The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-1 Fundamental Managerial Accounting Concepts 4 th Edition Thomas P. Edmonds Bor-Yi Tsay Phillip R. Olds

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin CHAPTER 1 Management Accounting and Corporate Governance

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-3 Learning Objective LO1 To distinguish between managerial and financial accounting

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-4

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-5

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-6 Learning Objective LO2 To identify the cost components of a product made by a manufacturing company: the cost of materials, labor, and overhead

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-7 Product Costing Managers need to know the cost of their products and services. Cost Plus Pricing A common business practice.

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-8 Product Costs in Manufacturing Companies MaterialsLaborOverhead

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The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-10 Average Cost per Unit Total Cost Number of Units = Average Cost per Unit = $250 $1,000 4 Tabor Example Average Cost Per Unit

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-11 Costs Can Be Assets or Expenses Period Cost ExpenseCOGSAsset Product Cost

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The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-13 Learning Objective LO3 To explain the effects on financial statements of product costs versus general, selling, and administrative costs

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-14 Patillo Manufacturing Company Transactions

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-15 Insert Exhibit 1-5 Here

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-16 Labor Costs

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-17 Overhead Costs

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-18 Total Product Cost

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-19

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-20 Overhead Costs: A Closer Look Indirect Costs Depreciation Supervisor’s Salary Utilities

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-21 Indirect Cost Allocation

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-22 Manufacturing Cost Summary

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-23 Learning Objective LO4 To distinguish product costs from upstream and downstream costs

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-24 Upstream and Downstream Costs Upstream Costs Occur before the manufacturing process begins. Downstrea m Costs Occur after the manufacturing process begins.

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-25 Learning Objective LO5 To explain how product costing differs in service, merchandising, and manufacturing companies

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-26 Product Costing in Service and Merchandising Companies Service Companies Merchandising Companies Provide services to customers Sell products other companies make Service and merchandising companies also incur materials, labor and overhead costs. However, these costs are normally treated as general, selling and administrative expenses rather than accumulated in inventory accounts.

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-27 Learning Objective LO6 To explain how just-in-time inventory can increase profitability

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-28 Just-in-Time Many businesses have been able to simultaneously reduce their inventory holding costs and increase customer satisfaction by making products available just- in-time (JIT) for customer consumption. For example, hamburgers that are cooked to order are fresher and more individualized than those that are prepared in advance and stored until a customer orders one.

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-29 Corporate Governance Corporate governance is a set of relationships between the board of directors, management, shareholders, auditors, and other stakeholders that determine how a company is operated. Board of Directors Auditors Management

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-30 Learning Objective LO7 To explain how cost classifications can be used to manipulate financial statements

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-31 The Motive to Manipulate Promotions Pay raises Bonuses Stock options Passed over for promotions Demoted Fired Strong FinancialsWeak Financials

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-32 Marion Manufacturing Company Marion Manufacturing Company (MMC) had the following transactions: 1.MMC was started when it acquired $12,000 from issuing common stock. 2.MMC incurred $4,000 of costs to design its product and plan the manufacturing process. 3.MMC incurred specifically identifiable product costs of $8, MMC made 1,000 units of product and sold 700 of the units for $18 each. Let’s look at two scenarios for MMC.

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-33 Marion Manufacturing Company Scenario 1 The $4,000 of design and planning costs are classified as selling and general and administrative. Scenario 2 The $4,000 of design and planning costs are classified as product costs, meaning they are first accumulated in the inventory account and then expensed when the goods are sold.

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-34

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-35 Learning Objective LO8 To identify the standards of ethical conduct and the features that motivate misconduct

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-36 Ethical Considerations

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-37 Common Features of Criminal and Ethical Misconduct Fraud Triangle Opportunity RationalizationPressure

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-38 Internal Control Practices Separating Duties Hiring Competent Personnel Bonding Employees Using Prenumbered Documents Establishing Physical Controls Performing Evaluations at Regular Intervals Requiring Extended Absences Establishing Clear Lines of Authority & Responsibility

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-39 Learning Objective LO9 To explain how the Sarbanes-Oxley Act affects management accountants

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-40 Sarbanes-Oxley Act of 2002 Internal Controls CEO and CFO Certification Code of Ethics Hotline for Anonymous Reporting

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-41 End of Chapter 1