Managerial Accounting

INTRODUCTION

Meidyah Indreswari
SE Ak, M.Sc. Ph.D, CA CCSA CRMA

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 Managerial
Chapter 1 Accounting
Learning Objectives
After studying this chapter, you should be able to:
[1] Explain the distinguishing features of managerial accounting.
[2] Identify the three broad functions of management.
[3] Define the three classes of manufacturing costs.
[4] Distinguish between product and period costs.
[5] Explain the difference between a merchandising and a manufacturing income
statement.
[6] Indicate how cost of goods manufactured is determined.

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 Preview of Chapter 1

Managerial Accounting
Sixth Edition
Weygandt Kimmel Kieso
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 Managerial Accounting Basics

Managerial accounting is a field of accounting that

provides economic and financial information for managers
and other internal users.

Managerial accounting applies to all types of businesses.

Corporations Partnerships
Proprietorships Not-for-profit

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 Managerial Accounting Basics

Comparing Managerial and Financial

Accounting Illustration 1-1

LO 1 Explain the distinguishing features of managerial accounting.

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 Managerial Accounting Basics

Management Functions

Planning Directing Controlling

Maximize short-term Coordinate diverse Keeping activities on

profit and market activities and human track.
share. resources. Determine whether
Commit to Implement planned goals are met.
environmental objectives. Decide changes
protection and social Provide incentives to needed to get back
programs. motivate employees on track.
Add value to the May use an informal
Hire and train
business. employees. or formal system of
Produce smooth- evaluations.
running operation.

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LO 2 Identify the three broad functions of management.
 Managerial Accounting Basics

Planning
Planning

How much should we budget for TV,

print, and internet advertising?

How many salespeople should we

plan to hire to serve a new territory?

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LO 2 Identify the three broad functions of management.
 Managerial Accounting Basics

Controlling
Controlling

Is the budgeted price cut increasing

unit sales as expected?

Are we accumulating too much

inventory during the holiday
shopping season?

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LO 2 Identify the three broad functions of management.
 Managerial Accounting Basics

Decision
Decision
Making
Making

Should we sell our services as one

bundle or sell them separately?

Should we sell directly to customers

or use a distributor?

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LO 2 Identify the three broad functions of management.
 Managerial Accounting Basics

Three primary roles of management accounting:

1. Scorekeeping Recording the cost of production
2. Attention-directing Producing a report that
identifies results and where results differed from
plan
3. Problem solving production costs exceed
planned costs and proposing a solution to avoid
the cause in the future

accounting, management and strategy

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LO 2 Identify the three broad functions of management.
 Managerial Accounting Basics

Organizational Structure Illustration 1-2

Organization charts show the

interrelationships of activities
and the delegation of authority
and responsibility within the
company.

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LO 2 Identify the three broad functions of management.
 Managerial Accounting Basics

Review Question
Managerial accounting:
a. Is governed by generally accepted accounting
principles.
b. Places emphasis on special-purpose information.
c. Pertains to the entity as a whole and is highly
aggregated.
d. Is limited to cost data.

LO 1 Explain the distinguishing features of managerial accounting.

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 Indicate whether the following statements are true or false.

1. Managerial accountants have a single role within an

False organization, collecting and reporting costs to
management.

2. Financial accounting reports are general-purpose and

True
intended for external users.

3. Managerial accounting reports are special-purpose and

True issued as frequently as needed.

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LO 2 Identify the three broad functions of management.
 Indicate whether the following statements are true or false.

4. Managers activities and responsibilities can be classified

False into three broad functions: cost accounting, budgeting,
and internal control.

5. As a result of the Sarbanes-Oxley Act, managerial

False accounting reports must now comply with generally
accepted accounting principles (GAAP).

6. Top managers must certify that a company maintains an

True adequate system of internal controls.

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LO 2 Identify the three broad functions of management.
 Manufacturing Costs

Cost is the cash or cash-

equivalent value sacrificed for
goods and services that is expected
to bring a current or future benefit
to the organization.1

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LO 3 Define the three classes of manufacturing costs.
 Manufacturing 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 decrease?

