Chapter 19-1
Chapter 19-2
Chapter 19
Managerial
Accounting
Accounting Principles, Ninth Edition
Chapter 19-3
1. Explain the distinguishing features of managerial accounting.
2. Identify the three broad functions of management.
3. Define the three classes of manufacturing costs.
4. Distinguish between product and period costs.
5. Explain the difference between a merchandising and a manufacturing income statement.
6. Indicate how cost of goods manufactured is determined.
7. Explain the difference between a merchandising and a manufacturing balance sheet.
8. Identify trends in managerial accounting.
Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives
Chapter 19-4
Managerial AccountingManagerial AccountingManagerial AccountingManagerial Accounting
Compare Compare Managerial and Managerial and Financial Financial AccountingAccounting
Management Management FunctionsFunctions
Business Ethics Business Ethics
Manufacturing Manufacturing CostsCosts
Product vs. Product vs. Period CostsPeriod Costs
Service Industry Service Industry TrendsTrends
Managerial Managerial Accounting Accounting PracticesPractices
Income Income StatementStatement
Balance SheetBalance Sheet
Cost Concepts – Cost Concepts – A Review A Review
Managerial Managerial
Accounting Accounting
BasicsBasics
Managerial Managerial
Accounting Accounting
BasicsBasics
Managerial Cost Managerial Cost
ConceptsConcepts
Managerial Cost Managerial Cost
ConceptsConcepts
Manufacturing Manufacturing Costs in Costs in Financial Financial
StatementsStatements
Manufacturing Manufacturing Costs in Costs in Financial Financial
StatementsStatements
Managerial Managerial
Accounting Accounting
TodayToday
Managerial Managerial
Accounting Accounting
TodayToday
Chapter 19-5
Managerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting Basics
A field of accounting that provides economic A field of accounting that provides economic and financial information for managers and and financial information for managers and
other internal users.other internal users.
Also calledAlso called Management AccountingManagement Accounting
Definition of Managerial Accounting
Chapter 19-6
Managerial Accounting Activities
Explain manufacturing and nonmanufacturing costs and how they are reported. (Chapter 19)
Compute cost of providing a service or manufacturing a product. (Chapters 20 and 21)
Determine behavior of costs and expenses as activity changes. (Chapter 22)
Managerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting Basics
Chapter 19-7
Managerial Accounting Activities (continued)
Assist management in profit planning and formalizing these plans in the form of budgets. (Chapter 23)
Help to control costs by comparing actual results with planned objectives and standard costs. (Chapters
24 and 25)
Accumulate and present data for making decisions. (Chapter 26)
Managerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting Basics
Chapter 19-8
Managerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting Basics
Applies to all types of business -Service, Merchandising, and Manufacturing
Applies to all forms of businesses –Proprietorships, Partnerships, and Corporations
Applies to not-for-profit and profit oriented companies
Distinguishing Features
Chapter 19-9
More responsible for strategic cost management
Teams with people from production, marketing, engineering, etc.
Aid in making critical decisions
Distinguishing Features: Continued
Managerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting BasicsManagerial Accounting Basics
Chapter 19-10
Both deal with economic events of a business –
Thus, interests overlap
Both require that economic events be quantified and communicated tointerested parties –
Determining unit cost is part of managerial accounting,
Reporting cost of goods manufactured
is a part of financial accounting
Similarities
SO 1 Explain the distinguishing features of managerial accounting.SO 1 Explain the distinguishing features of managerial accounting.
Comparing Managerial and Financial Comparing Managerial and Financial AccountingAccountingComparing Managerial and Financial Comparing Managerial and Financial AccountingAccounting
Chapter 19-11
Differences
SO 1 Explain the distinguishing features of managerial accountingSO 1 Explain the distinguishing features of managerial accounting ..
