Chapter 1-1. Chapter 1-2 CHAPTER 1 MANAGERIAL ACCOUNTING MANAGERIAL ACCOUNTING Managerial Accounting, Fourth Edition.
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Chapter 1-1 Slide 2 Chapter 1-2 CHAPTER 1 MANAGERIAL ACCOUNTING MANAGERIAL ACCOUNTING Managerial Accounting, Fourth Edition Slide 3 Chapter 1-3 Managerial Accounting Basics A field of accounting that provides economic and financial information for managers and other internal users. Also called Management Accounting Definition of Managerial Accounting Slide 4 Chapter 1-4 Comparing Managerial and Financial Accounting Both managerial and financial accounting deal with economic events of a business Thus, interests overlap Both require that economic events be quantified and communicated to interested parties Determining unit cost is part of managerial accounting, Reporting cost of goods manufactured is a part of financial accounting Similarities LO 1 Explain the distinguishing features of managerial accounting. Slide 5 Chapter 1-5 Comparing Managerial and Financial Accounting Differences LO 1 Explain the distinguishing features of managerial accounting. Slide 6 Chapter 1-6 Managerial Accounting Basics Managements activities and responsibilities can be classified into the following three broad functions: Managements activities and responsibilities can be classified into the following three broad functions:Planning Directing Directing Controlling Controlling Management Functions LO 2 Identify the 3 broad functions of management. Slide 7 Chapter 1-7 Business Ethics All employees are expected to act ethically An increasing number of organizations have codes of business ethics Despite organizational efforts: Business scandals have 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 is most costly Good Ethics Good Business Slide 8 Chapter 1-8 Creating Proper Incentives Companies like Motorola, IBM, and Nike expend substantial resources to monitor and evaluate the actions of employees & managers. Monitoring can have the negative result of producing incentives for unethical actions. Employees may feel that they must succeed no matter what. Ineffective and unrealistic controls may also result in declining product quality. Good Ethics Good Business Slide 9 Chapter 1-9 Sarbanes-Oxley Act of 2002 Clarifies managements 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 Business Code of Ethical Standards Slide 10 Chapter 1-10 Manufacturing Costs Manufacturing consists of activities and processes to convert raw materials into finished goods. In contrast, a merchandising firm sells goods in the form in which they were purchased. Manufacturing costs are typically classified as: Managerial Cost Concepts LO 3 Define the three classes of manufacturing costs. Slide 11 Chapter 1-11 Manufacturing Costs Materials LO 3 Define the three classes of manufacturing costs. Raw Materials Basic materials and parts used in manufacturing process Direct Materials Raw materials that can be physically and directly associated with the finished productduring the manufacturing process Materials Slide 12 Chapter 1-12 Manufacturing Costs Materials LO 3 Define the three classes of manufacturing 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 Slide 13 Chapter 1-13 Manufacturing Costs Labor LO 3 Define the three classes of manufacturing costs. 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 costs to the goods produced Slide 14 Chapter 1-14 Manufacturing Costs LO 3 Define the three classes of manufacturing costs. Manufacturing Overhead Costs that are indirectly associated with manufacturing the finished product Includes all manufacturing costs except direct materials and direct labor Allocation of overhead to productscan present problems Also called factory overhead, indirect manufacturing costs, or burden Slide 15 Chapter 1-15 Which of the following is not an element of manufacturing overhead?: a.Sales managers salary. b. Plant managers salary. c. Factory repairmans wages. d. Product inspectors salary. Review Question Manufacturing Costs LO 3 Define the three classes of manufacturing costs. Slide 16 Chapter 1-16 Product Versus Period Costs LO 4 Distinguish between product and period costs. Product Costs Components: direct material cost, direct labor cost, and manufacturing overhead Costs that are a necessary and integral part of producing the product Recorded as inventory when incurred, thus may be called inventoriable costs Not an expense until the finished goods inventory is sold then cost of goods sold Slide 17 Chapter 1-17 Product Versus Period Costs LO 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 Slide 18 Chapter 1-18 Product Versus Period Costs LO 4 Distinguish between product costs and period costs. Slide 19 Chapter 1-19 Manufacturing Costs in Financial Statements LO 5 Explain the difference between a merchandising and a manufacturing income