Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Chapter 1 Managerial Accounting and Cost Concepts PowerPoint Authors: Jon A. Booker, Ph.D., CPA, CIA Charles W. Caldwell, D.B.A., CMA Susan Coomer Galbreath, Ph.D., CPA

1-2 Planning and Control Cycle Decision Making Formulating long- and short-term plans (Planning) Measuring performance (Controlling) Implementing plans (Directing and Motivating) Comparing actual to planned performance (Controlling) Begin

1-3 Comparison of Financial and Managerial Accounting

1-4 Direct Materials Raw materials that become an integral part of the product and that can be conveniently traced directly to it. Example: A radio installed in an automobile

1-5 Direct Labor Those labor costs that can be easily traced to individual units of product. Example: Wages paid to automobile assembly workers

1-6 Manufacturing Overhead Manufacturing costs cannot be traced directly to specific units produced. Examples: Indirect materials and indirect labor Wages paid to employees who are not directly involved in production work. Examples: Maintenance workers, janitors and security guards. Materials used to support the production process. Examples: Lubricants and cleaning supplies used in the automobile assembly plant.

1-7 Product Costs Versus Period Costs Inventory Cost of Goods Sold Balance Sheet Income Statement Sale Product costs include direct materials, direct labor, and manufacturing overhead. Period costs are not included in product costs. They are expensed on the income statement. Expense Income Statement

1-8 Balance Sheet Merchandiser Current Assets  Cash  Receivables  Prepaid Expenses  Merchandise Inventory Manufacturer Current Assets  Cash  Receivables  Prepaid Expenses  Inventories: 1.Raw Materials 2.Work in Process 3.Finished Goods

1-9 The Income Statement Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.

1-10 Schedule of Cost of Goods Manufactured Calculates the cost of raw materials, direct labor and manufacturing overhead used in production. Calculates the manufacturing costs associated with goods that were finished during the period.

1-11 Manufacturing Cost Flows Selling and Administrative Period Costs Finished Goods Cost of Goods Sold Selling and Administrative Manufacturing Overhead Work in Process Direct Labor Balance Sheet Costs Inventories Income Statement Expenses Material PurchasesRaw Materials

1-12 Variable Cost Your total texting bill is based on how many texts you send. Number of Texts Sent Total Texting Bill

1-13 Variable Cost Per Unit Number of Texts Sent Cost Per Text Sent The cost per text sent is constant at 5 cents per text.

1-14 Fixed Cost Your monthly contract fee for your cell phone is fixed for the number of monthly minutes in your contract. The monthly contract fee does not change based on the number of calls you make. Number of Minutes Used Within Monthly Plan Monthly Cell Phone Contract Fee

1-15 Fixed Cost Per Unit Number of Minutes Used Within Monthly Plan Monthly Cell Phone Contract Fee Within the monthly contract allotment, the average fixed cost per cell phone call made decreases as more calls are made.

1-16 End of Chapter 1