Comparing Managerial and Financial Comparing Managerial and Financial AccountingAccountingComparing Managerial and Financial Comparing Managerial and Financial AccountingAccounting
Illustration 19-1
Chapter 19-12
Managerial accounting:Managerial accounting:
a.a. Pertains to the entity as a whole and is highly Pertains to the entity as a whole and is highly aggregatedaggregated.
b. Places emphasis on special-purpose information.
c. Is limited to cost data.
d. Is governed by generally accepted accounting principles.
Review QuestionReview Question
SO 1 Explain the distinguishing features of managerial SO 1 Explain the distinguishing features of managerial accounting.accounting.
Comparing Managerial and Financial Comparing Managerial and Financial AccountingAccountingComparing Managerial and Financial Comparing Managerial and Financial AccountingAccounting
Chapter 19-13
Management’s activities and responsibilities Management’s activities and responsibilities can be classified into the following three can be classified into the following three
broad functions:broad functions:
PlanningPlanning DirectingDirecting
ControllingControlling
Management Functions
SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.
Management FunctionsManagement FunctionsManagement FunctionsManagement Functions
Chapter 19-14
Management FunctionsManagement FunctionsManagement FunctionsManagement Functions
Look ahead and establish objectives such as –
Maximize short-term profitCommit to environmental protection
Key Objective: Add value to the business
Value measured by trading price of stock and by potential selling price of the company
Planning
SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.
Chapter 19-15
Management FunctionsManagement FunctionsManagement FunctionsManagement Functions
Coordinate diverse activities and human resources
Implement planned objectives
Provide incentives to motivate employees
Hire and train employees including executives, managers, and supervisors
Produce smooth-running operation
Directing
SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.
Chapter 19-16
Management FunctionsManagement FunctionsManagement FunctionsManagement Functions
Keep activities on track
Determine whether goals are met
Decide changes needed to get back on track
May use an informal or formal system of evaluations
Good decision making is the outcome of good judgment in planning, directing, and
controlling.
Controlling
SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.
Chapter 19-17
The management of an organization performs The management of an organization performs several broad functions. They are:several broad functions. They are:
a.a. Planning, directing, and sellingPlanning, directing, and selling.
b. Directing, manufacturing, and controlling.
c. Planning, manufacturing, and controlling.
d. Planning, directing, and controlling.
Review QuestionReview Question
Management FunctionsManagement FunctionsManagement FunctionsManagement Functions
SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.
Chapter 19-18
Business Ethics
Business scandals caused massive investment losses and employee layoffs.
Corporate fraud has increased 13% in last 5 years.
Employee fraud – 60% of all fraud
Intentional misstatement of financial reports Aka financial reporting fraud
Most costly to companies
Good Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good Business
SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.
Chapter 19-19
Creating Proper Incentives
Systems to monitor and evaluate employees may produce incentives for unethical actions.
Employees may feel that they must succeed no matter what.
Ineffective and unrealistic controls may result in declining product quality.
Good Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good Business
SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.
Chapter 19-20
Sarbanes-Oxley Act of 2002
Clarifies management’s responsibilities.
Certifications by CEO and CFO -fairness of financial statements and
adequacy of internal control
Selection criteria for Board of Directors and Audit Committee
Substantially increased penalties for misconduct
IMA Statement of Ethical Professional Practices
Good Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good Business
Code of Ethical Standards
SO 2 Identify the 3 broad functions of management.SO 2 Identify the 3 broad functions of management.
Chapter 19-21
Manufacturing Costs
Manufacturing consists of activities to convert raw materials into finished goods.
In contrast, a merchandising firm sells goods in the form in which they were bought.
Categories of manufacturing costs include:
Managerial Cost ConceptsManagerial Cost ConceptsManagerial Cost ConceptsManagerial Cost Concepts
SO 3 – Define the three classes of manufacturing costs.SO 3 – Define the three classes of manufacturing costs.
