Slide 1Slide 2Slide 3MANAGERIAL ACCOUNTING BASICSSlide 5Slide 6Slide 7Slide 8Slide 9Slide 10Directing And Motivating!Slide 12Slide 13Slide 14Managerial accounting:Slide 16Slide 17Slide 18Indirect MaterialsSlide 20Slide 21Slide 22Product Costs Vs. Period CostsSlide 24Merchandising versus Manufacturing Income StatementsSlide 26Slide 27Slide 28Cost of Goods Manufactured – How to Compute ItSlide 30Slide 31The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is the:Slide 33Slide 34Slide 35Slide 36Slide 37Slide 38Slide 39Slide 40Slide 41VALUE CHAIN AND SUPPLY CHAIN MANAGEMENTSlide 43HomeworkHW Chapter 20Slide 461Chapter 20Chapter 20Managerial AccountingA New Frontier2CHAPTER 20 MANAGERIAL ACCOUNTINGAfter studying this chapter, you should be able to:1. Explain the distinguishing features of managerial accounting.2. Identify the three broad functions of management.3. Define the three classes of manufacturing costs.4. Distinguish between product and period costs.5. Explain the difference between a merchandising and a manufacturing income statement.3Chapter 20 Managerial AccountingAfter studying this chapter, you should be able to:1. Indicate how cost of goods manufactured is determined.2. Explain the difference between a merchandising and a manufacturing balance sheet.4MANAGERIAL ACCOUNTING BASICS Management Accounting is:•A field of accounting that provides economic and financial information for managers and other internal users.5Activities include the following:•Explaining manufacturing and non-manufacturing costs and how they are reported in the financial statements•Computing the cost of providing a service or manufacturing a product•Determining the behavior of costs and expenses as activity levels change •Analyzing cost-volume profit relationships within a companyMANAGERIAL ACCOUNTING BASICS6Activities also include:• Assisting management in profit planning and budgeting• Providing a basis for controlling costs and expenses by comparing actual results with planned objectives and standard costs• Accumulating and presenting relevant data for management decision makingMANAGERIAL ACCOUNTING BASICS7COMPARING MANAGERIAL AND FINANCIAL ACCOUNTING8Ethical Standards for Managerial Accountants• Managerial Accountants have an ethical obligation to their companies and the public• The Institute of Management Accountants (IMA) developed a code of ethical standards which divides the managerial accountant’s responsibilities into 4 areas:–Competence–Confidentiality–Integrity– Objectivity9Management Functions1. Planning2. Motivating and Directing3. Controlling10Planning! Planning requires management to: •Look ahead •Establish objectives •Add value to the business under its control (as measured by company’s stock price or its potential selling price)11Directing and Motivating requires management to: •Coordinate a company’s activities•Implement planned objectives•Select and train employees•Prepare organization charts Directing And Motivating!12Controlling!Controlling requires management to:•Keep the firm’s activities on track•Determine whether planned goals are being met •Decide what changes are needed if goals are not met13Managerial Cost Concepts Managers need information related to costs, such as:•What costs are involved in making the product or providing a service?•If production volume is decreased, will costs decrease?•What impact will automation have on total costs?•How can costs best be controlled?14Managerial Cost Concepts•Manufacturing: Activities and processes that convert raw materials into finished goods. •Manufacturing Costs include:–Direct materials–Direct labor–Manufacturing overheadManagerial accounting:a. is governed by generally accepted accounting principles.b. places emphasis on special-purpose information.c. pertains to the entity as a whole and is highly aggregated.d. is limited to cost data.Managerial accounting:a. is governed by generally accepted accounting principles.b. places emphasis on special-purpose information.c. pertains to the entity as a whole and is highly aggregated.d. is limited to cost data.17Classifiying Manufacturing Costs18Manufacturing Costs Direct MaterialsMaterialsRaw materials•The basic materials and parts that used in the manufacturing process•Raw materials physically and directly associated with the finished product are called direct materials19Indirect Materials•Indirect Materials are raw materials which cannot be easily associated with the finished product. • Not physically part of the finished product • Cannot be traced because their physical association with the finished product is too small in terms of cost•Accounted for as part of Manufacturing Overhead20Labor•Direct Labor: The work of factory employees which is physically and directly associated with converting raw materials into finished goods.•Indirect Labor: Efforts which have no physical association with the finished product or it’s impractical to trace the costs.•Indirect Labor: Classified as Manufacturing Overhead21Manufacturing Overhead•Consists of costs that are indirectly associated with manufacturing the finished product.•Includes:• Indirect materials • Indirect labor • Depreciation on factory buildings and machines • Insurance, taxes, maintenance on factory facilitiesManufacturing Overhead22Product Costs Vs. Period Costs Product costs:•include each of the manufacturing cost elements (direct materials, direct labor, and manufacturing overhead)•are a necessary and integral part of producing the finished product•are recorded as inventory and not expensed to cost of goods sold until the time of sale23Product Costs Vs. Period CostsPeriod costs: •are identifiable with a specific time period•are non-manufacturing costs•are not included in inventory•include selling and administrative expenses•are deducted from revenues in the period incurred•Let’s look at a summary of the differences!24Product Costs Vs. Period CostsProduct CostsDirect MaterialsDirect LaborManufacturing OverheadPeriod CostsSelling ExpensesAdministrative Expenses{Manufacturing Costs{Non-manufacturing Costs25Merchandising versus Manufacturing Income Statements The income statement for a manufacturer is similar to that of a merchandiser