accounting principles 8th edition - kuais · 19-4 managerial accounting, a field of accounting that...

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CHAPTER19Managerial

Accounting

Acct202

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PreviewofCHAPTER19

19-3

Managerial accounting, a field of accounting that provides

economic and financial information for managers and other

internal users. Activities include:

Managerial Accounting Basics

1. Explaining manufacturing and nonmanufacturing costs

(Chapter 19).

2. Computing cost of providing a service or manufacturing a

product (Chapters 20 and 21).

3. Determining the behavior of costs and expenses as activity

levels change and analyzing cost–volume–profit relationships

within a company (Chapter 22).

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Managerial accounting, a field of accounting that provides

economic and financial information for managers and other

internal users. Activities include:


4. Assisting management in profit planning and formalizing

these plans in the form of budgets

5. Providing a basis for controlling costs and expenses by

comparing actual results with planned objectives and

standard costs

6. Accumulating and presenting data for management decision

making

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Comparing Managerial and Financial

AccountingIllustration 19-1

SO 1 Explain the distinguishing features of managerial accounting.

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Managerial accounting:

a. Pertains to the entity as a whole and is highly

aggregated.

b. Places emphasis on special-purpose information.

c. Is limited to cost data.

d. Is governed by generally accepted accounting

principles.

Question

SO 1 Explain the distinguishing features of managerial accounting.


19-7


SO 2 Identify the three broad functions of management.

Management Functions

Three broad functions:

1. Planning.

2. Directing.

3. Controlling.

Requires managers to look ahead and to

establish objectives.

maximizing short-term profits

and market share,

maintaining a commitment to

environmental protection, and

contributing to social programs.

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1. Planning.

2. Directing.

3. Controlling.

Involves coordinating diverse activities and

human resources to produce a smooth-

running operation. This function relates to

implementing planned objectives,

providing necessary incentives to

motivate employees,

selecting executives,

appointing managers and

supervisors, and

hiring and training employees.

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1. Planning.

2. Directing.

3. Controlling.

Process of keeping the company’s

activities on track.

Managers determine whether

planned goals are being met.

When there are deviations from

targeted objectives, managers must

decide what changes are needed to

get back on track.

19-10

The management of an organization performs several

broad functions. They are:

a. Planning, directing, and selling.

b. Directing, manufacturing, and controlling.

c. Planning, manufacturing, and controlling.

d. Planning, directing, and controlling.


Question


19-11


SO 2

Organizational

Structure

Illustration 19-2

19-12

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.

► Enron, Global; Crossing, WorldCom.

► Most costly to companies.

Business Ethics



19-13

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.


Business Ethics

Creating Proper Incentives


19-14

Sarbanes-Oxley Act of 2002

► Clarifies management’s responsibilities.

► Certifications by CEO and CFO.

► Selection criteria for Board of Directors and Audit

Committee.

► Substantially increased penalties for misconduct.

IMA Statement of Ethical Professional Practices


Business Ethics

Code of Ethical Standards


19-15 SO 3 Define the three classes of manufacturing costs.

Managerial Cost Concepts

Manufacturing Costs

Activities and processes that convert raw materials into

finished goods.

Illustration 19-3


Manufacturing Costs

Direct Materials

Raw materials purchased that will be converted into finished

product.

Direct materials can be physically and directly

associated with the finished product.

Indirect materials:

1. Do not become part of the finished product, or

2. Cannot be traced directly to the product.

3. Part of manufacturing overhead.


Manufacturing Costs

Direct Labor

Direct Labor - Work 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.


Manufacturing Costs

Manufacturing Overhead

Costs that are indirectly associated with manufacturing

the product.

Includes all manufacturing costs except direct materials

and direct labor.

19-19

Includes only indirect costs related to manufacturing

Does NOT include costs for selling, general, or administrative

functions

Examples:

Indirect materials

Become part of finished product, but cannot be conveniently or cost-

effectively traced

Indirect labor

Manufacturing wages not easily traced to products

Plant managers & maintenance

Other costs related to the manufacturing facility and plant assets

Repairs & maintenance

Utilities

Rent & insurance

Property taxes

Depreciation

Manufacturing Overhead

19-21

Which of the following is not an element of manufacturing

overhead?

a. Sales manager’s salary.

b. Plant manager’s salary.

c. Factory repairman’s wages.

d. Product inspector’s salary.

Manufacturing Costs

Question

SO 3 Define the three classes of manufacturing costs.

19-22 SO 4 Distinguish between product and period costs.

Product Costs

Components: direct material cost, direct labor cost,

and manufacturing overhead.

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.

Manufacturing Costs

Product versus Period Costs

19-23

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.

Manufacturing Costs


SO 4 Distinguish between product and period costs.

19-24


Illustration 19-4

SO 4 Distinguish between product and period costs.

19-25Slide 25


Product costs include (in the case of manufactured goods) direct materials, direct labor,

and manufacturing overhead. Period costs include all selling and administrative costs.

Finished

Goods

Inventory

Cost of

Goods

Sold

Manufacturing

Overhead

Work in

Process

InventoryDirect Labor

Income

Statement Direct Materials

Manufacturing CostsBalance

Sheet

Period

Expenses

Selling and

Administrative

Nonmanufacturing Costs

Expensed During

Period Incurred

19-26

Example

19-27SO 5 Explain the difference between a merchandising

and a manufacturing income statement.

Manufacturing Costs

Income StatementIllustration 19-5


and a manufacturing income statement.

Manufacturing Costs

Income StatementIllustration 19-6

Cost of goods sold sections of

merchandising and manufacturing

income statements

19-29 SO 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 19-7

Manufacturing Costs

Cost of Goods Manufactured

19-30

Manufacturing Costs

SO 6

Illustration 19-8

Cost of goods

manufactured

schedule


and a manufacturing balance sheet.

Manufacturing Costs

Balance Sheet Illustration 19-9

Inventory accounts for

a manufacturer

19-32

Manufacturing Costs

Balance SheetIllustration 19-10

Current assets sections of

merchandising and

manufacturing balance sheets

SO 7 Explain the difference between a merchandising


19-33

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.

Manufacturing Costs

Product Costing for Service Industries

SO 7 Explain the difference between a merchandising


19-34 SO 8 Identify trends in management accounting.

All activities associated with providing a product or service.

Managerial Accounting Today

The Value Chain

Illustration 19-13

A manufacturer’s value chain


Enterprise Resource Planning (ERP) systems provide a

comprehensive, centralized, integrated source of information that

companies can use to manage all major business processes, from

purchasing to manufacturing to human resources.

Computer-Integrated Manufacturing (CIM) allows companies to

manufacture products that are untouched by human hands.

Business-to-Business (B2B) e-commerce on the Internet.


Technological Change


Goods are manufactured or purchased just in time for

use.


Just-In-Time Inventory Methods

JIT inventory system requires increased emphasis on

product quality.

Companies have installed total quality management

(TQM) systems to reduce defects in finished products.

Quality


Allocates overhead based on use of activities.

Results in more accurate product costing and scrutiny of

all activities in the value chain.


Activity-Based Costing

A specific approach used to identify and manage

constraints in order to achieve the company’s goals.

Theory of Constraints


Evaluates operations in an integrated fashion.

Uses both financial and non-financial measures.

Links performance measures to overall company

objectives.


Balanced Scorecard

19-39

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.

SO 8 Identify trends in management accounting.


Question

accounting principles 8th edition - kuais · 19-4 managerial accounting, a field of accounting that...

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