Managerial Accounting By Faisal

Managerial accounting Finance: Acquisition of funds & proper utilization of these funds. Who perform it 1) Treasurer: Acquisition of funds 2)controller: via Accounting control record. Field of Accounting Financial Accounting (record financial transactions) Managerial Acc.(is designed and use Cost Acc.

Managerial Acc. (Continue) Financial Accounting: record financial transactions or events (any if exists). Management Acc.: utilize the accounting information in such away to achieve company objectives. 3 principles 1)M.A decides who has decision making authority over assets. E.g; plant manager responsible for all the equipment's of the plants and make decision.

Plant Manager 1)Plant equipment 2) employees of the plant 3) Physical plan 4) value Chain (linked set of activities and resources necessary together to deliver the product and services to the customer.

Continue.. 2)Accounting info. Produced from the management accoun. System supports planning and decision making. M.A provides the tools and technique to the manager that is helpful in decision making. Manger need finally, accurate and reliable information. Historical and projected information. (equipment cost) (estimated cost) 3) M.A provides means of monitoring, evaluation reports, and rewarding performance.

Continue.. Managers need information for specific information and organization value chain. Must undertake bench mark study That means to show the cost of organization and compare it with others. Normally independent consultant companies are hired for bench mark study.

Continue. Role of MA is performance evaluation and reward. Study the out come of the decision taken by the managers. Managerial acc. Is the design and the use of accounting information inside the company in such away to achieve the organizational objectives and compare its performance with others.

Accounting for manufacturing operations Merchandizing companies: Also call trading/business companies. Those companies in which finish goods are purchased and sold to others.eg; whole sellers, retailers, utility stores etc. The inventory consists of these finished goods and ready for sale. Inventory is the goods at hand and is the liquid assets of the business.

Cost of goods sold of merchandizing companies It is the purchase price of the finished products to sell the products to the customer. Manufacturing business companies. Those business in which we buy raw material, iron, steel, or any raw form product to convert them into finish goods. Cost of goods sold consists of manufacturing costs includes 1) Direct material 2) Direct labour 3) manufacturing overhead

Classification of Total manufacturing cost (TMC) 1) Direct material Amount spend for the purchase of direct material is called direct material cost. 2) Direct labor Directly engage in preparing the products via machine or by hand, and the amount incurred or given to labor for their services is called direct labor cost. Wages: Amount paid to the people who are directly involved in the production. (direct expense) comes in D.L Salary: Amount paid to the people not directly involved in the production. (indirect expense) comes in M.O.H 3) manufacturing overhead: eg. salaries

Manufacturing cost Other then direct material and direct labor is called manufacturing cost. It includes factory utilities, supervisor salaries, equipment repairs, and depreciation on machinery. MC are not current period expense. It is included in inventory in balance sheet until the inventory is sold. MC are often called as Product costs or inventoriable costs.

MC is asset or expense??? If it is not sold yet. It is kept in balance sheet under the inventor. But once sold then it is our expense. Assets not yet sold is inventory, when sold is reported in income statement converted into expense and less from revenue and enter into CGS. Cost on inventory is product costs until it is not sold, when it is sold then it is included in CGS.

Product cost Product costs are those costs incurred to the manufacturing industry. Until selling the product costs represents inventory. When sold then product costs are transferred from Balance sheet to income statement. Period Costs: Operating expenses that are associated with time period and not with the production of inventory is called period costs. Period costs include Selling expenses, general and administrative expenses, interest expenses and income tax expeses.

Matching principle E.g. depreciation of raw material ware house is product cost as part of manufacturing process. Then transferred to finish goods ware house and the cost associated with finished goods are now considered as selling expenses. Matching principles Product cost should be reported on the income statement only when they can be matched against product revenue.

Over head application rate Is a device used to assign the manufacturing cost to the units being manufactured that equals to manufacturing overhead.