Financial and managerial accounting 5th edition chapter 16 (miller nobles, mattison, matsumura)
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Transcript of Financial and managerial accounting 5th edition chapter 16 (miller nobles, mattison, matsumura)
Chapter 16Introduction to
Managerial Accounting
Learning Objectives1. Define managerial
accounting and understand how it is used
2. Describe the differences between service, merchandising, and manufacturing companies
3. Classify costs for service, merchandising, and manufacturing companies
Learning Objectives4. Prepare an income
statement and schedule of cost of goods manufactured for a manufacturing company and calculate cost per item
5. Calculate cost per service for a service company and cost per item for a merchandising company
Learning Objective 1
Define managerial accounting and understand how it is used
Why Is Managerial Accounting Important?
Financial Versus Managerial Accounting
• Financial accounting:– Financial statements are used by investors,
creditors, and government authorities.• Managerial accounting:– Reports are generated for planning.
• One planning tool is the budget. – Controlling involves evaluating the plan and
comparing the actual results to the budget.– Weighing the costs against the benefits is
called cost/benefit analysis.
Financial Versus Managerial Accounting
Management Accountability
• Management accountability is the manager’s responsibility to the various stakeholders to wisely manage the organization’s resources.
• Stakeholders have an interest in the business and include the following:– Customers– Creditors– Suppliers– Investors
Management Accountability
Today’s Business Environment
• Shift toward a service economy• Global competition• Time-based competition:– Enterprise Resource Planning (ERP) systems
integrate companies data.– E-commerce allows companies to sell products to
customers around the world.– Just-in-Time (JIT) Management is an inventory
management tool.
Today’s Business Environment• Total Quality Management (TQM) is a philosophy of
continuous improvement in products and processes.– Creates a culture of cooperation.– Each step adds value to the end product, and this is referred to
as the value chain.• The economic, social, and environmental impact of doing
business is referred to as the triple bottom line, which includes: – Profits – People– Planet
Ethical Standards
Learning Objective 2
Describe the differences between service, merchandising, and manufacturing companies
How Do Service, Merchandising, and Manufacturing Companies Differ?
• Service companies sell their time, skill, and knowledge.– All of their costs are period costs and are expensed in the
period incurred.• Merchandising companies resell products they
previously bought from suppliers.– Cost of goods sold is an inventoriable product cost, also
called a product cost.• Manufacturing companies create products
customers want.
Manufacturing Companies
• Manufacturing companies convert raw materials into finished products.
• The three types of inventory are:– Raw Materials Inventory (RM)• Materials used to manufacture a product.
– Work-in-Process Inventory (WIP)• Goods that have been started but are not compete.
– Finished Goods Inventory (FG)• Completed goods that have not yet been sold.
How Do Service, Merchandising, and Manufacturing Companies Differ?
Learning Objective 3
Classify costs for service, merchandising, and manufacturing companies
How Are Costs Classified?
Product Costs
• Direct materials (DM)• Raw materials used in production
• Direct labor (DL)• Labor of employees working on the products
• Manufacturing overhead (MOH)• The indirect product costs associated with production,
including: • Indirect materials• Indirect labor• Factory costs for rent, utilities, insurance, etc.
Product Costs
Prime and Conversion Costs
• Prime costs combine direct costs of direct materials and direct labor.
• Conversion costs are the costs to convert raw materials into finished goods: direct labor plus manufacturing overhead.
Learning Objective 4
Prepare an income statement and schedule of cost of goods manufactured for a manufacturing company and calculate cost per item
How Do Manufacturing Companies Determine the Cost of Manufactured Products?
• Income statement – Calculating cost of goods sold• The Finished Goods Inventory account provides
information for the cost of goods sold section of the income statement
– Gross profit • Gross profit = Net Sales Revenue – Cost of Goods Sold
– Operating income• Operating income = Gross profit – sales and
administrative expenses
Calculating Cost of Goods Sold
Calculating Cost of Goods Manufactured
• Cost of goods manufactured is the manufacturing costs of the goods that finished the production process in a given accounting period.– Costs are determined from activities that took
place in the past.
Calculating Cost of Goods Manufactured
Calculating Cost of Goods Manufactured
Flow of Costs Through the Inventory Accounts
Calculating Unit Product Cost
• Managers make decisions on pricing products based on unit cost. – Cost per unit is found by dividing cost of goods
manufactured by total units produced.– The cost per unit is used to determine the Cost of
Goods Sold for the units sold to customers.
Learning Objective 5
Calculate cost per service for a service company and cost per item for a merchandising company
How Is Managerial Accounting Used in Service and Merchandising Companies?
Managers of service and merchandising organizations make decisions on pricing based on cost per service or cost per item.
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