Click to edit Master title style 1 Lesson 1 18

Click to edit Master title style 2 Managerial Accounting Concepts and Principles 18

Click to edit Master title style 3 1. Describe managerial accounting and the role of managerial accounting in a business. After studying this chapter, you should be able to: 2. Describe and illustrate the following costs: direct and indirect, direct materials, direct labor, factory overhead, and product and period costs.

Click to edit Master title style 4 3. Describe and illustrate the statement of cost of goods manufactured, income statement, and balance sheet for a manufacturing business. After studying this chapter, you should be able to: 4. Describe the uses of managerial accounting information.

Click to edit Master title style 5 Describe managerial accounting and the role of managerial accounting in a business. Objective 1 1-1

Click to edit Master title style 6 The Difference Between Managerial and Financial Accounting 1-1 Financial accounting information is reported in statements that are useful for persons or institutions who are “outside” or external to the organization. Management also uses these financial statements in directing current operations and planning future operations.

Click to edit Master title style Managerial accounting information is provided to meet the specific needs of a company’s management, such as historical data and subjective estimates about future decisions.

Click to edit Master title style 8 7 Financial Accounting Managerial Accounting  Shareholders  Creditors  Government Agencies  General Public  Management Users of Accounting Information Example of Users 1-1

Click to edit Master title style 9 8 Financial Accounting and Managerial Accounting 1-1

Click to edit Master title style Partial Organizational Chart for Callaway Golf Company 9

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Click to edit Master title style Planning Planning is used by management to develop the organization’s objectives (goals) and to translate these objectives into courses of action.

Click to edit Master title style Strategic planning is developing long-range courses of action to achieve goals. Long-range courses of action, called strategies, can often involve periods ranging from five to ten years.

Click to edit Master title style Directing is the process by which managers, given their assigned level of responsibilities, run day-to- day operations. Directing

Click to edit Master title style Controlling, sometimes called management by exception, consists of monitoring the operating results of implemented plans and comparing the actual results with the expected results. Controlling

Click to edit Master title style Comparing actual results with expected results (feedback) allows management to isolate significant departures from plans for further investigation and possible remedial action.

Click to edit Master title style Continuous process improvement is the philosophy of continually improving employees, business processes, and products. Improving

Click to edit Master title style 18 Example Exercise 1-1 Three aspects of the management process are listed below. Match each phase to the appropriate description (continued) Phase of management process Description ___Planninga.Monitoring the operating ___Controllingresults of implemented plans ___Continuous and comparing the actual Improvementresults with expected results.

Click to edit Master title style 19 Example Exercise 1-1 (continued) 1-1 Description ___Planningb.Rejects solving individual ___Controllingproblems with temporary ___Continuoussolutions that fail to address Improvementthe root cause of the problem. c.Used by management to develop the company’s objectives. 18 Phase of management process

Click to edit Master title style 20 For Practice: PE 18-1A, PE 18-1B 19 Follow My Example Aspect of management process ___Planning ___Controlling ___Continuous Improvement c a b

Click to edit Master title style 21 Describe and illustrate the following costs: direct and indirect, direct materials, direct labor, factory overhead, and product and period costs. Objective 2 1-2

Click to edit Master title style Direct and Indirect Costs Costs are often classified in terms of how they relate to an object or segment of operations, called a cost object. It may be a product, a sales territory, a department, or some activity. Costs are identified with cost objects as either direct costs or indirect costs.

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Click to edit Master title style Direct Materials Cost The cost of any material that is an integral part of the final product is classified as a direct materials cost.

Click to edit Master title style Direct Labor Cost The wages of each employee who is directly involved in converting materials into the final product are classified as direct labor cost.

Click to edit Master title style Factory Overhead Cost Costs, other than direct materials cost and direct labor cost, that are incurred in the manufacturing process are combined and classified as factory overhead cost (sometimes also called manufacturing overhead or factory burden).

Click to edit Master title style Examples of Factory Overhead Cost  Heating and lighting the factory  Repairing and maintaining factory equipment  Property taxes  Insurance  Depreciation of factory plant and equipment

Click to edit Master title style 28 Example Exercise 1-2 Identify the following costs as (a) direct materials, (b) direct labor, or (c) factory overhead for a baseball glove manufacturer _______________ Leather used to make a baseball glove 2._______________Coolants for machines that sew baseball gloves 3._______________Wages of assembly line employees 4._______________Ink used to print a player’s autograph on the baseball glove

Click to edit Master title style 29 Identify the following costs as (a) direct materials, (b) direct labor, or (c) factory overhead for a baseball glove manufacturer _______________ Leather used to make a baseball glove 2._______________Coolants for machines that sew baseball gloves 3._______________Wages of assembly line employees 4._______________Ink used to print a player’s autograph on the baseball glove Follow My Example 1-2 For Practice: PE 18-2A, PE 18-2B (a) Direct materials (c) Factory overhead (b) Direct labor (c) Factory overhead Left click mouse for answers.

