8-1 Prepared by Coby Harmon University of California, Santa Barbara Westmont College.
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Transcript of 19-1 Prepared by Coby Harmon University of California, Santa Barbara Westmont College.
19-1
Prepared byCoby Harmon
University of California, Santa BarbaraWestmont College
19-2
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 Managerial Accounting
19-3
Preview of Chapter 19
Accounting PrinciplesEleventh Edition
Weygandt Kimmel Kieso
19-4
Managerial accounting provides economic and financial
information for managers and other internal users.
Crucial activities for companies would include:
Managerial Accounting Basics
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 1 Explain the distinguishing features of managerial accounting.
19-5
Managerial Accounting Basics
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).
Crucial activities for companies would include:
LO 1 Explain the distinguishing features of managerial accounting.
19-6 LO 1 Explain the distinguishing features of managerial accounting.
Comparing Managerial and Financial Accounting
Illustration 19-1
Managerial Accounting Basics
19-7
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.
LO 1 Explain the distinguishing features of managerial accounting.
Managerial Accounting Basics
Question
19-8 LO 2 Identify the three broad functions of management.
Management Functions
PlanningPlanning
Maximize short-term profit and market share
Commitment to environmental protection
Contributing to social programs.
Add value to the business.
DirectingDirecting ControllingControlling
Coordinate diverse activities and human resources.
Implement planned objectives.
Provide incentives to motivate employees
Hire and train employees.
Produce smooth-running operation.
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.
Managerial Accounting Basics
19-9
19-10 LO 2
Illustration 19-2
Organization charts show the
interrelationships of activities and
the delegation of authority and
responsibility within the company.
Organizational Structure
Managerial Accounting Basics
19-11 LO 2 Identify the three broad functions of management.
Business Ethics
All employees are expected to act ethically.
Many organizations have codes of business ethics.
Past financial frauds:
► Enron,
► Global Crossing,
► WorldCom
Managerial Accounting Basics
19-12 LO 2
Creating Proper Incentives
Systems and controls sometimes create incentives for
managers to take unethical actions.
Controls need to be effective and realistic.
Managerial Accounting Basics
Business Ethics
Boeing Plagued by a series of scandals attributed to an evaluation system that gave employees the impression that they needed to succeed no matter what actions were required to do so.
Boeing Plagued by a series of scandals attributed to an evaluation system that gave employees the impression that they needed to succeed no matter what actions were required to do so.
Schering-Plough Pharmaceutical manufacturer,found that employees were so concerned with meeting production quantity standards that they failed to monitor the quality of the product, and as a result the dosages were often wrong.
Schering-Plough Pharmaceutical manufacturer,found that employees were so concerned with meeting production quantity standards that they failed to monitor the quality of the product, and as a result the dosages were often wrong.
19-13 LO 2 Identify the three broad functions of management.
Sarbanes-Oxley Act (SOX)
Clarifies top management’s responsibilities.
Requires certifications by CEO and CFO.
Selection criteria for Board of Directors and Audit
Committee.
Substantially increased penalties for misconduct.
Code of Ethical Standards
Managerial Accounting Basics
Business Ethics
19-14
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.
LO 2 Identify the three broad functions of management.
Question
Managerial Accounting Basics
19-15
Indicate whether the following statements are true or false.
1. Managerial accountants have a single role within an
organization, collecting and reporting costs to
management.
2. Financial accounting reports are general-purpose and
intended for external users.
3. Managerial accounting reports are special-purpose and
issued as frequently as needed.
False
True
True
LO 2 Identify the three broad functions of management.
DO IT!>
19-16
False
False
True
LO 2 Identify the three broad functions of management.
Indicate whether the following statements are true or false.
4. Managers’ activities and responsibilities can be
classified into three broad functions: cost accounting,
budgeting, and internal control.
5. As a result of the Sarbanes-Oxley Act, managerial
accounting reports must now comply with generally
accepted accounting principles (GAAP).
6. Top managers must certify that a company maintains an
adequate system of internal controls.
DO IT!>
19-17 LO 3 Define the three classes of manufacturing costs.
Managers should ask questions such as the following.
1. What costs are involved in making a product or performing
a service?