Illustration 19-2
Chapter 19-22
Manufacturing CostsManufacturing CostsManufacturing CostsManufacturing Costs
Materials
SO 3 Define the three classes of manufacturing SO 3 Define the three classes of manufacturing costs.costs.
Raw MaterialsBasic materials used in manufacturing
Direct Materials Raw materials that can be physically and directly associated with the finished
product
Chapter 19-23
Manufacturing CostsManufacturing CostsManufacturing CostsManufacturing Costs
Materials
SO 3 Define the three classes of manufacturing SO 3 Define the three classes of manufacturing costs.costs.
Indirect Materials
Raw materials that cannot be easily associated with the finished product
Not physically part of the finished product or they are an insignificant part of finished product in terms of cost
Considered part of manufacturing overhead
Chapter 19-24
Manufacturing CostsManufacturing CostsManufacturing CostsManufacturing Costs
Labor
SO 3 Define the three classes of manufacturing SO 3 Define the three classes of manufacturing costs.costs.
Direct LaborWork of factory employees that can be
physically and directly associated with converting raw materials into finished goods
Indirect Labor Work of factory employees that has no
physical association with the finished product or for which it is impractical to trace to the goods produced
Chapter 19-25
Manufacturing CostsManufacturing CostsManufacturing CostsManufacturing Costs
SO 3 Define the three classes of manufacturing SO 3 Define the three classes of manufacturing costs.costs.
Manufacturing Overhead
Costs that are indirectly associated with manufacturing the product
Includes all manufacturing costs except direct materials and direct labor
Chapter 19-26
Which of the following is Which of the following is notnot an element an element of manufacturing overhead?:of manufacturing overhead?:
a.a. Sales manager’s salary.Sales manager’s salary.
b. Plant manager’s salary.
c. Factory repairman’s wages.
d. Product inspector’s salary.
Review QuestionReview Question
Manufacturing CostsManufacturing CostsManufacturing CostsManufacturing Costs
SO 3 Define the three classes of manufacturing SO 3 Define the three classes of manufacturing costs.costs.
Chapter 19-27
Product Versus Period CostsProduct Versus Period CostsProduct Versus Period CostsProduct Versus Period Costs
SO 4 Distinguish between product and period costs.SO 4 Distinguish between product and period costs.
Product Costs
Components: direct material cost, direct labor cost, and manufacturing overhead
A necessary and integral part of producing the product
Recorded as inventory when incurred
Not an expense until the finished goods inventory is sold, then record as cost of goods sold
Chapter 19-28
Product Versus Period CostsProduct Versus Period CostsProduct Versus Period CostsProduct Versus Period Costs
SO 4 Distinguish between product and period costs.SO 4 Distinguish between product and period costs.
Period Costs
Matched with revenue of a specific time period and charged to expense as incurred
Non-manufacturing costs
Deducted from revenues in period incurred to determine net income
Includes all selling and administrative expenses
Chapter 19-29
Product Versus Period CostsProduct Versus Period CostsProduct Versus Period CostsProduct Versus Period Costs
SO 4 Distinguish between product costs and SO 4 Distinguish between product costs and
period costsperiod costs..
Illustration 19-3
Chapter 19-30
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatementsManufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
SO 5 Explain the difference between a SO 5 Explain the difference between a merchandising and a manufacturing income merchandising and a manufacturing income
statement.statement.
Income Statement
The income statement for a manufacturer is similar to that of a merchandiser except
for the cost of goods sold section.
Chapter 19-31
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatementsManufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Cost of Goods Sold ComponentsMerchandiser versus Manufacturer
SO 5 Explain the difference between a SO 5 Explain the difference between a merchandising and a manufacturing income merchandising and a manufacturing income
statement.statement.
Illustration 19-4
Chapter 19-32
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatementsManufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Cost of Goods Sold Section of the Income Statement
SO 5 Explain the difference between a SO 5 Explain the difference between a merchandising and a manufacturing income merchandising and a manufacturing income
statementstatement..
