Chapter Eight MANAGEMENT ACCOUNTING
Outline <ul><li>Difference between  managerial  and  financial  accounting. </li></ul><ul><li>Purpose and importance of ma...
Difference between managerial and financial accounting 1.  Users of the information Internal and  external users Internal ...
2.  Types and frequency of the reports <ul><li>classified financial  </li></ul><ul><li>statements </li></ul><ul><li>issued...
3.  Content of the reports Objective: Standard reporting format according to generally accepted accounting principles Obje...
4.  Purpose of the reports General-purpose information for  all users. Special-purpose  information for a  particular user...
4.  Verification  Annual independent  audit by certified  public accountant. No independent audits Financial Acc. Manageri...
Importance of managerial accounting information for decision making Planning Directing Controlling Improving Decision making
Cost Concept Cost  :  a payment of cash; or its equivalent; or the  commitment to pay cash in the future for the  purpose ...
Classification by behavior 1.  Fixed costs 3.  Semi variable costs 2.  Variable costs Does not change when the volume of a...
Relationship between fixed costs and activity Costs Activity (unit) Total fixed cost 10 20 30
Relationship between variable costs and activity Costs Activity (unit) Total variable cost 10 20 30
Relationship between mixed costs and activity Cost Activity (unit) Total mixed costs 10 20 30
Classification by function 1.  Manufacturing costs 2.  Administration costs 3.  Selling costs Cost incurred in the process...
Manufacturing Cost Concept  Manufacturing consists of activities and  processes that convert raw materials into  finished...
Manufacturing Cost : Direct Materials  Raw  materials   are the basic materials and parts  that are to be used in the man...
Manufacturing Cost : Indirect Materials  Some raw materials cannot be easily associated  with the finished product. These...
Manufacturing Cost : Direct Labor  Direct labor   is the work of factory employees  that can be physically and directly a...
Manufacturing Cost :  Overhead  Manufacturing overhead consists of costs that  are  indirectly associated with the manufa...
Product Cost vs. Period Cost  Product costs   include each of the  manufacturing cost elements (direct materials,  direct...
Product Cost vs. Period Cost  Direct materials  and  direct labor  are often  referred to  as  prime costs  due to their ...
Product Cost vs. Period Cost <ul><ul><li>   Period costs:   </li></ul></ul><ul><ul><li>are identifiable with a specific t...
Product Cost vs. Period Cost Direct Material Direct Labor Factory OH Prime Cost Conversion Cost Selling Expenses Admin Exp...
Financial Statement for Manufacturing Company  Statement of Cost of Goods Manufactured  Statement of Income  Balance Sh...
Cost of Goods Manufactured Total Current  Manufacturing Cost Beginning Work in Progress + - Ending Work in Progress = Cost...
Statement of Cost of Goods Manufactured for the year ended 31/12/2001 Opening work in progress xxx Direct material : Openi...
Income Statement for the year ended 31/12/2001 Sales Revenue xxxx Less:  Cost of Goods Sold Finished Goods Inventory 1/1/2...
Balance Sheet (extracted) As at 31/12/2001 Current Assets: Cash xxx Accounts Receivable xxx Inventories: Raw Materials xxx...
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Akaun Chapter 8

