[PPT]Edmonds Managerial Chapter 14 - Faculty Website...
Transcript of [PPT]Edmonds Managerial Chapter 14 - Faculty Website...
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Fundamental Managerial Accounting ConceptsThomas P. Edmonds
Bor-Yi Tsay
Philip R. Olds
Copyright © Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.2009 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinMcGraw-Hill/Irwin
Fifth Edition
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CHAPTER 1Management Accounting and Corporate Governance
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Learning Objective
LO1
Distinguish between
managerial and financial
accounting.
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Learning Objective
LO2
Identify the cost components of a product made by a manufacturing
company: the cost of materials, labor, and
overhead.
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Product Costs in Manufacturing Companies
Materials Labor Overhead
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Average Cost per Unit
Total CostNumber of Units
= Average Cost per Unit
= $250$1,000
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Tabor Example Average Cost Per Unit
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Costs Can Be Assets or Expenses
Period Cost Expense
COGSAssetProduct
Cost
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Learning Objective
LO3
Explain the effects on financial statements of product costs versus general, selling, and administrative costs.
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Patillo Manufacturing Company Transactions
Event 1 Acquired additional $15,000 cash by issuing common stock. Event 2 Paid $2,000 for the materials that were used to make its products. All
products started were completed during the period. Event 3 Paid $1,200 for salaries of selling and administrative employees. Event 4 Paid $3,000 for wages of production workers. Event 5 Paid $2,800 for furniture used in selling and administrative offices. Event 6 Recognized depreciation expense on office furniture purchased in Event
5. The furniture acquired on January 1 had a $400 estimated salvage value and a four-year useful life. The annual depreciation charge is $600 [($2,800 - $400)/4].
Event 7 Paid $4,500 for manufacturing equipment. Event 8 Recognized depreciation expense on equipment purchased in Event 7.
The equipment acquired on January 1 had a $1,500 estimated salvage value and a three-year useful life. The annual depreciation charge is $1,000 [($4,500 - $1,500)/3].
Event 9 Sold inventory to customers for $7,500 cash. Event 10 The inventory sold in Event 9 cost $4,000 to make.
Patillo Manufacturing Company experienced the following transactions:
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Labor Costs
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Overhead Costs
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Total Product Cost
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Overhead Costs: A Closer Look
Indirect Costs
Depreciation Supervisor’s Salary Utilities
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Indirect Cost Allocation
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Manufacturing Cost Summary
DirectMaterials
DirectLabor
ManufacturingOverhead
Raw materialcosts that can
be easily tracedto products.
Factory wagesthat can be easily traced to products.
Other factory costs such as indirect
materials and labor, utilities, rent, security,
and depreciation.
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Learning Objective
LO4
Distinguish product costs from
upstream and downstream costs.
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Upstream and Downstream CostsUpstream
Costs
Occur before the manufacturing process begins.
Downstream Costs
Occur after the manufacturing process begins.
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Learning Objective
LO5
Explain how product costing differs in
service, merchandising, and
manufacturing companies.
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Product Costing in Service and Merchandising CompaniesService
CompaniesMerchandising
Companies
Provide products to customers that are
consumed immediately
Sell products other companies make
Service and merchandising companies also incur labor and overhead costs. However, these costs are normally treated as general, selling and administrative expenses
rather than accumulated in inventory accounts.
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Learning Objective
LO6
Explain how just-in-time inventory
can increase profitability.
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Just-in-TimeMany businesses have been able to simultaneously reduce their inventory holding costs and increase
customer satisfaction by making products available just-in-time (JIT) for customer consumption.
For example, hamburgers that are cooked to order
are fresher and more individualized than those
that are prepared in advance and stored until a
customer orders one.
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Corporate GovernanceCorporate governance is a set of relationships between
the board of directors, management, shareholders, auditors, and other stakeholders that determine how a
company is operated.
Board of DirectorsAuditors
Management
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Learning Objective
LO7
Identify the key components of
corporate governance.
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The Motive to Manipulate
PromotionsPay raisesBonuses
Stock options
Passed over for promotionsDemoted
Fired
Strong Financials Weak Financials
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Marion Manufacturing Company
Marion Manufacturing Company (MMC) had the following transactions:
1. MMC was started when it acquired $12,000 from issuing common stock.
2. MMC incurred $4,000 of costs to design its product and plan the manufacturing process.
3. MMC incurred specifically identifiable product costs of $8,000.
4. MMC made 1,000 units of product and sold 700 of the units for $18 each.
Let’s look at two scenarios for MMC.
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Marion Manufacturing Company
Scenario 1
The $4,000 of design and planning costs are
classified as selling and general and administrative.
Scenario 2
The $4,000 of design and planning costs are classified as product costs, meaning they are first accumulated
in the inventory account and then
expensed when the goods are sold.
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Ethical ConsiderationsCertified Management Accountants are
guided by the IMA Statement of Ethical Professional Practice
The statement provides standards onCompetenceConfidentialityIntegrityCredibilityResolution of ethical conflict
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Common Features of Criminal and Ethical Misconduct
Fraud Triangle
Opportunity
RationalizationPressure
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Internal Control Practices
Separating Duties
Hiring Competent Personnel
Bonding Employees
Using Prenumbered Documents
Establishing Physical Controls
Performing Evaluations at
Regular Intervals
Requiring Extended Absences
Establishing Clear Lines of
Authority & Responsibility
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Sarbanes-Oxley Act of 2002
Internal Controls
CEO and CFO Certification
Code of Ethics
Hotline for Anonymous Reporting
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Learning Objective
LO8
Identify emerging trends in
accounting. (Appendix A)
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Benchmarking: Identifying Best Practices of Global Competitors
Total Quality Management
(TQM)
Activity-Based Management
(ABM)
Comprehensive Value Chain
Analysis
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End of Chapter 1