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8/9/2019 Acct t103 Ppt Chap19
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Introduction toIntroduction to
ManagementManagementAccountingAccounting
Chapter 19Chapter 19
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ObjectivesObjectives Distinguish financial accounting fromDistinguish financial accounting from
management accountingmanagement accounting Describe service, merchandising, andDescribe service, merchandising, and
manufacturing companies, and classify theirmanufacturing companies, and classify theircosts by valuecosts by value--chain elementchain element
Distinguish among direct costs and indirectDistinguish among direct costs and indirectcosts; and full product costs, inventoriablecosts; and full product costs, inventoriableproduct costs, and period costsproduct costs, and period costs
Prepare the financial statements of aPrepare the financial statements of amanufacturing companymanufacturing company
Identify trends in the business environmentIdentify trends in the business environmentand use costand use cost--benefit analysis to make businessbenefit analysis to make businessdecisionsdecisions
Use reasonable standards to make ethicalUse reasonable standards to make ethical
decisionsdecisions
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Planning Acting
Feedback
Controlling
The Functions of ManagementThe Functions of Management
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Management AccountingManagement Accounting vsvs--
Financial AccountingFinancial Accounting
MA: Internal managers of the business
FA: External - Investors, Creditors,Government authorities (IRS, SEC, etc.)
Primary Users
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Management Accounting andManagement Accounting and
Financial AccountingFinancial Accounting
MA: Help managers plan and
control business operations
FA: Help investors, creditors, and others make
investment, credit, and other decisions
Purpose of Information
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Management Accounting andManagement Accounting and
Financial AccountingFinancial Accounting
MA: Relevance, focus on future
FA: Reliability, objectivity, and focus on the past
Focus and Time Dimension
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Management Accounting andManagement Accounting and
Financial AccountingFinancial Accounting
MA: Internal reports not restricted by GAAP,
determined by cost benefit analysis
FA: Financial statements restricted by GAAP
Type of Report
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Management Accounting andManagement Accounting and
Financial AccountingFinancial Accounting
MA: No independent audit
FA: Annual independent audit by CPAs
Verification
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Management Accounting andManagement Accounting and
Financial AccountingFinancial Accounting
MA: Detailed reports on
parts of the company
FA: Summary reports primarily
on the company as a whole
Scope of Information
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Management Accounting andManagement Accounting and
Financial AccountingFinancial Accounting
MA: Concern about how reports
will affect employees behavior
FA: Concern about adequacy of disclosure
Behavioral Implications
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Service, Merchandising, andService, Merchandising, and
Manufacturing CompaniesManufacturing Companies
Service Company:
provides intangible services,rather than tangible products
Merchandising Company:resells products previously
bought from suppliers
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Service, Merchandising, andService, Merchandising, and
Manufacturing CompaniesManufacturing Companies
Manufacturing Company:
uses labor, plant, and equipment to convertraw materials into finished products
Materials inventory
Work in process inventory
Finished goods inventory
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Value ChainValue Chain adds value toadds value to
productproduct
Research and
Development DesignProduction or
Purchases
Marketing Distribution CustomerService
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Value ChainValue Chain
The value chain also adds costs to theThe value chain also adds costs to theproductproduct
Want to manage these costsWant to manage these costs
Want to be able to determine the costs ofWant to be able to determine the costs ofvarious aspects of the value chainvarious aspects of the value chain
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Cost Objects, Direct Costs,Cost Objects, Direct Costs,
and Indirect Costsand Indirect Costs Cost objectsCost objects are anything for which aare anything for which a
separate measurement of costs is desired.separate measurement of costs is desired.
Cost driversCost drivers are any factors that affectare any factors that affectcost.cost.
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Cost Objects, Direct Costs,Cost Objects, Direct Costs,
and Indirect Costsand Indirect CostsWhat are examples of cost objects?What are examples of cost objects?
individual productsindividual products
alternative marketing strategiesalternative marketing strategies
geographic segments of the businessgeographic segments of the business
departmentsdepartments
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Cost Objects, Direct Costs,Cost Objects, Direct Costs,
and Indirect Costsand Indirect Costs Direct vs. Indirect Costs:Direct vs. Indirect Costs:
DirectDirect costscosts are those costs that can beare those costs that can be
specifically traced to the cost object.specifically traced to the cost object. What are indirect costs?What are indirect costs?
Indirect costsIndirect costs are costs that cannot beare costs that cannot be
specifically traced to the cost object.specifically traced to the cost object.
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Inventoriableproduct
costs
Fullproduct
costs
Product CostsProduct Costs
What are product costs?What are product costs?
