ch 1 slide deck
TRANSCRIPT
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Work of Management
Planning
Planning
Controlling
Controlling
Directing andMotivating
Directing andMotivating
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Planning
Identifyalternatives.
Identifyalternatives.
Select alternative that doesthe best job of furtheringorganization’s objectives.
Select alternative that doesthe best job of furtheringorganization’s objectives.
Develop budgets to guideprogress toward the
selected alternative.
Develop budgets to guideprogress toward the
selected alternative.
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Directing and MotivatingDirecting and motivating involves managing day-
to-day activities to keep the organization runningsmoothly.
▫ Employee work assignments.
▫
Routine problem solving.▫ Conflict resolution.
▫ Effective communications.
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ControllingThe control function ensures
that plans are being followed.
The control function ensures
that plans are being followed.
Feedback in the form of performance reports
that compare actual results with the budgetare an essential part of the control function.
Feedback in the form of performance reports
that compare actual results with the budgetare an essential part of the control function.
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Planning and Control Cycle
DecisionMaking
Formulating long-
and short-termplans (Planning)
Formulating long-and short-term
plans (Planning)
Measuringperformance(Controlling)
Measuringperformance
(Controlling)
Implementingplans (Directingand Motivating)
Implementingplans (Directingand Motivating)
Comparing actualto plannedperformance(Controlling)
Comparing actualto planned
performance(Controlling)
Begin
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Learning Objective 1
Identify the major differences
and similarities betweenfinancial and managerialaccounting.
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Comparison of Financial and Managerial
AccountingFinancial Accounting Managerial Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization
2. Time focus Historical perspective Future emphasis
3. Verifiability Emphasis on Emphasis on relevance
versus relevance verifiability for planning and control
4. Precision versus Emphasis on Emphasis on
timeliness precision timeliness
5. Subject Primary focus is on Focuses on segmentsthe whole organization of an organization
6. GAAP Must follow GAAP Need not follow GAAP
and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory
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Learning Objective 2
Identify and give examples of
each of the three basicmanufacturing costcategories.
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The ProductThe Product
DirectMaterials
Direct
MaterialsDirectLabor
Direct
LaborManufacturing
Overhead
Manufacturing
Overhead
Manufacturing Costs
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Direct Materials
Raw materials that become an integralpart of the product and that can beconveniently traced directly to it.
Example: A radio installed in an automobileExample: A radio installed in an automobile
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Direct Labor
Those labor costs that can be easilytraced to individual units of
product.
Example: Wages paid to automobile assembly workersExample: Wages paid to automobile assembly workers
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Manufacturing Overhead
Manufacturing costs cannot be traceddirectly to specific units produced.
Examples: Indirect materials and indirect laborExamples: Indirect materials and indirect labor
Wages paid to employees
who are not directlyinvolved in productionwork.
Examples: Maintenance
workers, janitors andsecurity guards.
Materials used to support
the production process.
Examples: Lubricants andcleaning supplies used in
the automobile assemblyplant.
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Classifications of
Nonmanufacturing Costs
Selling Costs
Costs necessary to getthe order and deliverthe product.
AdministrativeCosts
All executive,organizational, andclerical costs.
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Learning Objective 3
Distinguish between
product costs and periodcosts and give examples
of each.
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Product Costs Versus Period Costs
Inventory
Cost ofGoods Sold
BalanceSheet
IncomeStatement
Sale
Product costs include
direct materials, directlabor, andmanufacturing
overhead.
Period costs are not
included in productcosts. They areexpensed on the
income statement.Expense
IncomeStatement
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Quick Check Which of the following costs would be
considered a period rather than a product costin a manufacturing company? (There may bemore than one correct answer.)
A. Manufacturing equipment depreciation.B. Property taxes on corporate headquarters.
C. Direct materials costs.
D. Electrical costs to light the productionfacility.
E. Sales commissions.
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Which of the following costs would be
considered a period rather than a product costin a manufacturing company? (There may bemore than one correct answer.)
A. Manufacturing equipment depreciation.B. Property taxes on corporate headquarters.
C. Direct materials costs.
D. Electrical costs to light the productionfacility.
E. Sales commissions.
Quick Check
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Prime Cost and Conversion Cost
Direct
Material
Direct
Material
Direct
Labor
Direct
Labor
Manufacturing
Overhead
Manufacturing
Overhead
PrimeCost
ConversionCost
Manufacturing costs are oftenclassified as follows:
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Comparing Merchandising and
Manufacturing Activities
Merchandisers . . .
▫ Purchase finishedgoods from suppliersfor resale to
customers.
