This document provides an overview of managerial accounting. It discusses the differences between managerial and financial accounting, managerial cost concepts including direct materials, direct labor, and manufacturing overhead, and job order cost accounting. Job order cost accounting involves accumulating manufacturing costs, assigning costs to work in process and finished goods, and recognizing cost of goods sold. Costs flow through the job cost sheet which tracks costs by job.

1. Managerial Accounting
Prepared by:
M.Com (numl)

2. MANAGERIAL ACCOUNTING
Managerial Accounting Basics
• Comparing managerial and
financial accounting
• Ethical standards
• Management functions
Managerial Cost Concepts
• Manufacturing costs
• Product versus period costs
MANAGERIAL
ACCOUNTING

3. Managerial Accounting Basics
Managerial accounting (management
accounting) is a field of accounting that
provides economic and financial information
for managers and other internal users.

4. Differences Between Financial and
Managerial Accounting
FINANCIAL
ACCOUNTING
MANAGERIAL
ACCOUNTING
Primary Users of Reports
External users, who are
stockholders, creditors, and
regulatory agencies.
Internal users, who are officers,
department heads, managers,
and supervisors in the
company.
Types and Frequency of Reports
Classified financial statements.
Issued quarterly and annually.
Internal reports
Issued as frequently as needed.
Purpose of Reports
To provide general-purpose
information for all users.
To provide special-purpose
information for a particular
user for a specific decision.
Illustration 1-1a

5. Managerial Cost Concepts
To perform the three management functions effectively,
management needs information. One very important type
of information is related to costs. For example, questions
such as the following need answering:
– What costs are involved in making the product?
– If production volume is decreased, will costs decrease?
– What impact will automation have on total costs?
– How can costs best be controlled in the organization?

6. MANAGERIAL ACCOUNTING
Define the three classes of
manufacturing costs.

7. Managerial Cost Concepts
Manufacturing consists of activities and
processes that convert raw materials into
finished goods. Manufacturing costs are usually
classified as follows:
– Direct Materials
– Direct Labor
– Manufacturing Overhead

8. Manufacturing Costs:
Direct Materials
• Raw materials represent the basic materials
and parts that are to be used in the
manufacturing process.
• Raw materials that can be physically and
conveniently associated with the finished
product during the manufacturing process
are termed direct materials.

9. Manufacturing Costs:
Indirect Materials
Some raw materials cannot be easily associated with
the finished product. These are considered indirect
materials.
Indirect materials
– do not physically become part of the finished
product
– Indirect materials are accounted for as part of
manufacturing overhead.

10. Manufacturing Costs:
Direct Labor
Direct labor is the work of factory
employees that can be physically and
conveniently associated with
converting raw materials into finished
goods.
DIRECT LABOR

11. Manufacturing Costs:
Indirect Labor
The wages of maintenance people,
timekeepers, and supervisors are normally
categorized as indirect labor
Like: Indirect materials, indirect labor is part of
manufacturing overhead.

12. Manufacturing Costs: Manufacturing
Overhead
Manufacturing overhead consists of costs that are
indirectly associated with the manufacture of the
finished product.
Manufacturing overhead includes
– indirect materials;
– indirect labor;
– depreciation on factory buildings and machinery; and
– insurance, taxes, and maintenance on factory
facilities.
MANUFACTURING
OVERHEAD

13. Product Costs
Product costs (also called inventoriable costs)
include each of the manufacturing cost
elements (direct materials, direct labor, and
manufacturing overhead). They are the costs
that are a necessary and integral part of
producing the finished product.

14. Product Costs:
Prime and Conversion
Prime cost:
Direct
Material
Conversion cost:
Direct
Labour
Direct
M.O.H
Direct
Labour

15. Product Versus
Period Costs
All Costs
Direct Materials
Direct Labor
Manufacturing
Overhead
Selling
Expenses
Administrative
Expenses
Prime
Costs
Conversion
Costs
Product Costs
Manufacturing Costs
(Go to Balance Sheet before
Income Statement)
Period Costs
Nonmanufacturing Costs
(Go straight to Income Statement)
Illustration 1-4

16. Cost of Goods Manufactured
Schedule
ABC COMPANY
Cost of Goods Manufactured Schedule
For the Year Ended December 31, 2013
Opening inventory $ 18,400
Direct materials
Raw materials inventory, January 1 $ 16,700
Raw materials purchases 152,500
Total raw materials available for use 169,200
Less: Raw materials inventory, December 31 22,800
Direct materials used $ 146,400
Direct labor 175,600
Manufacuring overhead
Indirect labor 14,300
Factory repairs 12,600
Factory utilities 10,100
Factory depreciation 9,440
Factory insurance 8,360
Total manufacturing overhead 54,800
Total manufacuring costs 376,800
Total cost of work in process 395,200
Less: Work in process, December 31 25,200
Cost of goods manufactured $ 370,000

17. Job order cost accounting
Cost Accounting Systems
Job Order Cost Flow
• Accumulating Manufacturing
Costs
• Assigning Manufacturing
Costs to Work in Process
• Assigning Costs to Finished
Goods
• Assigning Costs to Cost of
Goods Sold
• Summary
JOB ORDER
COST
ACCOUNTING

18. Process Cost System
Process costing accounts for and
accumulates product-related costs for a
period of time, as opposed to assigning costs
to specific products or jobs.