They are the costs to produce (orThey are the costs to produce (orpurchase) tangible products intended forpurchase) tangible products intended forsale.sale.
There are two types of product costs:There are two types of product costs:
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Full Product CostsFull Product Costs
All costs throughout the value chainAll costs throughout the value chain
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Inventoriable Product CostsInventoriable Product Costs
For external reporting,For external reporting, merchandisersmerchandisersinventoriable product costsinventoriable product costs include onlyinclude only
costs that are incurred in the purchase ofcosts that are incurred in the purchase ofgoods.goods.
Inventoriable costsInventoriable costs are an asset.are an asset.
Period costsPeriod costs flow as operating expensesflow as operating expensesdirectly to the income statement.directly to the income statement.
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Inventoriable Product CostsInventoriable Product Costs
For external reporting,For external reporting, manufacturersmanufacturersinventoriable product costsinventoriable product costs include raw materialsinclude raw materials
plus all other costs incurred in theplus all other costs incurred in themanufacturing process.manufacturing process.
Inventoriable product costs are incurred only inInventoriable product costs are incurred only inthe third element (production) of the valuethe third element (production) of the value
chain.chain.
Costs incurred in other elements of the valueCosts incurred in other elements of the valuechain are period costs.chain are period costs.
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Direct
Materials
Direct
Labor
Indirect
Labor
Indirect
Materials
Other
Indirect
Manufacturing Overhead
Inventoriable Product CostsInventoriable Product Costs
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Revenues Expenses = Operating income
Financial Statements forFinancial Statements for
Service CompaniesService Companies There is no inventory and thus noThere is no inventory and thus no
inventoriable costs.inventoriable costs.
The income statement does not includeThe income statement does not includecost of goods sold.cost of goods sold.
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Financial Statements forFinancial Statements for
Merchandising CompaniesMerchandising Companies
Purchases of
Inventory plus
Freight-In
Inventory
Sales Revenue
Cost of
Goods Sold
INCOME STATEMENT
Operating
Expenses
Inventoriable
Costs
BALANCE SHEET
equals Operating Income
whensalesoccur
deduct
equals Gross Margin
deduct
Period
Costs
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Financial Statements forFinancial Statements for
Manufacturing CompaniesManufacturing Companies
Materials
InventoryFinished
Goods
Inventory
Sales Revenue
Cost of
Goods Sold
INCOME STATEMENT
Operating
Expenses
Inventoriable
Costs
BALANCE SHEET
equals Operating Income
whensalesoccur
deduct
equals Gross Margin
deduct
Work in
Process
Inventory
Period
Costs
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Manufacturing Company ExampleManufacturing Company Example
Kendall Manufacturing Company:Kendall Manufacturing Company:
Beginning and ending workBeginning and ending work--inin--processprocessinventories were $20,000 and $18,000.inventories were $20,000 and $18,000.
Direct materials used were $70,000.Direct materials used were $70,000.
Direct labor was $100,000.Direct labor was $100,000.
Manufacturing overhead incurred wasManufacturing overhead incurred was$150,000.$150,000.
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Manufacturing Company ExampleManufacturing Company Example
What is the cost of goods manufactured?What is the cost of goods manufactured?
Beginning work in process $Direct labor $
Direct materials $
Mfg. overhead $ $Ending work in process $ ________
Cost of goods manufactured $
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Manufacturing Company ExampleManufacturing Company Example
Kendall Manufacturing CompanysKendall Manufacturing Companysbeginning finished goods inventory wasbeginning finished goods inventory was
$60,000 and its ending finished goods$60,000 and its ending finished goodsinventory was $55,000.inventory was $55,000.
How much is the cost of goods sold?How much is the cost of goods sold?
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Manufacturing Company ExampleManufacturing Company Example
Beg. finished goods inventory $+ Cost of goods manufactured $________
= Cost of goods available for sale $
Ending finished goods $________
= Cost of goods sold $
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Manufacturing Company ExampleManufacturing Company Example
Kendall Manufacturing Company had salesKendall Manufacturing Company had salesof $627,000 for the period.of $627,000 for the period.
How much is the gross margin?How much is the gross margin?
Sales $
Cost of goods sold $________ = Gross margin $
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Manufacturing Company ExampleManufacturing Company Example
Kendall Manufacturing Company hadKendall Manufacturing Company hadoperating expenses as follows:operating expenses as follows:
Sales salaries and commissionsSales salaries and commissions $$80,000 Delivery expense80,000 Delivery expense10,000 Administrative expenses10,000 Administrative expenses30,00030,000 TotalTotal$120,000$120,000
What is Kendalls operating income?What is Kendalls operating income?