Manufacturers . . .
▫ Purchases rawmaterials fromsuppliers.
▫ Produce and sellfinished goods tocustomers.
MegaLoMart
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Balance SheetMerchandiser
Current Assets Cash
Receivables
Prepaid Expenses
Merchandise Inventory
Manufacturer
Current Assets Cash
Receivables
Prepaid Expenses
Inventories:
1. Raw Materials
2. Work in Process
3. Finished Goods
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Merchandiser
Current Assets Cash
Receivables
Prepaid Expenses
Merchandise Inventory
Manufacturer
Current Assets Cash
Receivables
Prepaid Expenses
Inventories:
1. Raw Materials
2. Work in Process
3. Finished Goods
Balance Sheet
Partially complete
products – somematerial, labor, oroverhead has been
added.
Completed productsawaiting sale.
Materials waiting tobe processed.
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Learning Objective 4
Prepare an income
statement includingcalculation of the cost of
goods sold.
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Inventory Flows
Beginningbalance
Beginningbalance
Additionsto inventory
Additionsto inventory++ ==
Endingbalance
Endingbalance
Withdrawalsfrom
inventory
Withdrawalsfrom
inventory++
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Quick Check If your inventory balance at the beginning of
the month was $1,000, you bought $100during the month, and sold $300 during themonth, what would be the balance at the end
of the month?A. $1,000.
B. $ 800.
C. $1,200.D. $ 200.
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If your inventory balance at the beginning of
the month was $1,000, you bought $100during the month, and sold $300 during themonth, what would be the balance at the end
of the month?A. $1,000.
B. $ 800.
C. $1,200.D. $ 200.
Quick Check
$1,000 + $100 = $1,100$1,100 - $300 = $800
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Learning Objective 5
Prepare a schedule of costof goods manufactured.
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Schedule of Cost of Goods
Manufactured
Calculates the cost of rawmaterials, direct labor andmanufacturing overhead
used in production.
Calculates the manufacturingcosts associated with goodsthat were finished during the
period.
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Manufacturing Work
Raw Materials Costs In Process
Beginning raw
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 andplaced into the production
process, they are called directmaterials.
As items are removed from
raw materials inventory andplaced into the production
process, they are called direct
materials.
Schedule of Cost of Goods
Manufactured
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Manufacturing Work
Raw Materials Costs In Process
Beginning raw Direct materials
materials inventory + Direct labor
+ Raw materials + Mfg. overhead
purchased = Total manufacturing= Raw materials costs
available for use
in production
– Ending raw materials
inventory
= Raw materials used
in production
Conversion
costs are costsincurred toconvert the
direct materialsinto a finished
product.
Conversion
costs are costsincurred toconvert the
direct materialsinto a finishedproduct.
As items are removed from rawmaterials inventory and placed into
the production process, they arecalled direct materials.
As items are removed from rawmaterials inventory and placed into
the production process, they arecalled direct materials.
Schedule of Cost of Goods
Manufactured
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Manufacturing Work
Raw Materials Costs 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 raw materials – Ending work in
inventory process inventory
= Raw materials used = Cost of goods
in production manufactured.
All manufacturing costs incurredduring the period are added to the
beginning balance of work in
process.
All manufacturing costs incurredduring the period are added to the
beginning balance of work in
process.
Schedule of Cost of Goods
Manufactured
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Manufacturing Work
Raw Materials Costs 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 raw materials – Ending work in
inventory process inventory
= Raw materials used = Cost of goods
in production manufactured.
Costs associated with the goods thatare completed during the period are
transferred to finished goodsinventory.
Costs associated with the goods thatare completed during the period are
transferred to finished goods
inventory.
Schedule of Cost of Goods
Manufactured
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Work
In Process Finished Goods
Beginning work in Beginning finished
process inventory goods inventory
+ Manufacturing costs + Cost of goodsfor the period manufactured
= Total work in process = Cost of goods
for the period available for sale
– Ending work in - Ending finishedprocess inventory goods inventory
= Cost of goods Cost of goods
manufactured sold
Cost of Goods Sold
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Manufacturing Cost Flows
Selling andAdministrative
Period Costs
FinishedGoods
Cost of
GoodsSold
Selling andAdministrative
ManufacturingOverhead
Work in
Process
Direct Labor
Balance SheetCosts Inventories
IncomeStatement
ExpensesMaterial Purchases Raw Materials
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Quick Check Beginning raw materials inventory was
$32,000. During the month, $276,000 of rawmaterial was purchased. A count at the end ofthe month revealed that $28,000 of rawmaterial was still present. What is the cost ofdirect material used?