statement. Income Statement The income statement for a manufacturer is similar to that of a merchandiser except for the cost of goods sold section. Slide 20 Chapter 1-20 Manufacturing Costs in Financial Statements Cost of Goods Sold Components Merchandiser versus Manufacturer LO 5 Explain the difference between a merchandising and a manufacturing income statement. Slide 21 Chapter 1-21 Manufacturing Costs in Financial Statements Cost of Goods Sold Section of the Income Statement LO 5 Explain the difference between a merchandising and a manufacturing income statement. Slide 22 Chapter 1-22 Manufacturing Costs in Financial Statements LO 6 Indicate how cost of goods manufactured is determined. Slide 23 Chapter 1-23 Manufacturing Costs in Financial Statements Balance Sheet - Inventories LO 7 Explain the difference between a merchandising and a manufacturing balance sheet. Merchandising Company One category of inventory: Merchandise Inventory Manufacturing Company May have three inventories: Raw Materials Work in Process Finished Goods Slide 24 Chapter 1-24 Manufacturing Costs in Financial Statements Balance Sheet - Inventories LO 7 Explain the difference between a merchandising and a manufacturing balance sheet Slide 25 Chapter 1-25 Managerial Accounting Today LO 8 Identify trends in management accounting. Service Industry Trends U.S. economy, in general, 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 Slide 26 Chapter 1-26 Managerial Accounting Today LO 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: Slide 27 Chapter 1-27 Managerial Accounting Today LO 8 Identify trends in management accounting. Managerial Accounting Practices Technological Change Enterprise Resource Planning (ERP) software programs designed to manage all major business processes Computer-Integrated Manufacturing (CIM) manufacturing products with increased automation Just-In-Time (JIT) Inventory Methods Inventory system in which goods are manufactured or purchased just in time for use Slide 28 Chapter 1-28 Managerial Accounting Today LO 8 Identify trends in management accounting. Managerial Accounting Practices Quality Increased emphasis on product quality because goods are produced only as needed Total Quality Management (TQM) - a philosophy of zero defects 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 Slide 29 Chapter 1-29 Managerial Accounting Today LO 8 Identify trends in management accounting. Managerial Accounting Practices Theory of Constraints Constraints (bottlenecks ) limit the companys potential profitability A specific approach to identify and manage these constraints in order to achieve company goals Balanced Scorecard Evaluates operations in an integrated fashion Uses both financial and non-financial measures Links performance measures to overall company objectives Slide 30 Chapter 1-30 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 Question Managerial Accounting Today LO 8 Identify trends in management accounting. Slide 31 Chapter 1-31 All About You Outsourcing and Jobs To reduce costs and remain competitive many companies are turning to outsourcing Outsourcing means hiring an outside supplier to provide elements of a product rather than producing them internally While outsourcing can be to another provider within the U.S., many professional services as well as manufacturing jobs have become candidates for outsourcing to foreign providers By 2015, it has been predicted that 3.3 million service jobs will have been outsourced offshore. Slide 32 Chapter 1-32 All About You Outsourcing and Jobs What do you think? Do you think outsourcing really reduces costs? If costs are reduced, do you think that it justifies the loss of jobs to U.S. workers? What would you say to your employees whose jobs have been outsourced? Do you think that outsourced professional services performed in a foreign country or parts manufactured offshore will have the same quality and standards as those performed/manufactured in the U.S.? Slide 33 Chapter 1-33 Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials, direct labor, or manufacturing overhead. Chapter Review - Brief Exercise 1-5 ______ a. Windshield ______ b. Engine ______ c. Wages of assembly line worker ______ d. Depreciation of factory machinery ______ e. Factory machinery lubricants ______ f. Tires ______ g. Steering wheel ______ h. Salary of painting supervisor DM DL MO DM MO Slide 34 Chapter 1-34 Identify whether each of the following costs should be classified as product costs or period costs. Chapter Review - Brief Exercise 1-6 ____________ a. Manufacturing overhead ____________ b. Selling expenses ____________ c. Administrative expenses ____________ d. Advertising expense ____________ e. Direct labor ____________ f. Direct material Product Period Product Slide 35 Chapter 1-35 Copyright 2008 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein. CopyrightCopyright