3. What impact will automation have on total costs?

4. How can we best control costs?

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LO 3 Define the three classes of manufacturing costs.
 Manufacturing Costs

Manufacturing Costs
Manufacturing consists of activities and processes that
convert raw materials into finished goods.

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LO 3 Define the three classes of manufacturing costs.
 Manufacturing Costs

Direct
Direct Direct
Direct Manufacturing
Manufacturing
Materials
Materials Labor
Labor Overhead
Overhead

The Product

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LO 3 Define the three classes of manufacturing costs.
 Manufacturing Costs

Direct Direct Manufacturing

Material Labor Overhead

Prime Conversion
Cost Cost

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LO 3 Define the three classes of manufacturing costs.
 Manufacturing Costs

Direct Materials
Raw Materials
Basic materials and parts used in
manufacturing process.

Direct Materials
Raw materials that can be physically and directly associated
with the finished product during the manufacturing process.

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LO 3 Define the three classes of manufacturing costs.
 Manufacturing Costs

Direct Materials
Indirect Materials
Not physically part of the finished product or they are
an insignificant part of finished product in terms of
cost.
Considered part of manufacturing overhead.

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LO 3 Define the three classes of manufacturing costs.
 Manufacturing Costs

Direct Labor
Work of factory employees that can be
physically and directly associated with
converting raw materials into finished
goods.

Indirect Labor
Work of factory employees that has no physical
association with the finished product or for which it is
impractical to trace costs to the goods produced.

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LO 3 Define the three classes of manufacturing costs.
 Manufacturing Costs

Manufacturing Overhead
Costs that are indirectly associated with manufacturing
the finished product.
Includes all manufacturing costs except direct materials
and direct labor.
Also called factory overhead, indirect manufacturing
costs, or burden.

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LO 3 Define the three classes of manufacturing costs.
 A bicycle company has these costs: tires, salaries of employees
who put tires on the wheels, factory building depreciation, wheel
nuts, spokes, salary of factory manager, handlebars, and salaries
of factory maintenance employees. Classify each cost as direct
materials, direct labor, or overhead.

Direct Materials Direct Labor Overhead

Tires. Salaries of Factory depreciation.
Spokes. employees who put Factory manager
tires on the wheels. salary.
Handlebars.
Factory maintenance
employees salary.

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LO 4 Distinguish between product and period costs.
 Manufacturing Costs

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LO 3 Define the three classes of manufacturing costs.
 Manufacturing Costs

A cost driver is the level of activity or volume

that causally affects costs over a given time span.
An activity is an event, task, or unit of work with a
specified purposefor example, designing products,
setting up machines, or testing products.
The level of activity or volume is a cost driver if there
is a cause-and-effect relationship between a change
in the level of activity or volume and a change in the
level of total costs.
For example, miles driven is often a cost driver of
distribution costs.

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LO 4 Distinguish between product and period costs.
 Product Versus Period Costs

Illustration 1-3

Balance Sheet Income Statement

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LO 4 Distinguish between product and period costs.
 Product Versus Period Costs

Product Costs
Direct materials
Components: Direct labor
Manufacturing overhead

Costs that are an integral part of producing the

product.
Recorded in inventory account (Balance Sheet)
Not an expense (COGS) until the goods are sold.

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LO 4 Distinguish between product and period costs.
 Product Versus Period Costs

Period Costs
Charged to expense as incurred (Income Statement).
Non-manufacturing costs.
Includes all selling and administrative expenses.

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LO 4 Distinguish between product and period costs.
 Product Versus Period Costs

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LO 4 Distinguish between product and period costs.
 Manufacturing Costs in Financial Statements

1-31 LO 5 Explain the difference between a merchandising

and a manufacturing income statement.
 Manufacturing Costs in Financial Statements

Income Statement
Under a periodic inventory system, the income statements
of a merchandiser and a manufacturer differ in the cost of
goods sold section.