A. $276,000
B. $272,000C. $280,000
D. $ 2,000
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Beginning raw materials inventory was
$32,000. During the month, $276,000 of rawmaterial was purchased. A count at the end ofthe month revealed that $28,000 of rawmaterial was still present. What is the cost ofdirect material used?
A. $276,000
B. $272,000C. $280,000
D. $ 2,000
Quick Check
Beg. raw materials 32,000$+ Raw materials
purchased 276,000
= Raw materials available
for use in production 308,000$ – Ending raw materials
inventory 28,000
= Raw materials used
in production 280,000$
Beg. raw materials 32,000$+ Raw materials
purchased 276,000
= Raw materials available
for use in production 308,000$ – Ending raw materials
inventory 28,000
= Raw materials used
in production 280,000$
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Quick Check Direct materials used in production totaled
$280,000. Direct labor was $375,000 andfactory overhead was $180,000. What weretotal manufacturing costs incurred for the
month?A. $555,000
B. $835,000
C. $655,000
D. Cannot be determined.
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Direct materials used in production totaled
$280,000. Direct labor was $375,000 andfactory overhead was $180,000. What weretotal manufacturing costs incurred for the
month?A. $555,000
B. $835,000
C. $655,000
D. Cannot be determined.
Quick Check
Direct Materials 280,000$
+ Direct Labor 375,000 + Mfg. Overhead 180,000
= Mfg. Costs Incurredfor the Month 835,000$
Direct Materials 280,000$
+ Direct Labor 375,000
+ Mfg. Overhead 180,000
= Mfg. Costs Incurredfor the Month 835,000$
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Quick Check Beginning work in process was $125,000.
Manufacturing costs incurred for the monthwere $835,000. There were $200,000 ofpartially finished goods remaining in work in
process inventory at the end of the month.What was the cost of goods manufacturedduring the month?
A. $1,160,000B. $ 910,000C. $ 760,000D. Cannot be determined.
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Beginning work in process was $125,000.
Manufacturing costs incurred for the monthwere $835,000. There were $200,000 ofpartially finished goods remaining in work inprocess inventory at the end of the month.What was the cost of goods manufacturedduring the month?
A. $1,160,000B. $ 910,000C. $ 760,000D. Cannot be determined.
Quick Check
Beginning work in
process inventory 125,000$+ Mfg. costs incurredfor the period 835,000
= Total work in processduring the period 960,000$
– Ending work inprocess inventory 200,000
= Cost of goodsmanufactured 760,000$
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Quick Check
Beginning finished goods inventory was
$130,000. The cost of goods manufactured forthe month was $760,000. The ending finishedgoods inventory was $150,000. What was the
cost of goods sold for the month?A. $ 20,000.
B. $740,000.
C. $780,000.
D. $760,000.
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Beginning finished goods inventory was
$130,000. The cost of goods manufactured forthe month was $760,000. The ending finishedgoods inventory was $150,000. What was the
cost of goods sold for the month?A. $ 20,000.
B. $740,000.
C. $780,000.
D. $760,000.
Quick Check
$130,000 + $760,000 = $890,000
$890,000 - $150,000 = $740,000
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Learning Objective 6
Understand thedifferences between
variable costs and fixed
costs.
C t Cl ifi ti f P di ti g
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Cost Classifications for Predicting
Cost Behavior
How a cost will react tochanges in the level of
business activity.
Total variable costs changewhen activity changes.
Total fixed costs remainunchanged when activity
changes.
How a cost will react tochanges in the level of
business activity.
Total variable costs changewhen activity changes.
Total fixed costs remainunchanged when activitychanges.
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Variable CostYour total texting bill is based on how
many texts you send.
Number of Texts Sent
T o t a
l T e x t i n g
B i l l
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Variable Cost Per Unit
Number of Texts Sent
C o s t P
e r T e x t S
e n t
The cost per text sent is constant at
5 cents per text.
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Fixed CostYour monthly contract fee for your cell phone is fixed for
the number of monthly minutes in your contract. The
monthly contract fee does not change based on thenumber of calls you make.
Number of Minutes UsedWithin Monthly Plan
M o n t h l y
C e l l P h o n
e
C o n t r a c t F e e
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Fixed Cost Per Unit
Number of Minutes UsedWithin Monthly Plan
M o n t h l y C e l l P h o
n e
C o n
t r a c t F e e
Within the monthly contract allotment, the averagefixed cost per cell phone call made decreases as
more calls are made.
Cost Classifications for Predicting
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Cost Classifications for Predicting
Cost Behavior
Behavior of Cost (within the relevant range)
Cost In Total Per Unit
Variable Total variable cost changes Variable cost per unit remains
as activity level changes. the same over wide ranges
of activity.
