Managerial Accounting
Wild and Shaw
Fourth Edition
Wild and Shaw
Fourth Edition
Copyright © 2014 by The McGraw-Hill Companies, Inc. All
rights reserved.McGraw-Hill/Irwin
Chapter 1
Managerial Accounting Concepts and Principles
Conceptual Learning Objectives
C1: Explain the purpose and nature of, and the role of ethics in, managerial accounting.
C2: Describe accounting concepts useful in classifying costs.
C3: Define product and period costs and explain how they impact financial statements.
C4: Explain how the balance sheets and income statements for manufacturing and merchandising companies differ.
C5: Explain manufacturing activities and the flow of manufacturing costs.
C6: Identify trends in managerial accounting.1-3
A1: Assess raw materials inventory management using raw materials inventory turnover and days’ sales in raw materials inventory.
Analytical Learning Objectives
1-4
P1: Compute cost of goods sold for a manufacturer.
P2: Prepare a manufacturing statement and explain its purpose and links to financial statements.
Procedural Learning Objectives
1-5
Managerial accountingprovides financial and
nonfinancial informationto an organization’s managers and other
internal decision makers
Financial accountingprovides generalpurpose financial
information to thosewho are outsidethe organization.
Managerial and Financial Accounting
C1
1-6
Financial Accounting Managerial Accounting
1. Users and Investors, creditors, and Managers, employees, and decision makers other external users other internal users
2. Purpose of Making investment, credit, Planning and
information and other decisions control decisions
3. Flexibility Structured and often Relatively flexible
of practice controlled by GAAP (no GAAP constraints)
4. Timeliness of Often available only Available quickly without
information after audit is complete need to wait for audit
5. Time dimension Historical information Many projections with some predictions and estimates
6. Focus of Emphasis on Projects, processes and
information whole organization segments of an organization
7. Nature of Monetary Monetary and
information information nonmonetary information
Nature of Managerial Accounting
C1
1-7
Behavior
Traceability
Controllability
Relevance
Function
Managerial Cost ConceptsC2
1-8
Cost behavior refers to a costs reaction to changes in the level of business activity.
Classification by BehaviorC2
A fixed cost does not change with changes in the volume of activity.
A variable cost changes in proportion to changes in the volume
of activity.
A mixed cost refers to a combination of fixed and variable costs.
1-9
Direct costs Costs traceable to a
single cost object. Examples: material
and labor cost for a product.
Indirect costs Costs that cannot be
traced to a single cost object.
Example: maintenance expenditures benefiting two or more departments.
Classification by TraceabilityC2
1-10
The degree of control depends on thelevel of management in the organization.
More control
Mor
e co
ntro
l
Very little control
Classification by ControllabilityC2
1-11
All costs incurred in the past that cannot be avoided or changed.
Sunk costs should not be considered in decisions.
Out-of-pocket costs require a future outlay of cash and should be considered in decisions.
Opportunity costs are the potential benefits lost by choosing a specific action from two or more
alternatives
Classification by Relevance:C2
1-12
TheProduct
Classification by Function:Product Costs
DirectMaterial
DirectLabor
Manufacturing Overhead
C3
1-13
Period costs(expenses)
Product costs
(inventory) Inventory not sold until 2014
Operatingexpenses
Cost ofgoods sold
Raw MaterialsGoods in ProcessFinished Goods
Cost ofgoods sold
2013 Costsincurred
2013 IncomeStatement
2014 IncomeStatement
2013 BalanceSheet inventory –
(3 accounts)
Inventorysold in 2013
Period and Product Costsin Financial Statements
C3
1-14
Inventory sold in 2014
Completedproductsfor sale.
Materialswaiting to beprocessed.
Can be director indirect.
Partially completeproducts.
Material to whichsome labor and/or
overhead havebeen added.
Balance Sheet of a ManufacturerThree Inventory Accounts
RawMaterials Inventory
FinishedGoods
Inventory
Goods inProcess Inventory
C4
1-15
Beginning Merchandise
Inventory
BeginningFinished Goods
Inventory
Cost of Goods Purchased
Cost of GoodsManufactured
Ending Merchandise
Inventory
EndingFinished Goods
Inventory
Cost of Goods Sold
Merchandiser Manufacturer
+
_
+
==
_
The major difference
Income Statement of a Manufacturer
C4
1-16
Finished GoodsBeginning Inventory
Cost of GoodsManufactured
FinishedGoodsEnding
Inventory
RawMaterials
BeginningInventory
RawMaterials
Purchases
Raw MaterialsEnding Inventory
Costof
GoodsSold
Goods in ProcessBeginning Inventory
Direct Labor Used
FactoryOverhead Used
Raw MaterialsUsed
Sales ActivityProduction ActivityMaterialsActivity
Flow of Manufacturing Activities
Goods in ProcessEnding Inventory
C5
1-17
Summarizes the types and amounts of costsIncurred in a company’s manufacturing process.
Direct Materials Used + Direct Labor + Factory Overhead = Total Manufacturing Costs + Beginning Goods in Process – Ending Goods in Process = Cost of Goods Manufactured
Manufacturing StatementP2
1-18
End of Chapter 1
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