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ACC102 CHAPTER 19Managerial accounting provides economic and financial information for managers and other internal users. Crucial activities for companies would include The need for accurate information about the cost of each product to know whether the company is making a profit or not The need to adjust the quantity it produces in light of changes in economic conditions and consumer tastes. The need to understand how changes in the quantity produced impacts its production costs and profitability The need for managers to consider alternative courses of action The preparation of budgets in order to plan for the future Comparing budgeted number with actual results to evaluate performance and identify areas that need to change The need to make substantial investment decisions, such as the building of a new plant or the purchase of new equipmentComparing Managerial and Financial AccountingManagerial accounting places emphasis on special-purpose informationManagement FunctionsPlanning Maximize short term profit and market share Commitment to environmental protection Contributing to social programs Add value to the businessDirecting Coordinate diverse activities and human resources Implement planned objectives Provide incentives to motivate employees Hire and train employees1ACC102 CHAPTER 19 Produce smooth running operationControlling 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 evaluationsOrganizational StructureBusiness EthicsCode of Ethical StandardsSarbanes-Oxley Act (SOX) Clarifies top management’s responsibilities Requires certifications by CEO and CFO Selection criteria for Board of Directors and Audit Committee Substantially increased penalties for misconduct2Management accountants have an obligation to the organizations they serve, their profession, the public, and themselves to maintain the highest standards of ethical conduct. In recognition of this obligation, the Institute of Management Accountants (IMA) has published and promoted standards ofethical conduct for management accountants.ACC102 CHAPTER 19Members of IMA shall behave ethically. A commitment to ethical professional practice includes: overarching principles that express our values and standards that guide our conductPrinciples: Honesty, Fairness, Objectivity, ResponsibilityStandards: Competence, Confidentiality, Integrity, CredibilityManufacturing CostsManufacturing consists of activities and processes that convert raw materials into finished goods (classified as Direct Materials, Direct Labor, and Manufacturing Overhead)Raw materials: basic materials and parts used in manufacturing processDirect Materials: Raw materials that can be physically and directly associated with the finished product during the manufacturing processIndirect Materials: not physically part of the finished product or they are an insignificant part of finishedproduct in terms of cost. Considered part of manufacturing overheadDirect Labor: work of factory employees that can be physically and directly associated with converting raw materials into finished goodsIndirect Labor: work of factory employees that has no physical association with the finished product or for which it is impractical to trace costs to the goods produced. Manufacturing Overhead: costs indirectly associated with the manufacture of the finished product, includes manufacturing costs that cannot be classified as direct materials and direct labor. Includes indirect materials, indirect labor, depreciation on factory buildings and machines, insurance, taxes and maintenance on factory facilitiesProduct Costs Componentso Direct materialso Direct laboro Manufacturing overhead Costs that are a necessary and integral part of producing the product  Recorded in “inventory” account Not an expense (COGS) until the goods are soldPeriod Costs Charged to expense as incurred Non-manufacturing costs Includes all selling and administrative expenses3ACC102 CHAPTER 19Income StatementUnder a periodic inventory system, the income statements of a merchandiser and a manufacturer differin the cost of goods sold sectionCost of Goods ManufacturedCost of Goods Sold Components – (Periodic inventory System)Cost of goods sold sections of merchandising and manufacturing income statements4ACC102 CHAPTER 19Cost of Goods ManufacturedTotal Work in Process – (1) cost of beginning work in process and (2) total manufacturing costs for the current periodTotal Manufacturing Costs – sum of direct material costs, direct labor costs, and manufacturing overhead in the current yearBalance SheetInventory accounts for a manufacturerRaw Materials: shows the cost of raw materials on handWork in Process Inventory: shows the cost applicable to units that have been started into production but are only partially completedFinished Goods Inventory: Shows the cost of completed goods on handProduct Costing for Service Industries Much of the U.S economy has shifted toward an emphasis on providing services Over 50% of U.S workers are now employed by service companies Like a manufacturer, service companies need to keep track of the costs of its services in order toknow whether it is generating a profitFocus on the Value ChainRefers to all business processes associated with providing a product or performing a serviceFor a manufacturing firm these include the following: Research & development and product design, acquisition of raw materials, production, sales and marketing, delivery, customer relations and subsequent services5ACC102 CHAPTER 19Just in Time Inventory Methods: inventory system in which goods are manufactured or purchased just in time for saleTotal Quality Management (TQM): reduce defects in finished products, with the goal of zero defectsTheory of Constraints: identification of “bottlenecks” – constraints within the value chain that limit a company’s profitabilityEnterprise Resource Planning (ERP) systems: a comprehensive, centralized, integrated source of information to manage all major business processes – from purchasing, to manufacturing, to sales, to human resourcesActivity – Based Costing (ABC): allocates overhead based on use of activities in making the productBalance Scorecard: uses both financial and non – financial measures to evaluate all aspects of a company’s operations in an

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