Illustration 19-5
Chapter 19-33
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatementsManufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Determining the Cost of Goods Manufactured
SO 6 Indicate how cost of goods manufactured is determinedSO 6 Indicate how cost of goods manufactured is determined ..
Work in Process – partially completed units of product
Total Manufacturing Costs – sum of direct material costs, direct labor costs, and manufacturing overhead; all incurred in the current period
Illustration 19-6
Chapter 19-34
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatementsManufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
SO 6 Indicate how cost of goods manufactured is determinedSO 6 Indicate how cost of goods manufactured is determined ..
Illustration 19-7
Chapter 19-35
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatementsManufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Balance Sheet - Inventories
SO 7 Explain the difference between a merchandising and a SO 7 Explain the difference between a merchandising and a manufacturing balance sheet.manufacturing balance sheet.
Merchandising Company
One category of inventory:Merchandise Inventory
Manufacturing CompanyMay have three inventories:
Raw Materials Work in Process Finished Goods
Illustration 19-8
Chapter 19-36
Balance Sheet - Inventories
SO 7 Explain the difference between a merchandising and a SO 7 Explain the difference between a merchandising and a manufacturing balance sheetmanufacturing balance sheet
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatementsManufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Illustration 19-9
Chapter 19-37
Direct Materials are a:Direct Materials are a:
Product Manufacturing PeriodProduct Manufacturing Period CostCost Overhead Overhead Cost Cost
a.a. Yes Yes No Yes Yes No
b. Yes No No
c. Yes Yes Yes
d. No No No
Review QuestionReview Question
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatementsManufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Chapter 19-38
Managerial Accounting TodayManagerial Accounting TodayManagerial Accounting TodayManagerial Accounting Today
SO 8 Identify trends in management accounting.SO 8 Identify trends in management accounting.
Service Industry Trends
U.S. economy has shifted toward an emphasis on providing services rather than goods
Over 50% of U.S. workers are now employed by service companies
Trend is expected to continue in the future
Most of the techniques learned for manufacturing firms are applicable to service companies
Chapter 19-39 SO 8 Identify trends in management accounting.SO 8 Identify trends in management accounting.
Managerial Accounting Practices
Value Chain
Refers to all activities associated with providing a product or service
For a manufacturing firm these include the following:
Managerial Accounting TodayManagerial Accounting TodayManagerial Accounting TodayManagerial Accounting Today
Illustration 19-12
Chapter 19-40 SO 8 Identify trends in management accounting.SO 8 Identify trends in management accounting.
Managerial Accounting Practices
Just-In-Time (JIT) Inventory Methods
Inventory system in which goods are manufactured or purchased just in time for use
Quality
Increased emphasis on product quality because goods are produced only as needed
Total Quality Management (TQM) - a philosophy of zero defects -
Managerial Accounting TodayManagerial Accounting TodayManagerial Accounting TodayManagerial Accounting Today
Chapter 19-41
Managerial Accounting TodayManagerial Accounting TodayManagerial Accounting TodayManagerial Accounting Today
SO 8 Identify trends in management accounting.SO 8 Identify trends in management accounting.
Managerial Accounting Practices
Activity-Based-Costing (ABC)
Allocates overhead based on use of activities
Results in more accurate product costing and scrutiny of all activities in the
value chain
Balanced Scorecard
Evaluates operations in an integrated fashion
Uses both financial and non-financial measures
Links performance measures to overall company objectives
Chapter 19-42
Which of the following managerial accounting techniques attempts to allocate manufacturing overhead in a more meaningful manner?
a. Just-in-time inventory.
b. Total-quality management.
c. Balanced scorecard.
d. Activity-based costing.
Review QuestionReview Question
SO 8 Identify trends in management SO 8 Identify trends in management accounting.accounting.
Managerial Accounting TodayManagerial Accounting TodayManagerial Accounting TodayManagerial Accounting Today
Chapter 19-43
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