2. If we decrease production volume, will costs decrease?
3. What impact will automation have on total costs?
4. How can we best control costs?
To answer these questions, managers need reliable and
relevant cost information.
Managerial Cost Concepts
19-18 LO 3 Define the three classes of manufacturing costs.
Manufacturing consists of activities and processes that
convert raw materials into finished goods.
Classified as:
Manufacturing Costs
Managerial Cost Concepts
19-19
Direct Materials
LO 3 Define the three classes of manufacturing costs.
Managerial Cost Concepts
Raw Materials
Basic materials and parts used in manufacturing
process.
Direct Materials
Raw materials that can be
physically and directly associated
with the finished product during
the manufacturing process.
19-20
Indirect Materials
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.
Direct Materials
LO 3 Define the three classes of manufacturing costs.
Managerial Cost Concepts
Raw Materials
Basic materials and parts used in manufacturing
process.
19-21
Work of factory employees that can be
physically and directly associated with
converting raw materials into finished
goods.
LO 3 Define the three classes of manufacturing costs.
Direct Labor
Managerial Cost Concepts
Indirect Labor
Work of factory employees that has no physical
association with the finished product or for which it is
impractical to trace costs to the goods produced.
19-22
Costs indirectly associated with the
manufacture of the finished product.
LO 3 Define the three classes of manufacturing costs.
Manufacturing Overhead
Managerial Cost Concepts
Includes manufacturing costs that cannot be classified as
direct materials and direct labor.
Includes indirect materials, indirect labor, depreciation on
factory buildings and machines, and insurance, taxes,
and maintenance on factory facilities.
19-23
19-24
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.
Question
LO 3 Define the three classes of manufacturing costs.
Managerial Cost Concepts
19-25
Components:
Costs that are a necessary and integral part of
producing the product.
Recorded in “inventory” account.
Not an expense (COGS) until
the goods are sold.
LO 4 Distinguish between product and period costs.
Product Costs Direct materials Direct labor Manufacturing overhead
Product versus Period Costs
Alternative TerminologyProduct costs are alsocalled inventoriable costs.
Alternative TerminologyProduct costs are alsocalled inventoriable costs.
19-26
Charged to expense as incurred.
Non-manufacturing costs.
Includes all selling and administrative expenses.
LO 4 Distinguish between product and period costs.
Period Costs
Product versus Period Costs
19-27 LO 4 Distinguish between product and period costs.
Illustration 19-3
Product versus Period Costs
19-28 LO 4
A bicycle company has these costs: tires, salaries of employees who
put tires on the wheels, factory building depreciation, lubricants, spokes,
salary of factory manager, handlebars, and salaries of factory
maintenance employees. Classify each cost as direct materials, direct
labor, or overhead.
Direct MaterialsDirect Materials
Tires
Spokes
Handlebars
Direct LaborDirect Labor OverheadOverhead
Salaries of employees who put tires on the wheels
Lubricants
Factory depreciation
Factory manager salary
Factory maintenance employees salary
DO IT!>
19-29
Under a periodic inventory system, the income statements
of a merchandiser and a manufacturer differ in the cost of
goods sold section.
LO 5 Explain the difference between a merchandising and a manufacturing income statement.
Income Statement
“Cost of Goods Sold”
Manufacturing Costs in Financial Statements
19-30
Cost of Goods Sold Components – (Periodic Inventory System)
LO 5
Illustration 19-4
Cost of Goods Manufactured
Manufacturing Costs in Financial Statements
19-31
Cost of goods sold sections of merchandising and
manufacturing income statementsIllustration 19-5
LO 5 Explain the difference between a merchandising and a manufacturing income statement.
Manufacturing Costs in Financial Statements
19-32
a. $450,000.
b. $500,000.
c. $550,000.
d. $600,000.
For the year, Red Company has cost of goods manufactured
of $600,000, beginning finished goods inventory of $200,000,
and ending finished goods inventory of $250,000. The cost of
goods sold isBeginning Inventory $200,000
+ COGs Manufactured 600,000
Goods Available for Sale 800,000
- Ending Inventory 250,000
Cost of Goods Sold $550,000
Question
LO 5 Explain the difference between a merchandising and a manufacturing income statement.
