Chapter 1-1 Managerial Accounting Basics Compare managerial and financial accounting, Management functions, Organizational structure, and Business ethics Managerial Cost Concepts Manufacturing costs Product vs. period costs Manufacturing Costs in Financial Statements Income Statement and Balance Sheet Cost concepts – A review Managerial Accounting Today Service industry trends Managerial accounting practices Preview of Chapter Preview of Chapter
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Chapter 1-1
Managerial Accounting BasicsCompare managerial and financial
accounting,
Management functions, Organizational structure,
and Business ethics
Managerial Cost ConceptsManufacturing costs
Product vs. period costs
Manufacturing Costs in Financial StatementsIncome Statement and Balance Sheet
Cost concepts – A review
Managerial Accounting TodayService industry trends
Managerial accounting practices
Preview of ChapterPreview of ChapterPreview of ChapterPreview of Chapter
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
LO 2 Identify the 3 broad functions of management.LO 2 Identify the 3 broad functions of management.
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 fraudIntentional misstatement of financial
reports Aka financial reporting fraud is most
costly
Good Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good Business
Chapter 1-13
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 BusinessGood Ethics – Good BusinessGood Ethics – Good BusinessGood Ethics – Good Business
Chapter 1-14
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
Chapter 1-15
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.
LO 3 Define the three classes of manufacturing LO 3 Define the three classes of manufacturing costs.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 products can present problems
Also called factory overhead, indirect manufacturing costs, or burden
Chapter 1-21
Product Versus Period CostsProduct Versus Period CostsProduct Versus Period CostsProduct Versus Period Costs
LO 4 Distinguish between product and 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
Chapter 1-22
Product Versus Period CostsProduct Versus Period CostsProduct Versus Period CostsProduct Versus Period Costs
LO 4 Distinguish between product and 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
Chapter 1-23
Product Versus Period CostsProduct Versus Period CostsProduct Versus Period CostsProduct Versus Period Costs
LO 4 Distinguish between product costs and LO 4 Distinguish between product costs and
period costsperiod costs..
Chapter 1-24
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
LO 5 Explain the difference between a LO 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 1-25
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Cost of Goods Sold ComponentsMerchandiser versus Manufacturer
LO 5 Explain the difference between a LO 5 Explain the difference between a merchandising and a manufacturing income merchandising and a manufacturing income
statement.statement.
Chapter 1-26
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Cost of Goods Sold Section of the Income Statement
LO 5 Explain the difference between a LO 5 Explain the difference between a merchandising and a manufacturing income merchandising and a manufacturing income
statementstatement..
Chapter 1-27
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Determining the Cost of Goods Manufactured
LO 6 Indicate how cost of goods manufactured is determinedLO 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
Chapter 1-28
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
LO 6 Indicate how cost of goods manufactured is determinedLO 6 Indicate how cost of goods manufactured is determined ..
Chapter 1-29
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Balance Sheet - Inventories
LO 7 Explain the difference between a merchandising and a LO 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
Chapter 1-30
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Manufacturing Costs in Financial Manufacturing Costs in Financial StatementsStatements
Balance Sheet - Inventories
LO 7 Explain the difference between a merchandising and a LO 7 Explain the difference between a merchandising and a manufacturing balance sheetmanufacturing balance sheet
LO 8 Identify trends in management accounting.LO 8 Identify trends in management accounting.
Managerial Accounting Practices
Theory of Constraints
Constraints (“bottlenecks” ) limit the company’s 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
Chapter 1-35
All About YouAll About YouAll About YouAll 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.
Chapter 1-36
All About YouAll About YouAll About YouAll 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.?