IMA Lecture 1 (Chapter 1).pdf

Managerial Accounting
Ninth Edition
Weygandt Kimmel Mitchell
Chapter 1
Managerial Accounting
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Copyright ©2021 John Wiley & Sons, Inc.

Copyright ©2021 John Wiley & Sons, Inc. 2
Chapter Outline
Learning Objectives
LO 1 Identify the features of managerial accounting and the
functions of management (p.3)
LO 2 Describe the classes of manufacturing costs and the
differences between product and period costs (p.9)
LO 3 Demonstrate how to computecost of goods manufactured
and prepare financial statementsfor a manufacturer (p.24)
LO 4 Discuss trends in managerial accounting (p.33)

Managerial AccountingBasics
LEARNING OBJECTIVE 1
Identify the features of managerial accounting and the
functions of management.
Provides economic and financial information for
managers and other internal users.
Comparing Managerial and Financial Accounting
Similarities and differences:
• Each field deals with economic events of a business
• Both require that economic events be quantified and
communicated to interested parties
LO 1

Comparing Managerial and Financial
Illustration 1.1
Feature Financial Accounting Managerial Accounting
Primary Users of Reports External users: stockholders,
creditors, and regulators.
Internal users: officers and managers.
Types and Frequency of
Reports
External financial statements.
Quarterly and annually.
Internal reports.
As frequently as needed.
Purpose of Reports General-purpose. Special-purpose for specific decisions.
Content of Reports Pertains to business as a
whole.
Highly aggregated
(condensed).
Limited to accrual accounting
and cost data.
Governed by generally
accepted accounting
principles (G A A P).
Pertains to subunits of the business.
Very detailed.
Extends beyond accrual accounting to
any relevant data.
Evaluated based on relevance to
decisions.
Verification Process Audited by C P A. No independent audits.
LO 1

Management Functions
Planning
• Maximize short-term
profit and market
share
• Commit to
environmental
protection and social
programs
• Add value to the
business
Directing
• Coordinate diverse
activities and human
resources
• Implement planned
objectives
• Provide incentives to
motivate employees
• Hire and train
employees
• Produce a smooth-
running operation
Controlling
• Keep and maintain
activities on track
• Determine whether
goals are met
• Decide changes
needed to get back
on track
• May use an
informal or formal
system of
evaluations
LO 1

Organizational Structure
Illustration1.2
Organizationcharts show the interrelationshipsof activities and the delegationof
authority and responsibilitywithin the company.
LO 1

DO IT! 1: Managerial Accounting
Part 1
Indicate whether the following statementsare true or false.
1. Managerial accountants have a single role
within an organization: collecting and
reporting costs to management.
False
2. Financial accounting reports are general-
purpose and intended for external users.
True
3. Managerial accounting reports are special-
purpose and issued as frequently as needed.
True
LO 1

DO IT! 1: Managerial Accounting
Part 2
Indicate whether the following statementsare true or false.
4. Managers’ activities and responsibilities can
be classified into three broad functions: cost
accounting, budgeting, and internal control.
False
5. Managerial accounting reports must now
comply with generally accepted accounting
principles (GAAP).
False
LO 1

Managerial Cost Concepts
Describe the classes of manufacturing costs and the
differences between product and period costs.
Managers should ask questions such as the following:
1. What costs are involved in making a product or
providing a service?
2. If we decrease production volume, will costs change?
3. What impact will automation have on total costs?
4. How can we best control costs?
LO 2

Manufacturing Costs
Activities and processes that convert raw materials into
finished goods.
LO 2

Manufacturing Costs
Direct Materials
• Raw materials are the basic
materials and parts used in the
manufacturing process
• Raw materials that can be
physically and directly associated
with finished product during the
manufacturing process are
direct materials
LO 2

Manufacturing Costs
Indirect Materials
Have one of two characteristics:
1. Not physically part of finished product
2. Are impractical to trace to finished product because
their physical association with finished product is too
small in terms of cost
Considered part of manufacturing overhead
LO 2

Manufacturing Costs
Direct Labor and Indirect Labor
Direct Labor
Work of factory employees that can be
physically and directly associated with
converting raw materials into finished goods.
Indirect Labor
• Work of manufacturing-related employees that has no physical
association with the making of the finished product or
• Costs for which it is impractical to trace to the goods produced.
LO 2

Manufacturing Costs
Manufacturing Overhead
• Costs indirectly associated
with manufacture of the
finished product
• All manufacturing-related
costs except direct materials
and direct labor
• Also called factory overhead,
indirect manufacturing costs,
or burden
LO 2

Product Costs Versus Period Costs
Product Costs
• All manufacturing cost components:
o Direct materials
o Direct labor
o Manufacturing overhead
• Costs that are an integral part of producing product
• Recorded in “inventory” account
• Not an expense (COGS) until goods are sold
LO 2

Period Costs
• Nonmanufacturing costs
• Includes all selling and administrative expenses
• Charged to expense as incurred
LO 2

Illustration1.3
LO 2

Illustration of Cost Concepts
Items 1-3
Illustration: Suppose you started your own snowboard factory,
Terrain Park Boards. Here are some of the coststhat your
snowboard factory would incur. Assign the following costs:
Illustration1.4
Cost
Product Cost
(direct materials, direct
labor, or manufacturing
overhead)
PeriodCost (non-
manufacturing) Explanation
1. Wood cores,
fiberglass, and resin
($30 per board)
Direct materials Essential elements of finished
product
2. Labor to trim and
shapeboards ($40
per board)
Direct labor Physically and directly
associated with converting raw
materials into finished goods
3. Factory equipment
depreciation
($25,000)
Manufacturing overhead Factory costthat is not direct
materials or direct labor
LO 2

