Chapter 16: Intro to Managerial Accounting

The Management Process (4 steps)

1. Strategic planning 2. Measurement 3. Evaluation 4. Control

Strategic vs Operational Planning

Strategic = long-term goal development; Operational = short-term goal development

Measurement

Process by which managers develop and agree upon performance metrics and how to achieve objectives

Evaluation

Process by which management monitors operations and compares actual with expected results

Control

Process by which management takes actions to encourage particular outcomes or behaviors

How is managerial accounting different from financial accounting

Managerial accounting:

1. Focuses on internal users

2. Is not limited by GAAP

3. Is available more quickly

4. Focuses on predicting the future

5. Does not focus on the entire business entity

6. Incorporates nonmonetary information

Variable versus Fixed Costs

Variable costs change in total as production levels change, but remain constant on a per unit basis.

Fixed costs remain constant in total regardless of production level changes.

Direct versus Indirect Costs

Direct costs are traceable to a single cost object. Indirect costs cannot be traced to a single cost object.

Product Costs

Are traceable or allocable to units produced (direct labor, direct materials, & overhead); show in inventory on the balance sheet and cost of goods sold on the income statement.

Period Costs

Are expenses not attached to the product like selling costs and support staff salaries; they are immediately expensed on the income statement.

Direct Materials

Materials that are separately & readily traced through the manufacturing process to finished goods.

Direct Labor

Wages & salaries for labor that are separately & readily traced through the manufacturing process to finished goods.

Manufacturing Costs

Direct materials, direct labor, and factory overhead

Prime costs

Costs directly associated with the manufacture of finished goods; direct labor and direct materials.

Conversion costs

Costs incurred in the process of converting raw materials to finished goods; direct labor and overhead.

3 types of inventory on a manufacturer's balance sheet

1. Raw materials

2. Work in process

3. Finished goods

Schedule of Cost of Goods Manufactured

Direct (Raw) Materials Used

+ Direct Labor

+ Factory Overhead

= Total Manufacturing Costs

+ Beginning WIP

- Ending WIP

= Cost of Goods Manufactured

How to calculate direct materials used

Beginning Raw Materials Inventory

+ Raw Materials Purchases

= Raw Materials Available for Use

- Ending Raw Materials Inventory

= Direct Materials Used