CHAPTER 14 Managerial Accounting A field of accounting that provides economic and financial information for managers and other internal users Managerial Accounting applies to only businesses and organizations a b true false false also applies to non profits and profit oriented companies Managerial Accounting is responsible for a all managers b All roles of the company c Strategic cost management d C strategic cost management Informing managers of the current business environment Managerial Accounting Distinguishing Features Applies to all types of business Service Merchandising and Manufacturing Applies to all forms of business organizations Proprietorships Partnerships and Corporations Applies to not for profit as well as profit oriented companies Changed role in collecting and reporting costs to management as a result of increasingly automated business environment Now more responsible for strategic cost management assisting in evaluating how well resources are employed by the company Accountants now serve on teams with people from production marketing engineering etc Aid in making critical strategic decisions Managerial and Financial Accounting are similar in a They both deal with economic events of a business b They both determine who is responsible for economic events c They both require that economic events be quantifies and communicated to interested parties d Both a and c D Both a and c SIMILARITIES between Managerial and Financial Accounting Both managerial and financial accounting deal with economic events of a business Thus interests overlap interested parties Both require that economic events be quantified and communicated to Determining unit cost is part of managerial accounting Reporting cost of goods manufactured is a part of financial accounting DIFFERENCES between Managerial and Financial Accounting Managerial Financial Primary Users of Reports Internal Users Officers Managers Types and Frequency of Reports Internal Reports as frequent as needed Purpose of reports Special purpose for specific decisions Content of Reports Sub units of the business Very detailed Extends beyond double entry accounting to any relevant data Standard is relevance to decisions Verification Process No independent audits Primary Users of Reports External Users stockholders Types and Frequency of Reports Financial statements creditors and regulators quarterly and annually Purpose of Reports General Purpose Content of Reports Pertains to business as a whole Highly condensed Limited to double entry accounting and cost data Generally accepted accounting principles Verification Process Audit by CPA What are the 3 broad functions of management a Distinguishing Planning and Controlling b Planning Completing and Directing c Distinguishing Planning and Completing d Planning Directing and Controlling D Planning Directing and Controlling The key objective to Planning is to a add value to the business b implement planned objectives c determine whether goals are met d provide a smooth operation A Add VALUE to the business Management Functions PLANNING Look ahead and establish objectives such as Maximize short term profit and market share Commit to environmental protection and social programs Key Objective Add value to the business Value measured by trading price of stock and by potential selling price of the company Value is measured by trading price of a stock and the buyer s price on a potential contract trading price of stock and by potential selling price of the company a b c Potential selling price of the company and stock sales d Stock sales and potential selling price of half of a company s worth B Trading price of stock and by potential selling price of the company Management Functions DIRECTING Implement planned objectives Coordinate diverse activities and human resources Provide incentives to motivate employees Hire and train employees including executives managers and supervisors Produce smooth running operation Management Functions CONTROLLING Process of keeping activities on track Determine whether goals are met Decide changes needed to get back on track May use an informal or formal system of evaluations Decision making is not a separate management function but the OUTCOME of the exercise of good judgment in planning directing and controlling Within a company an organization chart shows The interrelationships of activities and the delegation of authority and responsibility Manufacturing consists of a activities and processes to convert direct material into direct labor b activities and processes to convert raw materials into finished goods c activities and processes to convert raw materials into costs B activities and processes to convert raw materials into finished goods Manufacturing Costs Manufacturing consists of activities and processes to convert raw materials into finished goods In contrast a merchandising firm sells goods in the form in which they were purchased Manufacturing costs are typically classified as Raw materials are a Raw materials that can be physically and directly associated with the finished product during the manufacturing process b Raw materials that cannot be easily associated with the finished product c basic materials and parts used in the manufacturing process C basic materials and parts used in the manufacturing process Direct materials are a Raw materials that can be physically and directly associated with the finished product during the manufacturing process b Raw materials that cannot be easily associated with the finished product c basic materials and parts used in the manufacturing process A raw materials that can be physically and directly associated with the finished product during the manufacturing process Indirect Materials are a Raw materials that can be physically and directly associated with the finished product during the manufacturing process b Raw materials that cannot be easily associated with the finished product c basic materials and parts used in the manufacturing process Manufacturing Costs MATERIALS Basic materials and parts used in the manufacturing process Raw materials that can be physically and directly associated with the finished product during the manufacturing process Raw Materials Direct Materials Indirect Materials Raw materials that cannot be easily associated with the finished product Not physically part of the finished product or they are an insignificant part of finished product in terms of cost Considered part of