Carina Tenaglia ACG 2071 Ch 1 I Reading Notes What is Managerial Accounting a Focuses on providing internal management with the information it needs to run a company efficiently and effectively b 3 primary responsibilities decision making i Planning goals objectives budgets ii Directing overseeing day to day operations iii Controlling c The Role of Management Accountants i Organizational structure ii Determining unit costs 1 Product costing d Differences between Managerial and Financial Accounting i Provision of relevant information to help managers make profitable II business decisions future oriented What Role Do Management Accountants Play a Company structure i Board of directors appoint Board of Directors hire CEO COO CFO b The Changing Roles of Management Accountants i More for consulting business management reporting financial advising and working as analysts c Required Skills i Accounting managerial financial ii Analytical skills iii Knowledge of business functions iv Teamwork v Oral communication skills vi Strong Excel skills d Professional Associations i IMA CMA AICPA CGMA e 3 pillars of sustainability social environmental economic f Sarbanes Oxley act puts more pressures on CFOs CEOs Ch 2 I Building Blocks of Managerial Accounting a Service Merchandising and Manufacturing Companies i Service Companies 1 Sell intangible services health care insurance consulting 2 Generally NO inventory if so just for internal use a Salaries benefits usually 70 of costs ii Merchandising Companies 1 Resell tangible products bought by suppliers 2 Retailers and wholesalers 3 They have inventory a Inventory cost of merchandise all costs necessary to get merchandise in place ready to sell freight tariffs iii Manufacturing Companies 1 Use labor plant and equipment to convert raw materials into finished products 2 Types of inventory a Raw materials inventory i All raw materials used in manufacturing ii Includes plant materials ex janitorial supplies b Work in process inventory i Goods that are not yet complete c Finished goods inventory i Completed goods that have not yet been sold iv Not all companies strictly in one category ex restaurants v Value Chain activities that add value to company s products services 1 Research Development R D 2 Design engineering of products services how to produce them 3 Production or Purchases resources used to produce a product or service or to purchase finished merchandise intended for resale 4 Marketing promotion and advertising creating demand 5 Distribution delivery of products services to customers 6 Customer Service support provided after the sale a Cross functional teams used all levels of value chain vi Most sustainability occurs during design eco friendly packaging etc 1 Life Cycle Assessment company analyzes enviro impact from cradle to grave 2 Biomimicry companies try to mimic natural biological processes in which dead organisms become the input for another organism or process 3 Adopting sustainable purchasing practices 4 Greenwashing overstating a company s commitment to sustainability II a This can negatively affect companies sometimes How Do Companies Define Cost a Cost Object anything that managers want separate measurement of cost for i Examples individual units different models alternate mktg strategies b Direct cost cost can be traced to the cost object c Indirect cost cost relates to cost object but can t directly be traced or too inefficient to trace i Assigning costs attaching indirect costs to cost object ii Tracing costs tracing direct costs to cost object d Costs for Internal Decision Making and External Reporting i Total Costs includes costs of all resources used through the value chain 1 PERIOD COSTS aka operating selling expenses a Refers to R D design marketing distribution and customer service 2 Expensed right away during the period which they are incurred ii Inventoriable Product Costs only incudes the costs incurred during the production or purchases part of the value chain 1 These are treated as assets inventory until the product is sold 2 When sold removed from inventory expensed as COGS a So not expensed right away during P or P process 3 Types of costs a Direct Materials DM primary materials b Direct Labor DL cost of compensating employees who physically convert raw materials into finished products c Manufacturing Overhead MOH includes all manufacturing costs other than DM DL ALL INDIRECT MANUFACTURING COSTS Indirect materials ex janitorial supplies Indirect labor ex Publix deli employee wages i ii iii Other indirect manufacturing costs ex taxes iii Prime Costs DM DL iv Conversion Costs DL MOH III How Are Inventoriable Product Costs and Period Costs Shown in the Financial Statements a All Inventoriable product costs inventory until sold then COGS b Period costs expensed as operating expenses during same period c Different Businesses Financials i Service company 1 No inventory 2 Period costs expensed as operating expenses on Inc statement ii Merchandising company 1 Purchases inventory 2 COGS deducted from Sales Revenue to show Gross Profit a Deduct Operating Expenses b This gives us the company Operating Income iii Manufacturing company 1 Only big difference from merchandising inventory MADE a Leads to a different COGS sum d Cost of Goods Manufactured costs of goods that were completed and moved to Finished Goods Inventory during the period e Calculations i Calculation of Direct Materials DM Used pg 66 ii Calculation of COG Manufactured pg 67 iii Calculation of COGS pg 67 IV Ch 3 I f Corporate Social Responsibility Reports CSR provide sustainability related information for a variety of stakeholders investors creditors customers gov t etc VOLUNTARY g Global Reporting Initiative follows the triple bottom line method Includes social economic and environmental performances i What Other Cost Terms are Used By Managers a Controllable costs management able to influence change them b Uncontrollable costs certain costs that companies may be locked into c Differential Costs costs between two alternatives d Sunk costs costs that have already been incurred e Fixed costs costs that stay constant over a wide range of activity levels f Variable costs costs that change in proportion to changes in volume g Average Cost Total Cost of Units h Total Cost TFC Variable Cost x of units i Average cost per unit is NOT appropriate for predicting total costs different levels of output i Marginal Cost cost of making one more unit Intro a Product costing
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