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Akaun Chapter 8

  1. 1. Chapter Eight MANAGEMENT ACCOUNTING
  2. 2. Outline <ul><li>Difference between managerial and financial accounting. </li></ul><ul><li>Purpose and importance of managerial accounting information for decision making. </li></ul><ul><li>Cost concept </li></ul><ul><li>Preparing statement for goods manufactured. </li></ul><ul><li>Preparing financial statement for manufacturing companies </li></ul>
  3. 3. Difference between managerial and financial accounting 1. Users of the information Internal and external users Internal users Financial Acc. Managerial Acc.
  4. 4. 2. Types and frequency of the reports <ul><li>classified financial </li></ul><ul><li>statements </li></ul><ul><li>issued quarterly </li></ul><ul><li>& annually </li></ul><ul><li>internal reports </li></ul><ul><li>issued as frequently </li></ul><ul><li>as needed </li></ul>Financial Acc. Managerial Acc.
  5. 5. 3. Content of the reports Objective: Standard reporting format according to generally accepted accounting principles Objective and subjective flexible reporting format according to management needs Financial Acc. Managerial Acc.
  6. 6. 4. Purpose of the reports General-purpose information for all users. Special-purpose information for a particular user for a specific decision. Financial Acc. Managerial Acc.
  7. 7. 4. Verification Annual independent audit by certified public accountant. No independent audits Financial Acc. Managerial Acc.
  8. 8. Importance of managerial accounting information for decision making Planning Directing Controlling Improving Decision making
  9. 9. Cost Concept Cost : a payment of cash; or its equivalent; or the commitment to pay cash in the future for the purpose of generating revenues Classification of costs By behavior By function By period
  10. 10. Classification by behavior 1. Fixed costs 3. Semi variable costs 2. Variable costs Does not change when the volume of activity changes. Changes in proportion with the changes in the volume of activity. A mixed of fixed and variable costs.
  11. 11. Relationship between fixed costs and activity Costs Activity (unit) Total fixed cost 10 20 30
  12. 12. Relationship between variable costs and activity Costs Activity (unit) Total variable cost 10 20 30
  13. 13. Relationship between mixed costs and activity Cost Activity (unit) Total mixed costs 10 20 30
  14. 14. Classification by function 1. Manufacturing costs 2. Administration costs 3. Selling costs Cost incurred in the process of transferring raw material to finished goods. Cost incurred and related to administration activities. Cost incurred and related to the selling and distributing activities.
  15. 15. Manufacturing Cost Concept  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
  16. 16. Manufacturing Cost : Direct Materials  Raw materials are the basic materials and parts that are to be used in the manufacturing process.  Raw materials that can be physically and directly associated with the finished product during the manufacturing process are called direct materials .
  17. 17. Manufacturing Cost : Indirect Materials  Some raw materials cannot be easily associated with the finished product. These are considered indirect materials .  Are accounted for as part of manufacturing overhead and : <ul><li>do not physically become part of the finished product; or </li></ul><ul><li>2 cannot be traced because their physical association with the finished product is too small in terms of cost . </li></ul>
  18. 18. Manufacturing Cost : Direct Labor  Direct labor is the work of factory employees that can be physically and directly associated with converting raw materials into finished goods.  The wages of maintenance people, timekeepers, and supervisors are usually identified as indirect labor. Their efforts have no physical association with the finished product.  Like indirect materials, indirect labor is part of manufacturing overhead.
  19. 19. Manufacturing Cost : Overhead  Manufacturing overhead consists of costs that are indirectly associated with the manufacture of the finished product.  These costs may also be manufacturing costs that cannot be classified as direct materials or direct labor.  Manufacturing overhead includes 1 indirect materials; 2 indirect labor; 3 depreciation on factory buildings and machines 4 insurance, taxes, and maintenance on factory facilities.
  20. 20. Product Cost vs. Period Cost  Product costs include each of the manufacturing cost elements (direct materials, direct labor, and manufacturing overhead); they are costs that are a necessary and integral part of producing the finished product.  These costs are not expensed to cost of goods sold under the matching principle until the finished goods inventory is sold.
  21. 21. Product Cost vs. Period Cost  Direct materials and direct labor are often referred to as prime costs due to their direct association with the manufacturing of the finished product.  Direct labor and manufacturing overhead are often referred to as conversion costs since they are incurred in converting raw materials into finished goods.
  22. 22. Product Cost vs. Period Cost <ul><ul><li> Period costs: </li></ul></ul><ul><ul><li>are identifiable with a specific time period, </li></ul></ul><ul><ul><li>relate to non-manufacturing non-inventoriable costs, </li></ul></ul><ul><ul><li>and </li></ul></ul><ul><ul><li>include selling and administrative expenses. </li></ul></ul>
  23. 23. Product Cost vs. Period Cost Direct Material Direct Labor Factory OH Prime Cost Conversion Cost Selling Expenses Admin Expenses Product Cost Period Cost Manufacturing Costs Non-manufacturing Costs
  24. 24. Financial Statement for Manufacturing Company  Statement of Cost of Goods Manufactured  Statement of Income  Balance Sheet
  25. 25. Cost of Goods Manufactured Total Current Manufacturing Cost Beginning Work in Progress + - Ending Work in Progress = Cost of Goods Manufactured / Total Manufacturing Cost
  26. 26. Statement of Cost of Goods Manufactured for the year ended 31/12/2001 Opening work in progress xxx Direct material : Opening inventories xxx (+) Purchases xxx Raw material available for use xxx (-) Closing inventories (xx) Raw material consumed / used xxx Direct labor xxx Factory overhead : Indirect material xx Indirect labor xx Others xx Total factory overhead xxx Total current manufacturing cost xxx xxxx Less: Closing work in progress (xx) Total manufacturing costs xxxx
  27. 27. Income Statement for the year ended 31/12/2001 Sales Revenue xxxx Less: Cost of Goods Sold Finished Goods Inventory 1/1/2001 xxx Cost of Goods Manufactured xxxx Cost of Goods Available for Sale xxxx (-) Finished Goods Inventory 31,12,2001 (xxx) Cost of Goods Sold (xxx) Gross Profit xxxx Less: Operating Expenses Selling Expenses Administrative Expenses xxxx Net Income xxxx
  28. 28. Balance Sheet (extracted) As at 31/12/2001 Current Assets: Cash xxx Accounts Receivable xxx Inventories: Raw Materials xxx Work in Progress xxx Finished Goods xxx xxx Prepaid Insurance xxx Total Current Assets xxxx
  29. 29. Thank You

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