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Manufacturing Company ExampleManufacturing Company Example
Gross margin $
Operating expenses $_________
= Operating income $
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Flow of Costs through aFlow of Costs through a
Manufacturers AccountsManufacturers Accounts Direct MaterialsDirect Materials
InventoryInventory Beginning inventoryBeginning inventory
++ Purchases and freightPurchases and freight--inin
== Direct materialsDirect materials
availableavailable for usefor use Ending inventoryEnding inventory== Direct materials usedDirect materials used
Work in ProcessWork in ProcessInventoryInventory
Beginning inventoryBeginning inventory++ Direct materials usedDirect materials used++ Direct laborDirect labor++ Manufacturing overheadManufacturing overhead== Total manufacturingTotal manufacturing
costscoststo account forto account for
Ending inventoryEnding inventory== Cost of goodsCost of goods
manufacturedmanufactured
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Flow of Costs through aFlow of Costs through a
Manufacturers AccountsManufacturers Accounts
Finished Goods InventoryFinished Goods Inventory
Beginning inventory+ Cost of goods manufactured
= Cost of goods available for sale
- Ending inventory
= Cost of goods sold
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Trends in Todays BusinessTrends in Todays Business
EnvironmentEnvironment Service EconomyService Economy
Global MarketplaceGlobal Marketplace
Time Based CompetitionTime Based Competition
QualityQuality
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Shift to a Service EconomyShift to a Service Economy
In the U.S., 55% of the workforce
is employed in service companies.
Service Ind stries ther
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Enterprise Resource PlanningEnterprise Resource Planning
Enterprise resource planning (ERP) isEnterprise resource planning (ERP) issoftware that can integrate all of thesoftware that can integrate all of the
companys functions, departments, andcompanys functions, departments, anddata into a single system.data into a single system.
Advantages of ERP include:Advantages of ERP include:
Streamlined operations, quicker responseStreamlined operations, quicker responsetime to changes, and the replacement oftime to changes, and the replacement ofhundreds of separate software systemshundreds of separate software systems
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Supply Chain ManagementSupply Chain Management
Companies exchange information withCompanies exchange information withsuppliers and customers to reduce costs,suppliers and customers to reduce costs,
improve quality, and speed delivery ofimprove quality, and speed delivery ofgoods and services from suppliers,goods and services from suppliers,through the company itself, and on tothrough the company itself, and on to
customers.customers. EE--commercecommerce
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JustJust--inin--TimeTime
JIT philosophy means that the companyJIT philosophy means that the companyschedules productionschedules productionjust in timejust in time to satisfyto satisfy
needs.needs. Speeding up of the production processSpeeding up of the production process
reducesreduces throughput timethroughput time..
Throughput time is the time betweenThroughput time is the time betweenbuying raw materials and selling thebuying raw materials and selling thefinished products.finished products.
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Total Quality ManagementTotal Quality Management
The goal of total quality management (TQM) isThe goal of total quality management (TQM) isto please customers by providing them withto please customers by providing them with
superior products and services.superior products and services. TQM emphasizes educating, training, and crossTQM emphasizes educating, training, and cross--
training employees.training employees.
Quality improvement programs cost moneyQuality improvement programs cost money
today.today.
The benefits usually do not occur until later.The benefits usually do not occur until later.
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Total Quality ManagementTotal Quality Management
Initial benefits
and costs $170 million $200 million
Additional
expected benefits 68 million
Total $238 million $200 million
Total Benefits Total Cost
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Professional Ethics forProfessional Ethics for
Management AccountantsManagement Accountants In many situations the ethical path is notIn many situations the ethical path is not
so clear.so clear.
The Institute of Management AccountantsThe Institute of Management Accountants(IMA) has developed standards to help(IMA) has developed standards to helpmanagement accountants deal with thesemanagement accountants deal with these
situations.situations.
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Standards of Ethical Conduct forStandards of Ethical Conduct for
Management AccountantsManagement Accountants
Confidentiality
Integrity
Objectivity
Competence
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ReviewReview
Management AccountingManagement Accounting
Value ChainValue Chain
Cost Objects, Direct Costs, Indirect CostsCost Objects, Direct Costs, Indirect Costs
Product Costs (full, inventoriable)Product Costs (full, inventoriable)
Period CostsPeriod Costs
Cost of Goods ManufacturedCost of Goods Manufactured Todays Business EnvironmentTodays Business Environment
EthicsEthics