Financial managerial accounting 3rd kieso ch14 (managerial accounting)

Financial & Managerial
Accounting

3

rd

Edition

Jerry Weygandt, Paul Kimmel, Don Kieso

Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College

14-1


CHAPTER 14

Managerial Accounting
Chapter Outline
LEARNING OBJECTIVES

LO 1

Identify the features of managerial accounting and the functions of management.

LO 2

Describe the classes of manufacturing costs and the differences between product and period costs.

LO 3

Demonstrate how to compute cost of goods manufactured and prepare financial statements for a
manufacturer.

LO 4

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Discuss trends in managerial accounting.


Managerial Accounting Basics

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.

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LO 1


Comparing Managerial and Financial Accounting

ILLUSTRATION 14.1
Differences between financial and managerial accounting

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LO 1


Management Functions

Planning



Maximize short-term profit and

Directing



market share.





Coordinate diverse activities and



Keeping activities on track.

human resources.



Determine whether goals are

Commit to environmental



Implement planned objectives.

protection and social programs.



Provide incentives to motivate

Add value to the business.

Controlling

met.



employees



Hire and train employees.



Produce a smooth-running

Decide changes needed to get
back on track.



May use an informal or formal
system of evaluations.

operation.

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LO 1


Organizational Structure

Organization charts show the
interrelationships of activities and the
delegation of authority and responsibility
within the company.

ILLUSTRATION 14.2
A typical corporate
organization chart

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LO 1


DO IT! 1

Managerial Accounting Overview

Indicate whether the following statements are true or false.

False

1.

Managerial accountants have a single role within an organization, collecting and
reporting costs to management.

True

2.

Financial accounting reports are general-purpose and intended for external users.

3.

Managerial accounting reports are special-purpose and issued as frequently as needed.

True

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LO 1


DO IT! 1

Managerial Accounting Overview

Indicate whether the following statements are true or false.

False

4.

Managers’ activities and responsibilities can be classified into three broad functions:
cost accounting, budgeting, and internal control.

5.
False

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

LO 1

Managerial Cost Concepts

LEARNING OBJECTIVE 2
Describe the classes of manufacturing costs and the differences between product and period costs.

Managers should ask questions such as the following.

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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?

LO 2


Manufacturing Costs

Activities and processes that convert raw materials into finished goods.

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LO 2


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.

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LO 2


Manufacturing Costs

Direct Materials
Indirect Materials

1.

Not physically part of finished product or

2.

are impractical to trace to finished product because their association with finished product is
too small in terms of cost.

Considered part of manufacturing overhead.

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LO 2


Manufacturing Costs

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

Indirect Labor

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

Work of factory employees that has no association with finished product or



which is impractical to trace costs to goods produced.

LO 2


Manufacturing Costs

Manufacturing Overhead

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

Costs indirectly associated with manufacturing the finished product.



All manufacturing costs except direct materials and direct labor.



Also called factory overhead, indirect manufacturing costs, or burden.

LO 2


Product Versus Period Costs

Product Costs



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Components:





Direct materials
Direct labor
Manufacturing overhead



Costs that are an integral part of producing the product.



Recorded in “inventory” account.



Not an expense (COGS) until the goods are sold.

LO 2


Product Versus Period Costs

Period Costs

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

Charged to expense as incurred.



Non-manufacturing costs.



Includes all selling and administrative expenses.

LO 2


Product Versus Period Costs
ILLUSTRATION 14.3
Product versus period costs

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LO 2


Product Versus Period Costs

Illustration: Suppose you started your own snowboard factory, Terrain Park Boards. Here are some of the

costs that your snowboard factory would incur. Assign the following costs:

Terrian Park Boards

ILLUSTRATION 14.4
Assignment of costs to cost categories
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LO 2


Product Versus Period Costs

ILLUSTRATION 14.4
Assignment of costs to cost categories

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LO 2


Product Versus Period Costs

If Terrain Park Boards produces 10,000 snowboards the first year, what would be the total manufacturing
costs?

ILLUSTRATION 14.5
Computation of total manufacturing costs

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LO 2


DO IT! 2

Managerial Cost Concepts

A bicycle company has these costs: tires, salaries of employees who
put tires on the wheels, factory depreciation, advertising expenditures, lubricants, spokes, salary of factory manager, salary of
accountant, handlebars, and salaries of factory maintenance employees. Classify each cost as direct materials, direct labor,
overhead, or a period cost.

Direct Materials



Tires.



Spokes.



Handlebars.

Direct Labor



Overhead

Salaries of employees who put



Factory depreciation.

tires on the wheels.



Factory lubricants.



Factory manager salary.



Factory maintenance employees

Advertising expenditures and salary of accountant are period

salary.

costs.

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LO 2


Manufacturing Costs in Financial Statements

LEARNING OBJECTIVE 3
Demonstrate how to compute cost of goods manufactured and prepare financial statements for a manufacturer.

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”
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LO 3


Income Statement

ILLUSTRATION 14.6
Cost of goods sold components
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LO 3


Income Statement

Cost of goods sold sections of merchandising and manufacturing income statements

ILLUSTRATION 14.7
Cost of goods sold sections of merchandising and manufacturing Income statements

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LO 3


Cost of Goods Manufactured

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

ILLUSTRATION 14.8
Cost of goods manufactured formula
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LO 3