copyright © 2006, the mcgraw-hill companies, inc.mcgraw-hill/irwin managerial accounting and the...

Copyright © 2006, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin

Managerial Accounting and the Business Environment

Chapter One


Work of Management

PlanningPlanning

ControllingControlling

Directing and Motivating



Planning

Identifyalternatives.

Identifyalternatives.

Select alternative that does the best job of furtheringorganization’s objectives.

Select alternative that does the best job of furtheringorganization’s objectives.

Develop budgets to guideprogress toward theselected alternative.

Develop budgets to guideprogress toward theselected alternative.



Directing and motivating involves managing day-to-day activities to keep the organization running smoothly. Employee work assignments. Routine problem solving. Conflict resolution. Effective communications.


Controlling

The control function ensuresthat plans are being followed. The control function ensuresthat plans are being followed.

Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.

Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.


Planning and Control Cycle

DecisionMaking

Formulating long-and short-term plans

(Planning)

Formulating long-and short-term plans

(Planning)

Measuringperformance (Controlling)

Measuringperformance (Controlling)

Implementing plans (Directing and Motivating)

Implementing plans (Directing and Motivating)

Comparing actualto planned

performance (Controlling)

Comparing actualto planned

performance (Controlling)

Begin

Exh.1-1


Comparison of Financial and Managerial Accounting

Exh.1-2


Costs Terms, Concepts and Classifications

Chapter Two


AN OVERVIEW OF COST TERMS

Purpose of classification

Cost classifications

Preparing an income statement and balance sheet

• Product costs • Direct materials • Direct labor • Manufacturing overhead

• Period costs (non manufacturing costs) • Marketing and selling costs • Administrative costs

Predicting changes in cost due to changes in activity

• Variable costs • Fixed costs

Assigning costs • Direct costs • Indirect costs

Making decisions • Differential costs • Sunk costs • Opportunity costs


COST CLASSIFICATIONS IN MANUFACTURING COMPANIES


Product Costs Versus Period Costs

Product costs include direct materials, direct

labor, and manufacturing overhead.

Period costs include all marketing or selling

costs and administrative costs.

Inventory Cost of Good Sold

BalanceSheet

IncomeStatement

Sale

Expense

IncomeStatement


Balance Sheet

Merchandiser Current assets

CashReceivablesPrepaid ExpensesMerchandise

Inventory

Manufacturer Current Assets

Cash Receivables Prepaid Expenses Inventories

Raw Materials

Work in Process

Finished Goods

Partially complete products – some material, labor, or

overhead has been added.

Completed products awaiting sale.

Materials waiting to be processed.


The Income Statement

Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.

Merchandising Company

Cost of goods sold: Beg. merchandise inventory 14,200$ + Purchases 234,150 Goods available for sale 248,350$ - Ending merchandise inventory (12,100) = Cost of goods sold 236,250$


Schedule of Cost of Goods Manufactured

Calculates the cost of raw material, direct labor and

manufacturing overhead used in production.

Calculates the manufacturing costs associated with goods that were finished during the

period.


Manufacturing WorkRaw Materials Costs In Process

Beginning raw Direct materials materials inventory

+ Raw materials purchased

= Raw materials

available for use in production

– Ending raw materials inventory

= Raw materials used

in production

As items are removed from raw materials inventory and placed into

the production process, they arecalled direct materials.

As items are removed from raw materials inventory and placed into

the production process, they arecalled direct materials.

Product Cost Flows



Beginning raw Direct materials materials inventory + Direct labor

+ Raw materials + Mfg. overhead purchased = Total manufacturing

= Raw materials costs

available for use in production



in production

Conversion costs are costs

incurred to convert the

direct material into a finished

product.

Conversion costs are costs

incurred to convert the

direct material into a finished

product.

Product Cost Flows



Beginning raw Direct materials Beginning work in materials inventory + Direct labor process inventory

+ Raw materials + Mfg. overhead + Total manufacturing purchased = Total manufacturing costs

= Raw materials costs = Total work in

available for use process for the in production period



in production

Product Cost Flows

All manufacturing costs incurred during the period are added to the

beginning balance of work in process.

All manufacturing costs incurred during the period are added to the

beginning balance of work in process.



Beginning raw Direct materials Beginning work in materials inventory + Direct labor process inventory

+ Raw materials + Mfg. overhead + Total manufacturing purchased = Total manufacturing costs

= Raw materials costs = Total work in

available for use process for the in production period

– Ending work in process inventory

= Cost of goods

manufactured

Product Cost Flows

Costs associated with the goods that are completed during the period are

transferred to finished goods inventory.

Costs associated with the goods that are completed during the period are

transferred to finished goods inventory.


Product Cost Flows


Manufacturing Cost Flows

FinishedGoods

Cost of GoodsSold

Selling andAdministrative

Period CostsSelling andAdministrative

ManufacturingOverhead

Work in Process

Direct Labor

Balance Sheet Costs Inventories

Income StatementExpenses

Material Purchases Raw Materials


Cost Classifications for Predicting Cost Behavior

How a cost will react to changes in the level of

activity within the relevant range.

Total variable costs change when activity changes.

Total fixed costs remain unchanged when activity changes.

How a cost will react to changes in the level of

activity within the relevant range.

Total variable costs change when activity changes.

Total fixed costs remain unchanged when activity changes.


Variable Cost

Minutes Talked

Tot

al L

ong

Dis

tanc

eT

elep

hone

Bill

Minutes Talked

Per

Min

ute

Tel

epho

ne C

harg

e

TOTAL PER UNIT


Fixed Cost

Number of units sold

Mon

thly

Ren

t E

xpen

se

Number of Local Calls

Mon

thly

Ren

t Exp

ense

per

U

nits

sol

d

TOTAL PER UNIT


Assigning Costs to Cost Objects

Direct costs• Costs that can be

easily and conveniently traced to a unit of product or other cost object.

• Examples: direct material and direct labor

Indirect costs• Costs that cannot be easily

and conveniently traced to a unit of product or other cost object.

• Example: manufacturing overhead

copyright © 2006, the mcgraw-hill companies, inc.mcgraw-hill/irwin managerial accounting and the...

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