Items 4-8 Illustration1.4
Cost
Product Cost (direct
materials, direct labor, or
manufacturing overhead)
PeriodCost
(non-
4. Property taxes on
factory building
($6,000 per year)
Manufacturing overhead Factory costthat is not direct
materials or direct labor
5. Advertising costs
($60,000per year)
X Not a cost associated with
producing product
6. Sales commissions
($20 per board)
producing product
7. Factory maintenance
salaries ($25,000 per
year)
Manufacturing overhead A factory cost, butemployees are
not physically and directly
involved with converting raw
8. Salary of factory
manager ($70,000 per
year)
Manufacturing overhead A factory cost, butemployees are
not physically and directly
LO 2

Items 9-10
Illustration1.4
Cost
Product Cost (direct
materials, direct labor, or
manufacturing overhead)
PeriodCost
(non-
9. Costof shipping
boards to
customers ($8
per board)
producing product
10. Salary of product
quality inspector
($20,000per
year)
Manufacturing overhead A factory cost, butemployees
are not physically and directly
LO 2

Calculation of total manufacturing costs
Assuming Terrain Park Boards produces 10,000 snowboards the
first year, what would be the total manufacturing costs?
Illustration1.5
Cost Item Manufacturing Cost
1. Materialcost ($30 × 10,000) $300,000
2. Labor cost ($40 × 10,000) 400,000
3. Depreciationon factory equipment 25,000
4. Property taxes on factory building 6,000
7. Factory maintenancesalaries 25,000
8. Salary of factory manager 70,000
10. Salary of product quality inspector 20,000
Total manufacturingproduct costs $846,000
LO 2

DO IT! 2: Managerial Cost Concepts
Part 1
A bicycle company has these costs: tires, wages of employees
who put tires on the wheels, factory building depreciation,
advertising expenditures, factory machine lubricants, spokes,
salary of factory manager, salary of accountant,handlebars,
salaries of factory maintenance employees, and salary of
product quality inspector.
Classifyeach of these costs as a product cost or a period cost.
Specify direct materials, direct labor, or manufacturing
overhead for product costs.
LO 2

DO IT! 2: Managerial Cost Concepts
Part 2
Cost Product Cost Period Cost
Tires Direct materials
Wages of employees who put tires on the wheels Direct labor
Factory building depreciation Manufacturing overhead
Advertising expenditures X
Factory machine lubricants Manufacturing overhead
Spokes Direct materials
Salary of factory manager Manufacturing overhead
Salary of accountant X
Handlebars Direct materials
Salaries of factory maintenance employees Manufacturing overhead
Salary of product quality inspector Manufacturing overhead
LO 2

Manufacturing Costs in Financial Statements
Demonstrate how to compute cost of goods manufactured
and prepare financial statements for a manufacturer.
The financial statements of a manufacturer are very similar to
those of a merchandiser. Yet, the principal differences
between their financial statementsoccur in two places:
1. The current assets section in the balance sheet.
2. The cost of goods sold section in the income statement.
LO 3

Balance Sheet
Inventory accounts of a manufacturer
Illustration 1.6
The balance sheet for a merchandising company shows just one
category of inventory.
LO 3

Balance Sheet Example
Merchandiser Versus Manufacturer
Illustration 1.7
LO 3

Income Statement
Under a periodic inventory system, the income statementsof a
merchandiser and a manufacturer differ in the cost of goods sold
section (Illustration 1.8)
LO 3

Income Statement
Cost of Goods Sold Sections
Illustration1.9
LO 3

Cost of Goods Manufactured
Total Manufacturing Costs – sum of direct material costs, direct
labor costs,and manufacturing overhead incurred in the current
year.
Total Work in Process – (1) cost of beginning work in process and
(2) total manufacturing costs for the current period.
Illustration1.10
LO 3

Cost of Goods Manufactured Schedule Illustration1.11
LO 3

DO IT! 3: Cost of Goods Manufactured
Given data
The following information is available for Keystone Company.
March 1 March 31
Raw materials inventory $12,000 $10,000
Work in process inventory 2,500 4,000
Materials purchased in March $90,000
Direct labor in March 75,000
Manufacturing overhead in
March
220,000
Prepare the cost of goods manufactured schedule for the month of
March 2022. (Assumethat all raw materials used were direct
materials.)
LO 3

DO IT! 3: Cost of Goods Manufactured
Solution
LO 3

ManagerialAccountingToday
Discuss trends in managerial accounting.
Service Industries
• Much of U.S. economy has shifted toward an
emphasis on providing services rather than goods
• Approximately 80% of U.S. workers are now employed
by service companies
• Most techniques learned for manufacturing firms are
applicable to service companies
LO 4

Focus on the Value Chain
Refers to all business processes associated with providing a product
or performing a service
For a manufacturing firm, these include the following:
Illustration1.12
LO 4

JIT and TQM
Just-In-Time (JIT) Inventory Method
• System in which goods are manufactured or
purchased just in time for sale
Total Quality Management (TQM)
• System implement to reduce defects in finished
products, with goal of zero defects
LO 4

ABC
Activity-Based Costing (ABC)
• Allocates overhead based on each product’s use of
activities
• Results in more accurate product costing and
increased efficiency in the value chain
LO 4

Balanced Scorecard
• Evaluates operations in an integrated fashion
• Uses both financial and nonfinancial measures
• Links performance in a cause-and-effect fashion
ensure that they all tie to the company’s overall
objectives
LO 4

Business Ethics
• All employees are expected to act ethically
• Many organizations have codes of business ethics
Creating Proper Incentives
• Systems and controls sometimes create incentives for
managers to take unethical actions
• Controls need to be effective and realistic
LO 4

39
Copyright ©2021 John Wiley & Sons, Inc.
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