PRINCIPLES OF ACCOUNTING IIACC 2033.01S

INSTRUCTOR: SHARAD ASTHANA

COST ACCOUNTING:DETERMINING, MEASURING, RECORDING, AND ANALYZING COSTS

MANAGERIAL ACCOUNTING:USE OF COST ACCOUNTING INFORMATION FOR PRODUCT COSTING, DECISION MAKING, PLANNING, CONTROL, AND EVALUATION

OBJECTIVES OF MANAGERIAL ACCOUNTING   PRODUCT COSTING   DECISION MAKING   PRICING   PROFITABILITY ANALYSIS   RESOURCE ALLOCATION   PLANNING AND BUDGETING   INTERNAL CONTROL   PERFORMANCE EVALUATION

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ACCOUNTING DIFFERENCESFinancial External focus Whole

organization Historical Quantitative Monetary Verifiable GAAP Formal

recordkeeping

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Accounting DifferencesFinancial• External focus• Whole

organization• Historical• Quantitative• Monetary• Verifiable• GAAP• Formal

recordkeeping

Managerial• Internal focus• Segments or divisions• Current/projected• Quantitative/qualitative• Monetary and

nonmonetary• Timely/reasonable

estimate• Benefits exceed costs• Formal and informal

recordkeeping

DIFFERENCES BETWEEN FINANCIAL AND MANAGERIAL ACCOUNTING  

FINANCIAL   MORE RULES EMPHASIS ON EXPENSES FOR EXTERNAL USE USES HISTORICAL DATA MANY REGULATIONS (SUCH AS “GAAP”) SUMMARY DATA     MANAGERIAL   FEWER RULES EMPHASIS ON COSTS FOR INTERNAL USE USES HISTORICAL & ESTIMATED DATA FEWER REGULATIONS (NO “GAAP”) DETAILED DATA

Relationship of Financial, Management, and Cost Accounting

FINANCIALACCOUNTING

MANAGEMENTACCOUNTING

COSTACCOUNTING

Product Costs

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Accounting BodiesFinancial• Public Company

Accounting Oversight Board (PCAOB)

• Securities and Exchange Commission (SEC)

• Financial Accounting Standards Board (FASB)

Management• Institute of

Management Accountants (IMA)

• Society of Management Accountants of Canada

• Cost Accounting Standards Board (CASB)

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TYPES OF FIRMS   MANUFACTURING FIRMS: FORD,

TOYOTA, PEPSI, ETC.   MERCHANDISING FIRMS: GROCERY

STORES, DRUG STORES   SERVICE FIRMS: BANKS, LAW

FIRMS, CPA FIRMS, ETC.

TYPES OF INVENTORY   RAW MATERIAL INVENTORY   WORK-IN-PROCESS INVENTORY

  FINISHED GOODS INVENTORY

IF PRODUCING 100 CHAIRS COSTS $500, HOW MUCH WILL IT COST TO PRODUCE 200 CHAIRS?

DO YOU HAVE ENOUGH INFORMATION? WHAT OTHER INFORMATION WILL YOU

NEED? HOW MUCH SHOULD WE PRICE EACH

CHAIR? WILL OUR PROFIT DOUBLE IF WE

DOUBLE PRODUCTION?

TOM SODA HAS PERMISSION TO SELL PEPSI CANS AT HIS HIGH SCHOOL FUNCTION. HE IS INTERESTED IN THE PROFITABILITY OF HIS VENTURE. A CHARGE OF $125 WILL BE LEVIED BY THE SCHOOL FOR USE OF A CONCESSION STAND. THE COST PER CAN IS 30 CENTS AND THE SELLING PRICE IS 80 CENTS (FIXED BY THE SCHOOL). TOM WANTS TO EARN A PROFIT OF $50. HOW MANY CANS MUST HE SELL?

WE HAVE 100 TONS OF WOOD. WE CAN USE THIS MATERIAL TO PRODUCE CHAIRS AND TABLES. HOW MANY OF EACH SHOULD WE PRODUCE IN AUGUST IN ORDER TO MAXIMIZE OUR PROFIT?

A PRODUCT USES THREE INPUTS A1, A2, AND A3. THE COST OF A1 GOES UP BY 10% AND THE COST OF A2 GOES DOWN BY 10%. WHAT CHANGES DO WE MAKE TO THE SELLING PRICE TO MAKE THE SAME PROFIT AS BEFORE?

WE HAVE 100 GALLONS OF A PERISHABLE ITEM (SAY, MILK) IN STOCK. THE EXPIRATION DATE IS TOMORROW. IT HAS COST US $2 PER GALLON TO PRODUCE THIS PRODUCT. WHAT IS THE MINIMUM PRICE WE SHOULD CHARGE TODAY FROM A CUSTOMER?