Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fourth Edition Wild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 14 Managerial Accounting Concepts and Principles

Conceptual Learning Objectives C1: Explain the purpose and nature of managerial accounting and the role of ethics. C2: Describe accounting concepts useful in classifying costs. C3: Define product and period costs and explain how they impact financial statements. C4: Explain how the balance sheets and income statements for manufacturing and merchandising companies differ. C5: Explain manufacturing activities and the flow of manufacturing costs. C6: Identify trends in managerial accounting. 14-3

A1: Compute cycle time and cycle efficiency, and explain their importance to production management. Analytical Learning Objectives 14-4

P1: Compute cost of goods sold for a manufacturer. P2: Prepare a manufacturing statement and explain its purpose and links to financial statements. Procedural Learning Objectives 14-5

Managerial accounting provides financial and non-financial information for managers of an organization and other decision makers Financial accounting provides general purpose financial information to those who are outside the organization. Managerial and Financial Accounting C

Nature of Managerial Accounting C

Behavior Traceability Controllability Relevance Function Managerial Cost Concepts C2 14-8

Cost behavior means how a cost will react to changes in the level of business activity. Classification by Behavior C 2 A fixed cost does not change with changes in the volume of activity A variable cost changes in proportion to changes in the volume of activity A mixed cost refers to a combination of fixed and variable 14-9

Direct costs Costs traceable to a single cost object. Examples: material and labor cost for a product. Indirect costs Costs that cannot be traced to a single cost object. Example: maintenance expenditures benefiting two or more departments. Classification by Traceability C

The degree of control depends on the level of management in the organization. More Control Very little control Classification by Controllability C

All costs incurred in the past that cannot be avoided or changed. Sunk costs should not be considered in decisions. Out-of-pocket costs require a future outlay of cash and should be considered in decisions. Opportunity costs are the potential benefits lost by choosing a specific action from two or more alternatives Classification by Relevance: C

The Product Classification by Function: Product Costs Direct Material Direct Labor Manufacturing Overhead C

Period Costs (Expenses) Product Costs (Inventory) Inventory Not Sold in 2011 Operating Expenses Cost of Goods Sold Raw Materials Goods in Process Finished Goods Cost of Goods Sold 2011 Costs Incurred 2011 Income Statement 2012 Income Statement 2011 Balance Sheet Inventory Inventory Sold in 2011 Period and Product Costs in Financial Statements C

Completed products for sale. Materials waiting to be processed. Can be direct or indirect. Partially complete products. Material to which some labor and/or overhead have been added. Balance Sheet of a Manufacturer Raw Materials Finished Goods Goods in Process C

Beginning Merchandise Inventory Beginning Finished Goods Inventory Cost of Goods Purchased Cost of Goods Manufactured Ending Merchandise Inventory Ending Finished Goods Inventory Cost of Goods Sold MerchandiserManufacturer + _ + == _ The major difference Income Statement of a Manufacturer C

Finished Goods Beginning Inventory Cost of Goods Manufactured Finished Goods Ending Inventory Raw Materials Beginning Inventory Raw Materials Purchases Raw Materials Ending Inventory Cost of Goods Sold Goods in Process Beginning Inventory Direct Labor Factory Overhead Raw Materials Used Sales activityProduction activity Materials activity Flow of Manufacturing Activities Goods in Process Ending Inventory C

Summarizes the types and amounts of costs Incurred in a company’s manufacturing process. Direct Materials Used +Direct Labor +Factory Overhead =Total Manufacturing Costs +Beginning Work in Process – Ending Work in Process =Cost of Goods Manufactured Manufacturing Statement P

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