chap 1 concepts and principles

8/3/2019 Chap 1 Concepts and Principles

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ManagerialAccounting

Concepts andPrinciples

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1. Describe managerial accounting, and

the role of managerial accounting in a

business.

After studying this chapter, you shouldbe able to:

2. Define and illustrate the following

costs: direct and indirect, direct

materials, direct labor, factoryoverhead, and product and period

costs.


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3. Describe and illustrate the financial

statement elements and cost

relationships for a manufacturing

business.

After studying this chapter, you shouldbe able to:

4. Describe the various uses of

managerial accounting information.


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Describe managerialaccounting, and the

role of managerial

accounting in abusiness.

Objective 1

1-1


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The Difference Between Managerialand Financial Accounting

Financial accountinginformation is

reported in statements that are useful for

persons or institutions who are outsideor external to the organization.

Management also uses these financial

statements in directing current operationsand planning future operations.

1-1


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Managerial accounting

information is provided to meet

the specific needs of acompanys management, such as

historical data and subjective

estimates about future decisions.

1-1


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Financial Accounting Managerial Accounting

Shareholders

Creditors

Government Agencies

General Public Management

Management

Users of Accounting Information

Example of Users 1-1


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Financial Accounting and

Managerial Accounting

1-1


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Partial Organizational Chart

for Callaway Golf Company

9

1-1


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1-1


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Planning

Planning is used by

management to develop the

organizationsobjectives(goals) and to translate

these objectives into

courses of action.

1-1


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Strategic planning is

developing long-range courses

of action to achieve goals.

Long-range courses of action,calledstrategies, can often

involve periods ranging from

five to ten years.

1-1


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Directing is the process by

which managers, given theirassigned level of

responsibilities, run day-to-

day operations.

Directing 1-1


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Controlling,sometimes called

management by exception,

consists of monitoring theoperating results of

implemented plans and

comparing the actual results

with the expected results.

Controlling 1-1


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Comparing actual results with

expected results (feedback)

allows management to isolatesignificant departures from

plans for further investigation

and possible remedial action.

1-1


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Continuous process

improvement is the

philosophy of continuallyimproving employees,

business processes, and

products.

Improving 1-1


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Example Exercise 1-1

Three aspects of the management process are listed

below. Match each phase to the appropriate description.

1-1

17(continued)

Aspect ofmanagement process Description

___Planning a. Monitoring the operating

___Controlling results of implemented plans

___Continuous and comparing the actualImprovement results with expected results.


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Example Exercise 1-1 (continued)

1-1

Description

___Planning b. Rejects solving individual___Controlling problems with temporary

___Continuous solutions that fail to address

Improvement the root cause of the problem.

c. Used by management todevelop the organizations

objectives.18

Aspect of

management process


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For Practice: PE 1-1A, PE 1-1B19

Follow My Example 1-1

1-1

Aspect of management process

___Planning

___Controlling

___Continuous Improvement

c

a

b


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Define and illustrate the

following costs: direct and

indirect, direct materials, direct

labor, factory overhead, and

product and period costs.

Objective 2

1-2


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Direct and Indirect Costs

Costs are often classified in terms of how

they relate to some object or segment of

operations, called acost object. It maybe a product, a sales territory, a

department, or some activity. Costs are

identified with cost objects as either

direct costs or indirect costs.

1-2


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1-2


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Direct Materials Cost

The cost of any material

that is an integral part ofthe final product is

classified as adirect

materials cost.

1-2


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Direct Labor Cost

The wages of each

employee who is directly

involved in converting

materials into the final

product are classified as

direct labor cost.

1-2


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Factory Overhead Cost

Costs, other than direct materials

cost and direct labor costs, that are

incurred in the manufacturingprocess are combined and

classified asfactory overhead cost

(sometimes also called

manufacturing overheadorfactory burden).

1-2


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Examples of Factory Overhead Cost

Heating and lighting the factory

Repairing and maintaining

factory equipment

Property taxes

Insurance

Depreciation of factory plant and

equipment

1-2


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Identify the following costs as (a) direct materials, (b)

direct labor, or (c) factory overhead for a baseball glove

manufacturer.

1-2

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1. _______________ Leather used to make a baseballglove

2. _______________ Coolants for machines that sew

baseball gloves

3. _______________ Wages of assembly line employees4. _______________ Ink used to print a players autograph

on the baseball glove


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Identify the following costs as (a) direct materials, (b)

direct labor, or (c) factory overhead for a baseball glove

manufacturer.

1-2

28



baseball gloves

3. _______________ Wages of assembly line employees4. _______________ Ink used to print a players autograph



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.


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1-2Prime Costs and Conversion Costs

Factory

Overhead

Direct

Materials

Direct

Labor

Prime

Costs

Conversion

Costs


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1-2


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Identify the following costs as a (a) prime cost,

(b) conversion cost, or (c) both for a baseball glove

manufacturer.