19. Process Cost System:
Compact Disc Production
1. Oil is pumped. 2. Benzene is
removed.
3. The
benzene
4. ...from which
compact
discs are
Relatively similar products are produced over a specified time period.
made.
Illustration 2-2
Process Cost System

20. Job Order Cost Flow
There are 2 major steps in the flow of costs:
– accumulating the manufacturing costs incurred
and
– assigning the accumulated costs to the work
done.

21. Job Order Cost Accounting
System
FFllooww ooff CCoossttss
4 8
Accumulation Assignment
1. Purchase raw materials 4. Raw materials are used
2. Incur factory labor 5. Factory labor is used
3. Incur manufacuring 6. Overhead is applied
overhead 7. Completed goods are
recognized
8. Cost of goods sold is
recognized
Key to Entries:
Raw Materials Inventory
(1) 42,000 (4) 30,000
Bal. 12,000
Factory Labor
(2) 32,000 (5) 32,000
Manufacturing Overhead
(3) 13,800 (6) 22,400
(4) 6,000
(5) 4,000
Bal. 1,400
Finished Goods Inventory
(7) 39,000 (8) 39,000
Work in Process Inventory
(4) 24,000 (7) 39,000
(5) 28,000
(6) 22,400
Bal. 35,400
Cost of Goods Sold
(8) 39,000
7
5
6
Illustration 2-4

22. Job Cost Sheet
• A separate job cost sheet is kept for each job.
Job cost sheets constitute the subsidiary
ledger for the Work in Process Inventory
account.
• Each entry to Work in Process Inventory must
be accompanied by a corresponding posting
to one or more job cost sheets.

23. Job Cost Sheet
A job cost sheet is a form used to record the costs chargeable
to a specific job and to determine the total and unit cost of
the completed job. Postings to job cost sheets are made
daily.
Job Cost Sheet
Job No. _________________________________ Quantity ________________________________
Item ___________________________________ Date Requested __________________________
For ____________________________________ Date Completed __________________________
Direct Direct Manufacturing
Date Materials Labor Overhead
Cost of completed job
Direct materials $
Direct labor
Manufacturing overhead
Total cost $
Unit cost (total dollars ÷ quantity) $
Illustration 2-6

24. Assigning Manufacturing Costs to
Work in Process
Raw materials costs
are assigned to
jobs when the
materials are
issued by the
storeroom.

25. Bob
Kadler
M.Che
r
Time Ticket
Labor costs are assigned to jobs on the basis of time
tickets. The time ticket should indicate the
employee, the hours worked, the account and job to
be charged, and the total labor cost.
Illustration 2-10

26. Estimated Annual
Overhead Costs
Expected Annual
÷ Operating Activity = Predetermined
Overhead Rate
Predetermined
Overhead Rate

27. Using Predetermined Overhead Rates
X Activity Base Predetermined
Overhead Rate
is
assigned
to
Work in Process
Job 1 Job 2 Job 3
Illustration 2-13

28. Completed Job Cost Sheet
When a job is
completed, the
manufacturing
costs are
summarized and
the lower
portion of the
applicable job
cost sheet is
completed.
• If Job No. 101 is
completed on
January 31, the
job cost sheet
will be as shown
to the right.
Illustration 2-16

29. Journalizing Finished Goods
The entry to transfer the cost of the completed
job from Work in Process Inventory to Finished
Goods Inventory for Wallace Manufacturing
Company is:
Date Account Titles and Explanation Debit Credit
(7)
Jan. 31 Finished Goods Inventory
Work in Process Inventory
(To record completion of Job No. 101)
39,000
39,000

30. Journalizing
Cost of Goods Sold
• On January 31 Wallace Manufacturing
Company sells Job No. 101 (costing $39,000)
for $50,000 on account. The entries are:
Date Account Titles and Explanation Debit Credit
(8)
Jan. 31 Accounts Receivable
Sales
(To record sale of Job No. 101)
31 Cost of Goods Sold
Finished Goods Inventory
(To record cost of Job No. 101)
50,000
50,000
39,000
39,000

31. Job Order Cost System Flow Of
Documents
Flow of Documents
Materials
Requisition Slips
Labor Time
Tickets
Predetermined
Overhead Rate
Job Cost
Sheet
Jobs Are
Charged
Through
Cost of Jobs
is
Summarized
on a
The job cost sheet summarizes
the cost of jobs completed and
not completed at the end of the
accounting period. Jobs
completed are transferred to
Finished Goods to await sale.
Illustration 2-18b