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Managerial Accounting Concepts & Principles

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  1. 1. UniversidadCuauhtémocMaestría en Administración de HospitalesEducación a DistanciaContabilidad AdministrativaManagerial AccountingConcepts & Principles
  2. 2. ContentsDescription & Role of Managerial Accounting1Some Cost Definitions (Direct, Indirect, DM, DL, L&O)2Financial Statements of a Manufacturing Business3Managerial Accounting Information Uses4Managerial Accounting Concepts & Principles
  3. 3. Describe ManagerialAccounting and the role ofmanagerial accounting in abusiness.Managerial Accounting Concepts & Principles1
  4. 4. The difference between Managerialand Financial AccountingFinancial accountingInformation is reported at fixedintervals in general-purposefinancial statements. Thesefinancial statements are preparedaccording to IFRS (InternationalFinancial Reporting Standards).External Users.1Managerial Accounting Concepts & Principles
  5. 5. Managerial accountingInformation is designed to meetthe specific needs of acompany’s management, suchas historical data and subjectiveestimates about future decisions.Customized to business needs.Internal users.Managerial Accounting Concepts & Principles1
  6. 6. PlanningManagement usesplanning in developingthe company’s objectives(goals) and translatingthese objectives intocourses of action.Managerial Accounting Concepts & Principles1
  7. 7. Strategic planning isdeveloping long-range actionsto achieve the company’sobjectives. Long-range coursesof action, called strategies, canoften involve periods rangingfrom five to ten years.Strategic PlanningManagerial Accounting Concepts & Principles1
  8. 8. Develops short-term actionsfor managing the day-to-dayoperations of the company.Managerial Accounting Concepts & PrinciplesOperational Planning1
  9. 9. The process by whichmanagers run day-to-dayoperations is called directing.DirectingManagerial Accounting Concepts & Principles1
  10. 10. Monitoring operating resultsand comparing actual resultswith the expected results iscontrolling. This feedbackallows management toisolate areas for furtherinvestigation and possibleremedial action.ControllingManagerial Accounting Concepts & Principles1
  11. 11. Continuous process improvementis the philosophy of continuallyimproving employees, businessprocesses, and products.ImprovingManagerial Accounting Concepts & Principles1
  12. 12. Inherent in each of thepreceding managementprocesses is decision making.Management must continuallydecide among alternativeactions.Decision MakingManagerial Accounting Concepts & Principles1
  13. 13. Describe and illustrate thefollowing costs:1. Direct and Indirect costs2. Direct Materials, Direct Labor,and Factory Overhead costs3. Product and Period costsManagerial Accounting Concepts & Principles2
  14. 14. Direct and Indirect CostsDirect costs are identified with and can be traced to acost object. Indirect costs cannot be identified with ortraced to a cost object.Managerial Accounting Concepts & Principles2
  15. 15. The cost of wood (materials) used byLegend Guitars in manufacturing aguitar is a direct cost of the guitar.Managerial Accounting Concepts & Principles2
  16. 16. A production supervisor’s salary isan indirect cost because it cannotbe traced to any individual guitar.Managerial Accounting Concepts & Principles2
  17. 17. Direct Materials CostTo be classified as a direct materialscost, the cost must be: An integral part ofthe finished productManagerial Accounting Concepts & Principles2
  18. 18. Direct Labor CostThe cost of employee wages that is anintegral part of the finished product isclassified as direct labor cost. A directlabor cost must be: An integral part of thefinished productManagerial Accounting Concepts & Principles2
  19. 19. Factory Overhead CostCosts, other than direct materials costand direct labor cost, that are incurred inthe manufacturing process are combinedand classified as factory overhead cost(sometimes also called manufacturingoverhead or factory burden).Managerial Accounting Concepts & Principles2
  20. 20. Examples of Factory Overhead Cost• Heating and lighting the factory• Repairing and maintaining factory equipment• Property taxes• Insurance• Depreciation of factory plant and equipmentManagerial Accounting Concepts & Principles2
  21. 21. Prime Costs and Conversion CostsPrime costs = Direct materials + Direct labor costs.Conversion costs = Direct labor + Factory overhead.Conversion costs are the costs of converting thematerials into a finish product.Managerial Accounting Concepts & Principles2
  22. 22. Product costs consist of the threeelements of manufacturing cost:direct materials, direct labor,and factory overhead.Managerial Accounting Concepts & Principles2
  23. 23. Period costs are generally classified intotwo categories:Period CostsSelling expenses are incurred inmarketing the product and delivering thesold product to the customer.Administrative expenses are incurred inmanaging the company and are notdirectly related to the manufacturing orselling functions.Managerial Accounting Concepts & Principles2
  24. 24. Some KEY elements in the FinancialStatementsManagerial Accounting Concepts & Principles3
  25. 25. In a Manufacturing EntityRaw Materials inventory:Consists of the costs of the directand indirect materials that havenot yet entered the manufacturingprocessManagerial Accounting Concepts & Principles3
  26. 26. Work in process inventory:Consists of the direct materials,direct labor, and the factoryoverhead costs that have enteredthe manufacturing process but areassociated with products that havenot been completed.Managerial Accounting Concepts & Principles3
  27. 27. Finished goods inventory:Consists of completed (or finished)products that have not been sold.Managerial Accounting Concepts & Principles3
  28. 28. Uses of Managerial Accountinginformation.Managerial Accounting Concepts & Principles4
  29. 29. Managerial Accounting providesthe cost of manufacturing aproduct, which can be used todetermine the selling price.Managerial Accounting Concepts & Principles4
  30. 30. Managerial Accounting compares themanufacturing cost over time.It helps to monitor and control thecost of direct materials, direct labor,and factory overhead.Managerial Accounting Concepts & Principles4
  31. 31. Performance reports allowmanagement to identify any largeamounts of scrap materials oremployee downtime.Uses of Managerial AccountingManagerial Accounting Concepts & Principles4
  32. 32. Uses of Managerial AccountingA report could analyze how manyunits need to be sold to coveroperating costs and expenses.Such information could be used toset monthly selling targets andbonuses for sales personnel.Managerial Accounting Concepts & Principles4
  33. 33. Managerial Accounting providesthe tools to control the businessManagerial Accounting Concepts & Principles4
  34. 34. UniversidadCuauhtémocMaestría en Administración de HospitalesEducación a Distancia

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