1-2

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baseball gloves

3. _______________ Wages of assembly line employees

4. _______________ Ink used to print a players autographon the baseball glove


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For Practice: PE 1-3A, PE 1-3B32


1-2

Identify the following costs as a (a) prime cost,

(b) conversion cost, or (c) both for a baseball glove

manufacturer.



baseball gloves

3. _______________ Wages of assembly line employees

4. _______________ Ink used to print a players autographon the baseball glove

(a) Prime cost

(b) Conversion cost

(c) Both

(b) Conversion cost

Left click mouse for answers.


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Product Costs

Product costs consist of the

three elements ofmanufacturing cost: direct

materials, direct labor, and

factory overhead.

1-2


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Factory

Overhead

Direct

Materials

Direct

Labor

ProductCosts

The cost of materialsthat are an integral

part of the product.

The cost of labordirectly involved in

converting material into

the product.

Manufacturing costsother than direct

materials and direct

labor.

1-2


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Period costs are generally classified intotwo categories:

Period Costs

Selling expenses are incurred in

marketing the product anddelivering the sold product to

the customer.

Administrative expenses are

incurred in the administration ofthe business.

1-2


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3636(Continued)

1-2


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1-2


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Product Costs and

Period Costs

1-2


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Identify the following costs as a (a) product cost, or

(b) period cost for a baseball glove manufacturer.

1-2

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2. _______________ Cost of endorsement from a

professional baseball player

3. _______________ Office supplies used at the company

headquarters4. _______________ Ink used to print a players autograph



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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


2. _______________ Cost of endorsement from a

professional baseball player

3. _______________ Office supplies used at the company

headquarters4. _______________ Ink used to print a players autograph

on the baseball gloveLeft click the mouse to reveal answers.


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Describe and illustrate the

financial statement elements

and cost relationships for a

manufacturing business.

Objective 3

1-3


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A Manufacturing Firms Inventories

Materials inventory:

Sometimes called raw materials

inventory

Consists of the costs of the direct andindirect materials that have not yet

entered the manufacturing process

1-3


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Work in process inventory:

Consists of the direct materials costs,

the direct labor costs, and the factory

overhead costs that have entered themanufacturing process but are

associated with products that have

not been completed.

1-3


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Finished goods inventory:

Consists ofcompleted(or

finished) products that have

not been sold.

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Balance Sheet Presentation

of Inventory in Manufacturing

and Merchandising Companies

1-3


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Flow of Manufacturing Costs 1-3


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Determining the Cost of GoodsManufactured

Materials inventory, December 1, 2008 $ 65,000

Add: materials purchased during December 100,000

Cost 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


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from Step 1

STEP 2:

1-3


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Direct labor 110,000

to cost of goodsmanufactured

section

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

STEP 2:

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1-3


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Work in process inventory, Dec. 1, 2008 $ 30,000

Add: total manufacturing costs added 284,000

from Step 2

STEP 3:

1-3


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Work in process inventory, Dec. 1, 2008 $ 30,000

Add: total manufacturing costs added 284,000

Total manufacturing costs $314,000Less: work in process inv, Dec 31, 2008 24,000

Cost of goods manufactured $290,000

STEP 3:

1-3


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Manufacturing Company

Income Statement with

Statement of Cost ofGoods Manufactured (contd)

to income

statement

1-3


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Manufacturing Company

Income Statement with

Statement of Cost ofGoods Manufactured

fromstatement of

cost of goods

manufactured

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1-3


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Gauntlet Company has the following information for

January:

1-3

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Direct labor 35,000

Factory overhead 20,000Work in process inventory, January 1 30,000

Work in process inventory, January 31 25,000

Finished goods inventory, January 1 15,000

Finished goods inventory, January 31 12,000For January, determine the (a) cost of goods

manufactured, and (b) cost of goods sold.


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1-3

(a) Work in process inventory, January 1 $ 30,000


Direct labor 35,000

Factory overhead 20,000Total manufacturing costs added 80,000

Total manufacturing costs 110,000

Less: Work in process inventory, Jan. 31 25,000

Cost of goods manufactured $ 85,000

(Continued)


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Follow My Example 1-5 (continued)

1-3

(b) Finished goods inventory, January 1 $ 15,000

Cost of goods manufactured 85,000

Cost of finished goods available for sale 100,000

Less: Finished goods inventory, January 31 12,000Cost of goods sold $ 88,000


(Concluded)


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Describe the various

uses of managerial

accounting information.

Objective 4

1-4


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Uses of Managerial Accounting

Managerial accounting, as

mentioned earlier, provides

information and reports that help

managers run the day-to-day

operations of their business.

1-4


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Managerial reports provide

data that help managers

evaluate the performance of

a companys operations.

1-4


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Companies use managerial

accounting information to

support long-term planning

decisions, such as

investment decisions.

1-4


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Managerial accounting data

can be used to help

managers understand how

many units need to be sold

in a month to cover

recurring monthly costs.

1-4

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