BUS202 Chapter 14 - Introduction to Managerial Accounting

managerial (management) accounting

a field of accounting that provides economic and financial information for managers and other internal users

external users

users that include stockholders, creditors, and regulators

internal users

internal users that include officers and managers

planning, directing, and controlling

the three activities and responsibilities of management

decision-making

the outcome of the exercise of good judgment in planning, directing, and controlling; NOT a separate management function

planning

requires management to look ahead and establish objectives

value

usually measured by the trading price of the company’s stock and the potential selling price of the company

directing

a key management function that involves coordinating diverse activities and human resources to produce a smooth-running operation

controlling

the process of keeping the firm’s activities on track

organizational charts

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

manufacturing costs

activities and processes that convert raw materials into finished goods

direct materials

raw materials that can be physically and directly associated with the finished product during the manufacturing process

indirect materials

materials that are either not physically part of the finished product or are impractical to trace to the finished product

direct labor

work of factory employees that can be physically and directly associated with converting raw materials into finished goods

indirect labor

work of manufacturing-related employees that has no physical association with the making of the finished product or costs for which it is impractical to trace to the goods produced

manufacturing overhead

costs indirectly associated with the manufacturing of the finished product

product costs

all manufacturing cost components, including direct materials, direct labor, and manufacturing overhead

period costs

nonmanufacturing costs; included all selling and administrative expenses

raw materials inventory

inventory that shows the cost of raw materials on hand

work in process inventory

inventory that shows the cost applicable to units that have been started into production but are only partially completed

finished goods inventory

inventory that shows the cost of completed goods on hand

total manufacturing costs

the sum of direct material costs, direct labor costs, and manufacturing overhead incurred in the current year

total work in process

the cost of beginning work in process and total manufacturing costs for the current period

value chain

refers to all business processes associated with providing a product or performing a service; includes both manufacturing and nonmanufacturing costs

lean manufacturing

requires a review of all business processes in an effort to increase productivity and eliminate waste, all while continually trying to improve quality

just-in-time inventory method (JIT)

when goods are manufactured or purchased just in time for sale

total quality management (TQM)

a method that reduces defects in finished products with the goal of zero defects

theory of constraints

involves the identification of bottlenecks; once a major constraint has been identified and eliminated, the company moves on to fix the next most significant constraint

bottlenecks

constraints within the value chain that limit a company’s profitability

enterprise resource planning (ERP)

provides a comprehensive, centralized, integrated source of information to manage all major business processes

activity-based costing (ABC)

allocates overhead based on each product’s use of particular activities in making the product; can contribute to increased efficiency in the value chain

balanced scorecard

an approach that uses both financial and nonfinancial measures to evaluate all aspects of a company’s operations in an integrated fashion

corporate social responsibility

considers a company’s efforts to employ sustainable business practices with regard to its employees, society, and the environment; also referred to as the “triple bottom line”

data analytics

the use of techniques, which often combine software and statistics, to analyze data to make informed decisions

data visualizations

often help acquire a more intuitive understanding of the relationship between variables and business trends