Manufacturing Costs in Financial Statements
19-33
Cost of Goods Manufactured
Total Work in Process – (1) cost of beginning work in process and (2)
total manufacturing costs for the current period.
Total Manufacturing Costs – sum of direct material costs, direct
labor costs, and manufacturing overhead in the current year.
LO 6 Indicate how cost of goods manufactured is determined.
Illustration 19-6
Manufacturing Costs in Financial Statements
19-34
Illustration 19-8
Illustration 19-7
19-35 LO 6 Indicate how cost of goods manufactured is determined.
DO IT!>
19-36 LO 6
Manufacturing Costs in Financial Statements
Advance slide in presentation mode to reveal answers.
19-37LO 7 Explain the difference between a merchandising
and a manufacturing balance sheet.
Illustration 19-8Inventory accounts for a manufacturer
The balance sheet for a merchandising company shows just one category of inventory.
Balance Sheet
Manufacturing Costs in Financial Statements
19-38LO 7 Explain the difference between a merchandising
and a manufacturing balance sheet.
Illustration 19-9
Current assets sections of merchandising and manufacturing
balance sheets
Manufacturing Costs in Financial Statements
Balance Sheet
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
A cost of goods manufactured schedule shows beginning and
ending inventories for:
LO 7 Explain the difference between a merchandising and a manufacturing balance sheet.
Question
Manufacturing Costs in Financial Statements
19-40LO 7 Explain the difference between a merchandising
and a manufacturing balance sheet.
Illustration 19-10
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:
Manufacturing Costs in Financial Statements
Advance slide in presentation mode to reveal answers.
19-41
Illustration 19-10
Manufacturing Costs in Financial Statements
LO 7
19-42
If Diamond produces 10,000 snowboards the first year, what
would be the total manufacturing costs?
LO 7 Explain the difference between a merchandising and a manufacturing balance sheet.
Illustration 19-11
Manufacturing Costs in Financial Statements
Advance slide in presentation mode to reveal answers.
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.
Product Costing for Service Industries
LO 7 Explain the difference between a merchandising and a manufacturing balance sheet.
Manufacturing Costs in Financial Statements
19-44
19-45
Refers to all business processes associated with providing a product or performing a service.
For a manufacturing firm these include the following:
LO 8 Identify trends in managerial accounting.
Focus on the Value Chain
Illustration 19-12
Product versus Period Costs
19-46
Just-In-Time Inventory Methods
Inventory system in which goods are manufactured or purchased just in time for sale.
LO 8 Identify trends in managerial accounting.
Reduce defects in finished products, with the goal of zero defects.
Total Quality Management (TQM)
Product versus Period Costs
Identification of “bottlenecks”—constraints within the value chain that limit a company’s profitability.
Theory of Constraints
19-47
A comprehensive, centralized, integrated source of information to manage all major business processes—from purchasing, to manufacturing, to sales, to human resources.
Enterprise Resource Planning (ERP) systems
LO 8 Identify trends in managerial accounting.
Product versus Period Costs
Allocates overhead based on use of activities in making the product.
Activity-Based Costing (ABC)
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.
Balanced Scorecard
LO 8 Identify trends in managerial accounting.
Product versus Period Costs
19-49
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.
LO 8 Identify trends in managerial accounting.
Question
Product versus Period Costs
19-50
3. ______ Systems implemented to reduce defects in finished
products with the goal of achieving zero defects.
1. ______ All activities associated
with providing a product or
performing a service.
2. ______ A method of allocating
overhead based on each
product’s use of activities in
making the product.
Match the descriptions that follow with the corresponding terms.
e
a
d
LO 8 Identify trends in managerial accounting.
DO IT!>
19-51
4. ______ A performance-
measurement approach that uses
both financial and nonfinancial
measures, tied to company
objectives, to evaluate a
company’s operations in an
integrated fashion.
b
c5. ______ Inventory system in which goods are manufactured or
purchased just as they are needed for use.
LO 8 Identify trends in managerial accounting.
Match the descriptions that follow with the corresponding terms.
DO IT!>
19-52
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