Chapter 19 - Managerial Accounting

Managerial Accounting Basics

• Provides economic and financial information for internal users (managers).

• Similar to financial accounting in dealing with economic events but differs in primary users, report types/frequency, report purpose/content, and verification process.

Management Functions

• Planning: Maximize short-term profit, commit to environmental and social programs, add value.

• Directing: Coordinate activities, implement objectives, motivate employees, hire/train, ensure smooth operations.

• Controlling: Keep activities on track, assess goal achievement, implement corrective actions.

Manufacturing Costs

• Direct Materials: Raw materials directly associated with finished goods.

• Direct Labor: Work directly converting raw materials into finished goods.

• Manufacturing Overhead: Indirect costs (indirect materials, indirect labor, factory overhead).

Product vs. Period Costs

• Product Costs: Direct materials, direct labor, and manufacturing overhead; integral to producing products and are recorded as inventory until sold (COGS).

• Period Costs: Non-manufacturing costs expensed as incurred (selling and administrative).

Cost of Goods Manufactured

• Total Manufacturing Costs: Sum of direct materials, direct labor, and manufacturing overhead.

• Total Work in Process: Beginning work in process + total manufacturing costs.

• COG Manufactured formula: (Beginning work in process+ Total Manufacturing costs - Ending work in process) = COG Manufactured

Financial Statements

• Income Statement: Differs between merchandisers (Beginning Inventory + Cost of Goods Purchased - Ending Inventory = Cost of Goods Sold) and

• Manufacturers COGS (Beginning Finished Goods + Cost of Goods Manufactured (COG Manufactured) - Ending Finished Goods = Cost of Goods Sold)

• Balance Sheet: Manufacturing companies report three inventory categories: finished goods, work in process, and raw materials.

Managerial Accounting Trends

• Service Industries: Managerial accounting applicable to service companies.

• Balanced Scorecard: Integrated evaluation using financial and non-financial measures.

• Business Ethics: Ethical behavior expected; Sarbanes-Oxley Act (SOX) clarifies management responsibilities and increases penalties for misconduct.

• Corporate Social Responsibility: Sustainable business practices considering people, planet, and profit.

Key Terms

• Value Chain: Activities associated with providing a product/service.

• Activity-Based Costing: Allocating overhead based on activities.

• Total Quality Management (TQM): Reducing defects to achieve zero defects.

• Just-in-Time (JIT) Inventory: Manufacturing/purchasing goods as needed.

• Corporate Social Responsibility: Sustainable practices related to employees, society, and environment.