Chapter 1-1 CHAPTER MANAGERIAL ACCOUNTING Managerial Accounting, Fifth Edition Chapter 1-2 Study Study Objectives Objectives Explain the distinguishing features of managerial accounting Identify the broad functions of management Define the classes of manufacturing costs Distinguish between product and period costs Explain the differences between a merchandising and a manufacturing income statement Chapter 1-3 Study Study Objectives Objectives Chapter 1-4 Indicate how cost of goods manufactured is determined Explain the difference between a merchandising and a manufacturing balance sheet Identify trends in managerial accounting Managerial Managerial Accounting Accounting Managerial Managerial Accounting Accounting Basics Basics Comparing managerial and financial accounting Management functions Organizational structure Business ethics Chapter 1-5 Managerial Managerial Cost Cost Concepts Concepts Manufacturing costs Product vs period costs Manufacturing Manufacturing Costs Costsin in Financial Financial Statements Statements Income statement Cost of Goods Manuafctured Balance sheet Cost concepts – A review Product Costing for Service Industries Managerial Managerial Accounting Accounting Today Today Serviceindustry trends Managerial accounting practices Managerial Managerial Accounting Accounting Basics Basics Definition of Managerial Accounting A field of accounting that provides economic and financial information for managers and other internal users Also called Management Accounting Chapter 1-6 Managerial Managerial Accounting Accounting Basics Basics 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 Chapter 1-7 SO Explain the distinguishing features of managerial accounting Managerial Managerial Accounting Accounting Basics Basics Distinguishing Features (Continued) 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 Teams with people from production, marketing, engineering, etc Aid in making critical strategic decisions Chapter 1-8 SO Explain the distinguishing features of managerial accounting Comparing Comparing Managerial Managerial and and Financial Financial Accounting Accounting Similarities Both managerial and financial accounting deal with economic events of a business – Thus, interests overlap Both require that economic events be quantified and communicated to interested parties – Determining unit cost is part of managerial accounting, Reporting cost of goods manufactured is a part of financial accounting Chapter 1-9 SO Explain the distinguishing features of managerial accounting Comparing Comparing Managerial Managerial and and Financial Financial Accounting Accounting Differences Illustration 1-1 Chapter 1-10 SO Explain the distinguishing features of managerial accounting Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements Illustration 1-8 Chapter 1-35 SO Indicate how cost of goods manufactured is determined Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements Balance Sheet - Inventories Chapter 1-36 Merchandising Company Manufacturing Company One category of inventory: Merchandise Inventory May have three inventories: Raw Materials Work in Process Finished Goods SO Explain the difference between a merchandising and a manufacturing balance sheet Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements Balance Sheet - Inventories Illustration 1-10 Chapter 1-37 SO Explain the difference between a merchandising and a manufacturing balance sheet Manufacturing Manufacturing Costs Costs in in Financial Financial Statements Statements Review Question A cost of goods manufactured schedule shows beginning and ending inventories for: a Raw materials and work in process only b Work in process only c Raw materials only d Raw materials, work in process, and finished goods Chapter 1-38 Managerial Managerial Accounting Accounting Today Today Service Industry Trends U.S economy, in general, has shifted toward an emphasis on providing services rather than goods Over 50% of U.S workers are now employed by service companies Trend is expected to continue in the future Most of the techniques learned for manufacturing firms are applicable to service companies Chapter 1-39 SO Identify trends in management accounting Managerial Managerial Accounting Accounting Today Today Managerial Accounting Practices Value Chain Refers to all activities associated with providing a product or service For a manufacturing firm these include the following: Illustration 1-13 Chapter 1-40 SO Identify trends in management accounting Managerial Managerial Accounting Accounting Today Today Managerial Accounting Practices Technological Change Enterprise Resource Planning (ERP) – software programs designed to manage all major business processes Computer-Integrated Manufacturing (CIM) – manufacturing products with increased automation Just-In-Time (JIT) Inventory Methods Inventory system in which goods are manufactured or purchased just in time for sale Chapter 1-41 SO Identify trends in management accounting Managerial Managerial Accounting Accounting Today Today Managerial Accounting Practices Quality Increased emphasis on product quality because goods are produced only as needed Total Quality Management (TQM) - a philosophy of zero defects Activity-Based-Costing (ABC) Allocates overhead based on use of activities Chapter 1-42 Results in more accurate product costing and scrutiny of all activities in the value chain SO Identify trends in management accounting Managerial Managerial Accounting Accounting Today Today Managerial Accounting Practices Theory of Constraints Constraints (“bottlenecks” ) limit the company’s potential profitability A specific approach to identify and manage these constraints in order to achieve company goals Balanced Scorecard Evaluates operations in an integrated fashion Uses both financial and non-financial measures Chapter 1-43 Links performance measures to overall company objectives SO Identify trends in management accounting Managerial Managerial Accounting Accounting Today Today Review Question Which of the following managerial accounting techniques attempts to allocate manufacturing overhead in way that leads to more accurate product costs? a Just-in-time inventory b Total-quality management c Balanced scorecard d Activity-based costing Chapter 1-44 SO Identify trends in management accounting All All About About You You Outsourcing and Jobs To reduce costs and remain competitive many companies are turning to outsourcing “Outsourcing means hiring an outside supplier to provide elements of a product rather than producing them internally.” While outsourcing can be to another provider within the U.S., many professional services as well as manufacturing jobs have become candidates for outsourcing to foreign providers By 2015, it has been predicted that 3.3 million service jobs will have been outsourced offshore Chapter 1-45 All All About About You You Outsourcing and Jobs – What you think? Do you think outsourcing really reduces costs? If costs are reduced, you think that it justifies the loss of jobs to U.S workers? What would you say to your employees whose jobs have been outsourced? Do you think that outsourced professional services performed in a foreign country or parts manufactured offshore will have the same quality and standards as those performed/manufactured in the U.S.? Chapter 1-46 Chapter Chapter Review Review Brief Brief Exercise Exercise 1-5 1-5 Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials, direct labor, or manufacturing overhead DM DM DL MO MO DM DM MO Chapter 1-47 a b c d e f g h Windshield Engine Wages of assembly line worker Depreciation of factory machinery Factory machinery lubricants Tires Steering wheel Salary of painting supervisor Chapter Chapter Review Review Brief Brief Exercise Exercise 1-6 1-6 Identify whether each of the following costs should be classified as product costs or period costs Product Period Period Period Product Product Chapter 1-48 a b c d e f Manufacturing overhead Selling expenses Administrative expenses Advertising expense Direct labor Direct material Copyright Copyright Copyright © 2010 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein Chapter 1-49 ... Identify trends in managerial accounting Managerial Managerial Accounting Accounting Managerial Managerial Accounting Accounting Basics Basics Comparing managerial and financial accounting Management... Product Costing for Service Industries Managerial Managerial Accounting Accounting Today Today Serviceindustry trends Managerial accounting practices Managerial Managerial Accounting Accounting Basics... of Managerial Accounting A field of accounting that provides economic and financial information for managers and other internal users Also called Management Accounting Chapter 1-6 Managerial Managerial