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19
CHAPTER
Managerial
Accounting
Concepts and
Principles
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Managerial and Financial
Accounting
Managerial accounting
provides information
for managers of an
organization who
plan and control
its operations.
Financial accounting
provides information
to stockholders,
creditors and others
who are outside
the organization.
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Nature of Managerial Accounting
Financial Accounting Managerial Accounting
1. Users and Investors, creditors and Managers, employees and
decision makers other external users other internal users
2. Purpose of Making investment, credit Planning, decision
information and other decisions making and control
3. Flexibility Structured and often Relatively flexible
of practice controlled by GAAP (no GAAP)
4. Timeliness of Often available only Available quickly without
information after audit is complete need to wait for audit
5. Time dimension Historical information Many projections
with minimum predictions and estimates
6. Focus of Emphasis on Projects, processes and
information whole organization segments of an organization
7. Nature of Monetary Monetary and
information information nonmonetary information
Exh.
19-2
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Reporting Manufacturing Activities
Merchandisers . . .
Buy finished goods.
Sell finished goods.
Manufacturers . . .
Buy raw materials.
Produce and sell
finished goods.
SaleMart
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Balance Sheet of a Manufacturer
Manufacturing
Inventory
Classifications
Raw
Materials
Finished
Goods
Goods in
Process
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Balance Sheet of a Manufacturer
Raw
Materials
Finished
Goods
Goods in
Process
Partially complete
products.
Material to which
some labor and/or
overhead have
been added.
Completed
products
for sale.
Materials
waiting to be
processed.
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Balance Sheet of a Manufacturer

MERCHANDISER

Current Assets
Cash
Receivables
Merchandise
Inventory

MANUFACTURER

Current Assets
Cash
Receivables
Inventories
Raw Materials
Goods in Process
Finished Goods
The only difference is inventory.
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Income Statement of a
Manufacturer
Exh.
19-6
Beginning
Merchandise
Inventory
Beginning
Finished Goods
Inventory
Cost of Goods
Purchased
Cost of Goods
Manufactured
Ending
Merchandise
Inventory
Ending
Finished Goods
Inventory
Cost of Goods
Sold
Merchandiser Manufacturer
+
_
+
= =
_
The major
difference
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Income Statement of a
Manufacturer
Manufacturing Company
Cost of goods sold:
Beg. finished
goods inv. 14,200 $
+ Cost of goods
manufactured 234,150
= Goods available
for sale 248,350 $
- Ending
finished goods
inventory (12,100)
= Cost of goods
sold 236,250 $
Merchandising Company
Cost of goods sold:
Beg. merchandise
inventory 14,200 $
+ Purchases 234,150
= Goods available
for sale 248,350 $
- Ending
merchandise
inventory (12,100)
= Cost of goods
sold 236,250 $
Exh.
19-7
Cost of goods sold for manufacturers differs only
slightly from cost of goods sold for merchandisers.
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Income Statement of a
Manufacturer
Direct Materials
Materials that are clearly and easily
identified with a particular product.
Example:
Steel used to
manufacture
the automobile.
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Income Statement of a
Manufacturer
Direct Labor
Labor costs that are clearly traceable
to, or readily identifiable with, the
finished product.
Example:
Wages paid to an
automobile assembly
worker.
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Income Statement of a
Manufacturer
Factory Overhead
All factory costs except
direct material and direct labor.
Factory costs that cannot be
traced directly to specific units produced.
Examples:
Indirect labor maintenance
Indirect material cleaning supplies
Factory utility costs
Supervisory costs
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Question
What type of account is the manufacturing
goods in process account?

a. Income statement expense account.
b. Balance sheet inventory account.
c. Temporary clearing account for direct
material and direct labor.
d. Holding account for manufacturing
overhead and direct labor.
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What type of account is the manufacturing
goods in process account?

a. Income statement expense account.
b. Balance sheet inventory account.
c. Temporary clearing account for direct
material and direct labor.
d. Holding account for manufacturing
overhead and direct labor.
Question
Question
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Cost Accounting Concepts
Behavior
Traceability
Controllability
Relevance
Function
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Classification by Behavior
Cost behavior means
how a cost will react to
changes in the level of
business activity.
Total fixed costs do
not change when
activity changes.
Total variable costs
change in proportion
to activity changes.
Activity
C
o
s
t

Activity
C
o
s
t

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Classification by Traceability
Direct costs
Costs that can be
easily and conveniently
traced to a unit of
product or other cost
objective.
Examples: direct
material and direct labor
Indirect costs
Costs that must be
allocated to a unit of
product or other cost
objective.

Example:
manufacturing
overhead
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Classification by Traceability
Direct
material
Direct
labor
A product, process,
department, or
customer to which
costs are assigned.
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Classification by Relevance:
Opportunity Costs
The potential benefit
that is given up when
one alternative is
selected over another.
Example: If you were
not attending college,
you could be earning
$15,000 per year.
Your opportunity cost
of attending college for
one year is $15,000.
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Classification by Function:
Product Costs
The
Product
Direct
Labor
Direct
Material
Manufacturing
Overhead
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Period costs are expenses
not charged to the product.
Classification by Function:
Period Costs
Administrative Costs
Nonmanufacturing costs
of staff support and
administrative functions
accounting, data processing,
personnel, research
and development.
Selling Costs
Costs incurred to obtain
customer orders and to
deliver finished goods
to customers
advertising and shipping.
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Question
The primary distinction between product
and period costs is . . .

a. Product costs are expensed in the period
incurred.
b. Product costs are directly traceable to
product units.
c. Product costs are inventoriable.
d. Period costs are inventoriable.
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The primary distinction between product
and period costs is . . .

a. Product costs are expensed in the period
incurred.
b. Product costs are directly traceable to
product units.
c. Product costs are inventoriable.
d. Period costs are inventoriable.
Question
Question
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Manufacturing Management
Principles
Exh.
19-15
Customer
Orientation
in a Global
Economy
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Total Quality Management
on
Quality throughout
the production process.
Rewards for employees
who find defects.
Employees encouraged
to try new methods
to improve quality.
Company emphasizes
value of quality through
quality awards.
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Complete products
just in time to
ship customers.
Complete parts
just in time for
assembly into products.
Receive materials
just in time for
production.
Schedule
production.
Just-In-Time (JIT) Manufacturing
Receive
customer
orders.
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Theory of Constraints
A sequential process of identifying and
removing constraints in a system.
Restrictions or barriers that impede
progress toward an objective.
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Continuous Improvement
New ways to
improve
operations
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End Of Chapter 19