. _______________ Coolants for machines that sew
baseball gloves3. _______________ Wages of assembly line employees4. _______________ Ink used to print a player’s
autograph on the baseball glove
(a) Prime cost
(b) Conversion cost
(c) Both
(b) Conversion cost
Left click mouse for answers.
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1-2Product Costs
Product costs consist of the three elements of
manufacturing cost: direct materials, direct labor, and
factory overhead.
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FactoryFactoryOverheadOverheadFactoryFactory
OverheadOverhead
DirectMaterials
DirectMaterials
DirectDirectLaborLaborDirectDirectLaborLabor
ProductProductCostsCosts
ProductProductCostsCosts
The cost of materials that are an integral part of the product.
The cost of labor directly involved in converting material into the product.
Manufacturing costs other than direct materials and direct labor.
1-2
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1-2
Period costs are generally classified into two categories:
Period Costs
Selling expenses are incurred in marketing the product and delivering the sold product to the customer.
Administrative expenses are incurred in the administration of the business.
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(Continued)
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1-2
(Concluded)
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1-2Product Costs and Period Costs
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Example Exercise 1-4
Identify the following costs as a (a) product cost, or (b) period cost for a baseball glove manufacturer.
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1. _______________ Leather used to make a baseball glove
2. _______________ Cost of endorsement from a professional baseball player
3. _______________ Office supplies used at the company
headquarters4. _______________ Ink used to print a player’s
autograph on the baseball glove
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For Practice: PE 18-4A, PE 18-4B
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Follow My Example 1-4
1-2
Identify the following costs as a (a) product cost, or (b) period cost for a baseball glove manufacturer.
(a) Product cost
(b) Period cost
(b) Period cost
(a) Product cost
1. _______________ Leather used to make a baseball glove
2. _______________ Cost of endorsement from a professional baseball player
3. _______________ Office supplies used at the company
headquarters4. _______________ Ink used to print a player’s
autograph on the baseball gloveLeft click the mouse to reveal answers.
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Describe and illustrate the statement of cost of goods
manufactured, income statement, and balance sheet for
a manufacturing business.
Objective 3Objective 3Objective 3Objective 3
1-3
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1-3A Manufacturing Firm’s Inventories
Materials inventory: Sometimes called raw materials
inventory Consists of the costs of the direct
and indirect materials that have not yet entered the manufacturing process
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Work in process inventory: Consists of the direct materials costs,
the direct labor costs, and the factory overhead costs that have entered the manufacturing process but are associated with products that have not been completed.
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Finished goods inventory: Consists of completed (or
finished) products that have not been sold.
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1-3Balance Sheet Presentation of Inventory in Manufacturing and Merchandising Companies
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1-3Flow of Manufacturing Costs
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1-3Determining the Cost of Goods Manufactured
Materials inventory, January 1, 2008 $ 65,000Add: Materials purchased during December 100,000Cost of materials available for use $165,000Less: Materials inventory, Dec. 31, 2008 35,000
Cost of materials placed in production $130,000 to total manu-
facturing cost
STEP 1:
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1-3Determining the Cost of Goods Manufactured
Cost of materials placed in production $130,000
from Step 1
STEP 2:
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1-3Determining the Cost of Goods Manufactured
Cost of materials used during the year $130,000Direct labor 110,000
to cost of goods manufactured
section
Factory overhead 44,000Total manufacturing costs added $284,000
STEP 2:
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1-3Determining the Cost of Goods Manufactured
Work in process inventory, Jan. 1, 2008 $ 30,000Add: total manufacturing costs added 284,000
from Step 2
STEP 3:
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1-3Determining the Cost of Goods Manufactured
Work in process inventory, Jan. 1, 2008 $ 30,000Add: total manufacturing costs added 284,000Total manufacturing costs $314,000Less: work in process inven., Dec. 31, 2008 24,000Cost of goods manufactured $290,000
STEP 3:
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1-3Manufacturing Company—Income Statement with
Statement of Cost of Goods Manufactured (cont’d)
to income statement
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Manufacturing Company—Income Statement with
Statement of Cost of Goods Manufactured
from statement of cost of goods manufactured
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1-3
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Example Exercise 1-5
Gauntlet Company has the following information for January:
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Cost of materials placed in production $25,000Direct labor 35,000Factory overhead 20,000Work in process inventory, January 1 30,000Work in process inventory, January 31 25,000Finished goods inventory, January 1 15,000Finished goods inventory, January 31 12,000
For January, determine the (a) cost of goods manufactured, and (b) cost of goods sold.
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Follow My Example 1-5
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(a) Work in process inventory, January 1 $ 30,000Cost of materials placed in production $25,000Direct labor 35,000Factory overhead 20,000Total manufacturing costs added 80,000Total manufacturing costs 110,000Less: Work in process inventory, Jan. 31 25,000Cost of goods manufactured $ 85,000
(Continued)
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Follow My Example 1-5 (continued)
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(b) Finished goods inventory, January 1 $ 15,000Cost of goods manufactured 85,000Cost of finished goods available for sale 100,000Less: Finished goods inventory, January 31 12,000Cost of goods sold $ 88,000
For Practice: PE 18-5A, PE 18-5B
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Describe the uses of managerial accounting
information.
Objective 4Objective 4Objective 4Objective 4
1-4
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1-4Uses of Managerial Accounting
Managerial accounting provides information and reports that help
managers run the day-to-day operations of their business.
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1-4
Managerial reports provide data that help managers
evaluate the performance of a company’s operations.
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1-4
Companies use managerial accounting information to
support long-term planning decisions, such as
investment decisions.
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1-4
Managerial accounting data can be used to help
managers understand how many units need to be sold
in a month to cover recurring monthly costs.
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End of Lesson End of Lesson 11
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