Managerial accounting 6e jams jambalvo chapter 01

Prepared by Debby Bloom-Hill
CMA, CFM


CHAPTER
CHAPTER 11
Managerial Accounting
in the
Information Age

Slide 1-2


Managerial
Managerial Accounting
Accounting

 Managerial accounting is designed for internal users
 The goal of Managerial Accounting is to provide the information
managers need for

 Planning
 Control
 Decision making

Learning objective 1: Explain the primary goal of managerial accounting and
Slide 1-3

distinguish between financial and managerial accounting.

Planning
Planning




Planning is a key activity for all companies
Communicates a company’s goals to employees





Aids coordination of various functions such as sales and production

Specifies the resources needed to achieve company goals

Learning objective 1: Explain the primary goal of managerial accounting and
Slide 1-4

distinguish between financial and managerial accounting.


Planning
Planning



Budgets for planning



Profit budget





Indicates planned income

Cash flow budget

 Indicates planned cash inflows and outflows



Production budget

 Indicates the planned quantity of production and expected costs

Learning objective 1: Explain the primary goal of managerial accounting and
Slide 1-5

distinguish between financial and managerial accounting.


Planning
Planning

Learning objective 1: Explain the primary goal of managerial accounting and

Slide 1-6

distinguish between financial and managerial accounting.


Control
Control



Organizations achieve control by:



Evaluating managers to determine how their performance should be
rewarded or punished



Evaluating operations to provide information as to whether they should be
changed or not

Learning objective 1: Explain the primary goal of managerial accounting and
Slide 1-7

distinguish between financial and managerial accounting.


Planning
Planning and

and Control
Control Process
Process

Learning objective 1: Explain the primary goal of managerial accounting and
Slide 1-8

distinguish between financial and managerial accounting.


Sample
Sample Performance
Performance Report
Report

Learning objective 1: Explain the primary goal of managerial accounting and
Slide 1-9

distinguish between financial and managerial accounting.


Managerial
Managerial vs
vs Financial
Financial Accounting
Accounting



Unlike Financial Accounting, Managerial Accounting:







Is directed at internal users
May deviate from GAAP
Presents more detailed information
May present more nonmonetary information
Places more emphasis on the future

Learning objective 1: Explain the primary goal of managerial accounting and
Slide 1-10

distinguish between financial and managerial accounting.


Cost
Cost Terminology
Terminology



Variable Costs



Increase or decrease in proportion to changes in volume or activity

 Materials and labor are generally considered to be variable costs

Slide 1-11

Learning objective 2: Define cost terms used in planning, control, and decision making.


Cost
Cost Terminology
Terminology



Fixed Costs



Do not change in response to changes in volume or activity

 Depreciation and rent are examples of fixed costs

Slide 1-12

Learning objective 2: Define cost terms used in planning, control, and decision making.


Test Your Knowledge 1

Which of the following is most likely to be a variable cost?

a.
b.
c.
d.

Depreciation
Cost of materials
Rent
Advertising

Answer:
b. Cost of materials

Slide 1-13

Learning objective 2: Define cost terms used in planning, control, and decision.


Test Your Knowledge 2

Which of the following is most likely to be a fixed cost?

a.
b.
c.
d.

Cost of materials
Rent

Assembly labor cost
Commissions

Answer:
b. Rent

Slide 1-14

Learning objective 2: Define cost terms used in planning, control, and decision making.


Cost
Cost Terminology
Terminology



Sunk Costs






Not relevant to present decisions

Opportunity Costs



Slide 1-15

Costs incurred in the past

Values of benefits foregone when selecting one alternative over another

Learning objective 2: Define cost terms used in planning, control, and decision making.


Test Your Knowledge 3

Costs incurred in the past are:

a.
b.
c.
d.

Opportunity costs
Direct costs
Sunk costs
Variable costs

Answer:
c. Sunk costs

Slide 1-16

Learning objective 2: Define cost terms used in planning, control, and decision making.

Cost
Cost Terminology
Terminology



Direct and indirect costs



Direct costs are directly traceable to a product, activity, or department,
indirect costs are not traceable



Controllable and non-controllable costs



A manager can influence controllable costs but cannot influence noncontrollable costs

Slide 1-17

Learning objective 2: Define cost terms used in planning, control, and decision making.


Direct
Direct and
and Indirect

Indirect Cost
Cost

Slide 1-18

Learning objective 2: Define cost terms used in planning, control, and decision making.


Test Your Knowledge 4

In the past year, Williams Mold & Machine had sales of $8,000,000 and total production
costs of $6,000,000. In the coming year, the company believes that production can be
increased by 30%, but this will require adding a second shift to work from 4:00 pm to 1:00
am.

1.

Indicate three production costs that are likely to increase because of adding a
second production shift.

Material costs, workers’ salaries, and benefits are all likely to increase.

Slide 1-19

Learning objective 2: Define cost terms used in planning, control, and decision making.


Test Your Knowledge 5
In the past year, Williams Mold & Machine had sales of $8,000,000 and total production
costs of $6,000,000. In the coming year, the company believes that production can be

increased by 30%, but this will require adding a second shift to work from 4:00 pm to 1:00
am.

2.

What production cost most likely will not increase when the second shift is
added?

Depreciation of the building will not increase.

Slide 1-20

Learning objective 2: Define cost terms used in planning, control, and decision making.


Two
Two Key
Key Ideas
Ideas in
in Managerial
Managerial Accounting
Accounting

Slide 1-21

Learning objective 3: Explain the two key ideas in managerial accounting.


Incremental
Incremental Analysis

Analysis

•

Incremental analysis:




Slide 1-22

Differences in revenues and costs between alternatives are incremental
Incremental revenue minus incremental cost equals incremental profit

Learning objective 3: Explain the two key ideas in managerial accounting.


You
You Get
Get What
What you
you Measure
Measure
Performance measures greatly influence the behavior of managers

Slide 1-23

Learning objective 3: Explain the two key ideas in managerial accounting.

Test
Test Your
Your Knowledge
Knowledge 66



Jason Deen is the owner of Deen’s Custom Motorcycles. Recently, his cousin, Jake,
crashed his bike and brought it in for repairs. Jason offered to fix the bike and charge his
cousin for just the incremental costs.



Which of the following is an incremental cost associated with the repair job?

a.
b.
c.
d.

Depreciation on tools
Salary paid to the accountant at Deen’s
Required parts
Utilities (e.g., heat and electricity)

Answer: c. Required parts

Slide 1-24

Learning objective 3: Explain the two key ideas in managerial accounting.

Information
Information Age
Age and
and Managerial
Managerial Accounting
Accounting



Advances in information technology have:



Increased competition and also created opportunities and cost savings
for firms that use information for strategic advantage



Impacted information flows up and down the value chain (i.e. fundamental
activities that a firm engages in to create value)

Slide 1-25

Learning objective 4: Discuss the impact of information technology on business processes and the interactions companies have with suppliers and customers.