COGS
1-32 LO 5 Explain the difference between a merchandising
and a manufacturing income statement.
 Manufacturing Costs in Financial Statements

Cost of Goods Manufactured

Cost of Goods Sold Components (Periodic Inventory System)

Illustration 1-4

1-33 LO 5
 Manufacturing Costs in Financial Statements

Cost of goods sold sections of merchandising and

manufacturing income statements
Illustration 1-5

1-34 LO 5 Explain the difference between a merchandising

and a manufacturing income statement.
 Illustration 1-7

Illustration 1-8

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 Manufacturing Costs in Financial Statements

Determining the Cost of Goods Manufactured

Total Work in Process (1) cost of beginning work in process and (2)
total manufacturing costs for the current period.
Total Manufacturing Costs sum of direct material costs, direct labor
costs, and manufacturing overhead in the current year.
Illustration 1-6

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LO 6 Indicate how cost of goods manufactured is determined.
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LO 6 Indicate how cost of goods manufactured is determined.
 Manufacturing Costs in Financial Statements

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LO 6 Indicate how cost of goods manufactured is determined.
 Manufacturing Costs in Financial Statements

Balance Sheet
Inventory accounts for a manufacturer
Illustration 1-8

The balance sheet for a merchandising company shows just one

category of inventory.

1-39 LO 7 Explain the difference between a merchandising and

a manufacturing balance sheet.
 Manufacturing Costs in Financial Statements

Balance Sheet
Current assets sections of merchandising and manufacturing balance
sheets
Illustration 1-9

1-40 LO 7 Explain the difference between a merchandising and

a manufacturing balance sheet.
 Manufacturing Costs in Financial Statements

Illustration: Suppose you started your own snowboard

factory, KRT Boards. Here are some of the costs that your
snowboard factory would incur. Assign the following costs:

Illustration 1-10

1-41 LO 7 Explain the difference between a merchandising and

a manufacturing balance sheet.
 Manufacturing Costs in Financial Statements

Illustration 1-10

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 Manufacturing Costs in Financial Statements

If KRT Boards produces 10,000 snowboards the first year,

what would be the total manufacturing costs?
Illustration 1-11

1-43 LO 7 Explain the difference between a merchandising and

a manufacturing balance sheet.
 Managerial Accounting Today

Focus on the Value Chain

Refers to all business process associated with providing a
product or service.
For a manufacturing firm these include the following:

Illustration 1-12

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LO 8 Identify trends in managerial accounting.
 Managerial Accounting Today

Just-In-Time Inventory Methods

Inventory system in which goods are manufactured or
purchased just in time for sale.

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LO 8 Identify trends in managerial accounting.
 Managerial Accounting Today

Traditional Inventory Methods

Inventory system in which goods are manufactured or
purchased in anticipation of sales

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LO 8 Identify trends in managerial accounting.
 Managerial Accounting Today

Activity-Based Costing (ABC)

Allocates overhead based on use of activities.
Results in more accurate product costing and scrutiny of
all activities in the value chain.

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LO 8 Identify trends in managerial accounting.
 Managerial Accounting Today

Balanced Scorecard
Evaluates operations in an integrated fashion.
Uses both financial and non-financial measures.
Links performance to overall company objectives.

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LO 8 Identify trends in managerial accounting.
 Match the descriptions that follow with the corresponding terms.

1. ______
e All activities associated with
providing a product or service.
2. ______
a A method of allocating
overhead based on each products
use of activities in making the
product.

3. ______
d Systems implemented to reduce defects in finished
products with the goal of achieving zero defects.

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LO 8 Identify trends in managerial accounting.
 Match the descriptions that follow with the corresponding terms.

4. ______
b A performance-
measurement approach that uses
both financial and nonfinancial
measures, tied to company
objectives, to evaluate a
companys operations in an
integrated fashion.

5. ______
c Inventory system in which goods are manufactured or
purchased just as they are needed for use.

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LO 8 Identify trends in managerial accounting.
 SEKIAN
indreswari123@gmail.com

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