Click to edit Master title style 1 Lesson 1 18. Click to edit Master title style 2 Managerial...

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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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1-1


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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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1-1

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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1-1

Directing is the process by which managers, given their

assigned level of responsibilities, run day-to-

day operations.

Directing


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1-1

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.

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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)

1-1

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.


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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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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.

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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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Identify the following costs as a (a) prime cost, (b) conversion cost, or (c) both for a baseball glove manufacturer.

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For Practice: PE 18-3A, PE 18-3B32


1-2

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


(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.

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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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1-2

(Continued)


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1-2

(Concluded)


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1-2Product Costs and Period Costs


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Identify the following costs as a (a) product cost, or (b) period cost for a baseball glove manufacturer.

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2. _______________ Cost of endorsement from a professional baseball player

3. _______________ Office supplies used at the company

headquarters4. _______________ Ink used to print a player’s



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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


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.


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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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1-3

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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1-3

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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Cost of materials placed in production $130,000

from Step 1

STEP 2:


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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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Work in process inventory, Jan. 1, 2008 $ 30,000Add: total manufacturing costs added 284,000

from Step 2

STEP 3:


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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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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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(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



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Describe the uses of managerial accounting

information.


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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