Fixed Total fixed cost remains Average fixed cost per unit goes
the same even when the down as activity level goes up.
activity level changes.
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Quick Check
Which of the following costs would be variable
with respect to the number of cones sold at aBaskins & Robbins shop? (There may bemore than one correct answer.)
A. The cost of lighting the store.
B. The wages of the store manager.
C. The cost of ice cream.D. The cost of napkins for customers.
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Which of the following costs would be variable
with respect to the number of cones sold at aBaskins & Robbins shop? (There may bemore than one correct answer.)
A. The cost of lighting the store.
B. The wages of the store manager.
C. The cost of ice cream.D. The cost of napkins for customers.
Quick Check
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Learning Objective 7
Understand the
differences betweendirect and indirect costs.
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Assigning Costs to Cost ObjectsDirect costs
•
Costs that can beeasily and convenientlytraced to a unit ofproduct or other cost
object.
• Examples: Directmaterial and direct labor
Indirect costs
•
Costs that cannot beeasily and convenientlytraced to a unit ofproduct or other costobject.
• Example: Manufacturingoverhead
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Learning Objective 8
Understand costclassifications used in making
decisions: differential costs,opportunity costs, and sunk
costs.
Cost Classifications for Decision
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Cost Classifications for Decision
MakingEvery decision involves a choice
between at least two alternatives.
Only those costs andbenefits that differ
between alternatives
are relevant to thedecision. All other
costs and benefits canand should be ignored.
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Differential Costs and RevenuesCosts and revenues that differ
among alternatives.Example: You have a job paying $1,500 per month inyour hometown. You have a job offer in aneighboring city that pays $2,000 per month. Thecommuting cost to the city is $300 per month.
Example: You have a job paying $1,500 per month inyour hometown. You have a job offer in aneighboring city that pays $2,000 per month. Thecommuting cost to the city is $300 per month.
Differential revenue is:$2,000 – $1,500 = $500
Differential cost is:$300
Net Differential Benefit is:$200
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Opportunity CostsThe potential benefit that is given up
when one alternative is selectedover another.
Example: If you werenot attending college,you could be earning
$15,000 per year.Your opportunity costof attending college for
one year is $15,000.
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Sunk CostsCannot be changed by any decision. They
are not differential costs and should beignored when making decisions.
Example: You bought an automobile that cost$10,000 two years ago. The $10,000 cost is
sunk because whether you drive it, park it, tradeit, or sell it, you cannot change the $10,000 cost.
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Quick Check
Suppose you are trying to decide whether to
drive or take the train to Portland to attend aconcert. You have ample cash to do either, butyou don’t want to waste money needlessly. Is
the cost of the train ticket relevant in thisdecision? In other words, should the cost of thetrain ticket affect the decision of whether youdrive or take the train to Portland?
A. Yes, the cost of the train ticket is relevant.
B. No, the cost of the train ticket is not
relevant.
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Suppose you are trying to decide whether to
drive or take the train to Portland to attend aconcert. You have ample cash to do either, butyou don’t want to waste money needlessly. Is
the cost of the train ticket relevant in thisdecision? In other words, should the cost of thetrain ticket affect the decision of whether youdrive or take the train to Portland?
A. Yes, the cost of the train ticket is relevant.
B. No, the cost of the train ticket is not
relevant.
Quick Check
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Quick Check
Suppose you are trying to decide whether to
drive or take the train to Portland to attend aconcert. You have ample cash to do either,but you don’t want to waste money
needlessly. Is the annual cost of licensing yourcar relevant in this decision?
A. Yes, the licensing cost is relevant.B. No, the licensing cost is not relevant.
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Suppose you are trying to decide whether to
drive or take the train to Portland to attend aconcert. You have ample cash to do either,but you don’t want to waste money
needlessly. Is the annual cost of licensing yourcar relevant in this decision?
A. Yes, the licensing cost is relevant.B. No, the licensing cost is not relevant.
Quick Check
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Quick Check
Suppose that your car could be sold now for
$5,000. Is this a sunk cost?A. Yes, it is a sunk cost.
B. No, it is not a sunk cost.
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Suppose that your car could be sold now for
$5,000. Is this a sunk cost?A. Yes, it is a sunk cost.
B. No, it is not a sunk cost.
Quick Check
Summary of the Types of Cost
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y yp
Classifications
Financial
Reporting
Predicting
Cost Behavior
Assigning
Costs to CostObjects
Decision
Making
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End of Chapter 1