Chapter 1Chapter 1

Managerial AccountingManagerial Accounting

Concepts and PrinciplesConcepts and Principles

Financial AccountingFinancial Accounting ExternalExternal

ShareholdersShareholders CreditorsCreditors Government AgenciesGovernment Agencies General PublicGeneral Public

GAAPGAAP Direct current operationsDirect current operations Plan future operationsPlan future operations Evaluate past activitiesEvaluate past activities

Managerial AccountingManagerial Accounting

Meets the specific needs of a company’s Meets the specific needs of a company’s managementmanagement

Historical data (objective)Historical data (objective) Estimated data (subjective)Estimated data (subjective) Prepared as needed for management Prepared as needed for management

needsneeds

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Financial Accounting and Managerial Accounting

1-1

Management ProcessManagement Process

Planning (strategic/operational)Planning (strategic/operational) DirectingDirecting ControllingControlling ImprovingImproving Decision MakingDecision Making

Operations of a BusinessOperations of a Business

ServiceService MerchandisingMerchandising ManufacturingManufacturing

CostsCosts

Cost objectCost object Direct vs Indirect CostDirect vs Indirect Cost

Direct Materials Cost (D)Direct Materials Cost (D) Direct Labor Cost (D)Direct Labor Cost (D) Factory Overhead Cost (I)Factory Overhead Cost (I)

Prime Cost/Conversion CostPrime Cost/Conversion Cost Product/Period Costs Product/Period Costs

Example Exercise 1-2

Identify the following costs as (a) direct materials, (b) direct labor, or (c) factory overhead for a baseball glove manufacturer.

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27

1. _______________ Leather used to make a baseball glove

2. _______________ Coolants for machines that sew baseball gloves

3. _______________ Wages of assembly line employees4. _______________ Ink used to print a player’s

autograph on the baseball glove

Identify the following costs as (a) direct materials, (b) direct labor, or (c) factory overhead for a baseball glove manufacturer.ss

1-2

28

1. _______________ Leather used to make a baseball glove

2. _______________ Coolants for machines that sew baseball gloves

3. _______________ Wages of assembly line employees4. _______________ Ink used to print a player’s

autograph on the baseball glove

Follow My Example 1-2

For Practice: PE 1-2A, PE 1-2B

(a) Direct materials

(c) Factory overhead

(b) Direct labor

(c) Factory overhead

Left click mouse for answers.

Example Exercise 1-4

Identify the following costs as a (a) product cost, or (b) period cost for a baseball glove manufacturer.

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39

1. _______________ Leather used to make a baseball glove

2. _______________ Cost of endorsement from a professional baseball player

3. _______________ Office supplies used at the company

headquarters4. _______________ Ink used to print a player’s

autograph on the baseball glove

For Practice: PE 1-5A, PE 1-5B

40

Follow My Example 1-4

1-2

Identify the following costs as a (a) product cost, or (b) period cost for a baseball glove manufacturer.

(a) Product cost

(b) Period cost

(b) Period cost

(a) Product cost

1. _______________ Leather used to make a baseball glove

2. _______________ Cost of endorsement from a professional baseball player

3. _______________ Office supplies used at the company

headquarters4. _______________ Ink used to print a player’s

autograph on the baseball gloveLeft click the mouse to reveal answers.

Financial Statements Financial Statements (Manufacturing (Manufacturing Company)Company)

Balance SheetBalance Sheet Materials (Raw) InventoryMaterials (Raw) Inventory Work in Process (WIP) InventoryWork in Process (WIP) Inventory Finished Goods InventoryFinished Goods Inventory

Income StatementIncome Statement Cost of Goods ManufacturedCost of Goods Manufactured

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Flow of Manufacturing Costs 1-3

47

Determining the Cost of Goods Manufactured

Materials inventory, December 1, 2008 $ 65,000Add: materials purchased during December 100,000Cost of materials available for use $165,000Less: materials inventory, Dec. 31, 2008 35,000

Cost of materials placed in production $130,000 to total manu-

facturing cost

STEP 1:

1-3

48

Determining the Cost of Goods Manufactured

Cost of materials placed in production $130,000

from Step 1

STEP 2:

1-3

Determining the Cost of Goods Manufactured

Cost of materials placed in production $130,000Direct labor 110,000

to cost of goods manufactured section

Factory overhead 44,000Total manufacturing costs added $284,000

STEP 2:

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1-3

50

Determining the Cost of Goods Manufactured

Work in process inventory, Dec. 1, 2008 $ 30,000Add: total manufacturing costs added 284,000

from Step 2

STEP 3:

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51

Determining the Cost of Goods Manufactured

Work in process inventory, Dec. 1, 2008 $ 30,000Add: total manufacturing costs added 284,000Total manufacturing costs $314,000Less: work in process inventory 24,000Cost of goods manufactured $290,000

STEP 3:

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Manufacturing Company—Income Statement with

Statement of Cost of Goods Manufactured (cont’d)

to income statement

1-3

Manufacturing Company—Income Statement with

Statement of Cost of Goods Manufactured

from statement of cost of goods manufactured

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1-3