MANAGERIAL ACCOUNTING CONCEPTS AND PRINCIPLES

Managerial Accounting Basics Purpose 

to provide financial and nonfinancial information to Mangers and other Internal decision makers of an organization

Costs

_____ of Products is important in planning and control decisions

Planning

______ the process of Setting Goal and making plans to achieve them

Strategic Plans

set the long-run direction of a firm (5-10 years)

Short-Term Plans

often cover one year periods (in monetary terms it is a budget)

Control is the process of ______ planning decisions and evaluating the organization’s activities and employees and allows for corrective action to be taken

Monitoring

FINANCIAL ACCOUNTING

Users and decision makers

investors, creditors & other external users

MANAGERIAL ACCOUNTING

Users and decision makers

managers, employees, & internal decision makers

FINANCIAL ACCOUNTING

Purpose of Information

assist external users in making investment & credit decisions

FINANCIAL ACCOUNTING

Flexibility of Practice.      

structured/controlled by GAAP

FINANCIAL ACCOUNTING

Timeliness of information  

often available only after an audit is complete

FINANCIAL ACCOUNTING

Time Dimension                   

historical information with minimum predictions

FINANCIAL ACCOUNTING

Focus of Information          

emphasis on whole organization

FINANCIAL ACCOUNTING

Nature of Information        

monetary information

MANAGERIAL ACCOUNTING

Purpose of Information

assist managers in making planning & control decisions

MANAGERIAL ACCOUNTING

Flexibility of Practice.       

relatively flexible (no GAAP)

MANAGERIAL ACCOUNTING

Timeliness of information

available quickly without need for an audit

MANAGERIAL ACCOUNTING

Time Dimension                   

many projections & estimates, also some historical information

MANAGERIAL ACCOUNTING

Focus of Information        

emphasis on projects, processes, subdivisions of an organization

MANAGERIAL ACCOUNTING

Nature of Information        

monetary information and some nonmonetary information

Fixed Cost

remains the same irrespective of the volume of an activity (straight-line depreciation)

Variable Cost

change in direct proportion to changes in volume of an activity (sales commissions)

Mixed cost

combination of fixed and variable (fixed amount plus based on usage)

Direct Cost

incurred for the benefit of one specific cost object (material and labor)

Indirect Cost

incurred for the benefit of more than one cost object (utilities, rent)

Sunk Cost

one already incurred and cannot be avoided or changed (equipment previously purchased), is irrelevant in decision making

Out of Pocket Cost

requires a future outlay of cash, is relevant in decision making

Opportunity Cost

the potential benefit lost by taking a specific action from two or more alternative choices

Product Cost

expenditures are necessary and integral to finished products and are capitalized as inventory (materials, labor, and overhead)

Financial statements for manufacturing companies have some unique features resulting from the activity of producing goods from ____ and ____

materials, labor

Raw Materials Inventory

Are goods a company acquires to use in making products

Direct Material

physically become part of the product and are clearly identified with specific units or batches (convenient and easy to trace to a product)

Indirect Materials

used in support of the production process.  May become part of a product but are very low cost so it is not economically sound (not convenient and easy) to trace their cost to a product

Work in process (Goods in process) Inventory

Are the products in the process of being manufactured but not yet complete

Finished Goods Inventory

Consists of completed products waiting to be sold

Cost of Goods Sold (COGS)

  Beginning Finished Goods Inventory  (+)  Cost of Goods Manufactured  (-)  Ending Finished Goods Inventory

Cost of Goods Manufactured 

Direct Materials Used  (+)  Direct Labor  (+)  Overhead Costs

Direct Materials

are separately and readily traced through the manufacturing process to finished good

Direct Labor Costs

are wages for direct labor that are separately and readily traced through the manufacturing process to finished goods

Factory Overhead

expenditures for factory overhead (costs not directly traced to a product such as maintenance, utilities, depreciation, rent, insurance, etc.) that cannot be separately or readily traced to finished goods

Prime Costs  

Direct materials  (+)  Direct labor  (they are expenditures directly associated with manufacturing of finished goods)

Conversion Costs  

Direct labor  (+)  Overhead  (expenditures incurred in the process of converting raw materials to finished goods)

Manufacturing Activities & Information

Are described in a Schedule of Cost of Goods Manufactured (also called a Schedule of Manufacturing Activities or a Manufacturing Statement

Flow of Manufacturing Activities

1. Materials Activities 

2. Production Activities

3. Sales Activities

Materials  Activities

includes beginning raw materials plus new purchases that are either used in production or remain on hand for the next period

Production  Activities

includes beginning goods in process plus direct materials used plus direct labor plus overhead that results in either finished goods or ending goods in process

Sales Activities

includes beginning finished goods plus newly completed units

Direct material Used

is beginning raw materials plus purchases less ending raw materials

Direct labor Incurred

is labor plus payroll taxes plus fringe benefits

Overhead

lists each important factory overhead item (can use a separate O/H schedule

Corporation of Cost of Goods Manufactured

add together direct material used plus direct labor incurred plus total overhead plus beginning goods in process less ending goods in process