Click to edit Master title style Prime Costs and Conversion Costs FactoryOverheadFactoryOverhead Direct Materials Direct Materials DirectLaborDirectLabor Prime Costs Conversion Costs

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Click to edit Master title style 32 Example Exercise 1-3 Identify the following costs as a (a) prime cost, (b) conversion cost, or (c) both for a baseball glove manufacturer _______________ Leather used to make a baseball glove 2._______________Coolants for machines that sew baseball gloves 3._______________Wages of assembly line employees 4._______________Ink used to print a player’s autograph on the baseball glove

Click to edit Master title style 33 For Practice: PE 18-3A, PE 18-3B 32 Follow My Example Identify the following costs as a (a) prime cost, (b) conversion cost, or (c) both for a baseball glove manufacturer. 1._______________ Leather used to make a baseball glove 2._______________Coolants for machines that sew baseball gloves 3._______________Wages of assembly line employees 4._______________Ink used to print a player’s autograph on the baseball glove (a) Prime cost (b) Conversion cost (c) Both (b) Conversion cost Left click mouse for answers.

Click to edit Master title style Product Costs Product costs consist of the three elements of manufacturing cost: direct materials, direct labor, and factory overhead.

Click to edit Master title style FactoryOverheadFactoryOverhead Direct Materials Direct Materials DirectLaborDirectLabor ProductCostsProductCosts The cost of materials that are an integral part of the product. The cost of labor directly involved in converting material into the product. Manufacturing costs other than direct materials and direct labor. 1-2

Click to edit Master title style Period costs are generally classified into two categories: Period Costs Selling expenses are incurred in marketing the product and delivering the sold product to the customer. Administrative expenses are incurred in the administration of the business.

Click to edit Master title style (Continued)

Click to edit Master title style (Concluded)

Click to edit Master title style Product Costs and Period Costs

Click to edit Master title style 40 Example Exercise 1-4 Identify the following costs as a (a) product cost, or (b) period cost for a baseball glove manufacturer _______________ Leather used to make a baseball glove 2._______________Cost of endorsement from a professional baseball player 3._______________Office supplies used at the company headquarters 4._______________Ink used to print a player’s autograph on the baseball glove

Click to edit Master title style 41 For Practice: PE 18-4A, PE 18-4B 40 Follow My Example Identify the following costs as a (a) product cost, or (b) period cost for a baseball glove manufacturer. (a) Product cost (b) Period cost (a) Product cost 1._______________ Leather used to make a baseball glove 2._______________Cost of endorsement from a professional baseball player 3._______________Office supplies used at the company headquarters 4._______________Ink used to print a player’s autograph on the baseball glove Left click the mouse to reveal answers.

Click to edit Master title style 42 Describe and illustrate the statement of cost of goods manufactured, income statement, and balance sheet for a manufacturing business. Objective 3 1-3

Click to edit Master title style A Manufacturing Firm’s Inventories Materials inventory:  Sometimes called raw materials inventory  Consists of the costs of the direct and indirect materials that have not yet entered the manufacturing process

Click to edit Master title style Work in process inventory:  Consists of the direct materials costs, the direct labor costs, and the factory overhead costs that have entered the manufacturing process but are associated with products that have not been completed.

Click to edit Master title style Finished goods inventory:  Consists of completed (or finished) products that have not been sold.

Click to edit Master title style Balance Sheet Presentation of Inventory in Manufacturing and Merchandising Companies

Click to edit Master title style Flow of Manufacturing Costs

Click to edit Master title style Determining the Cost of Goods Manufactured Materials inventory, January 1, 2008$ 65,000 Add: Materials purchased during December 100,000 Cost of materials available for use$165,000 Less: Materials inventory, Dec. 31, ,000 Cost of materials placed in production$130,000 to total manu- facturing cost STEP 1:

Click to edit Master title style Determining the Cost of Goods Manufactured Cost of materials placed in production$130,000 from Step 1 STEP 2:

Click to edit Master title style Determining the Cost of Goods Manufactured Cost of materials used during the year$130,000 Direct labor110,000 to cost of goods manufactured section Factory overhead 44,000 Total manufacturing costs added$284,000 STEP 2: 49

Click to edit Master title style Determining the Cost of Goods Manufactured Work in process inventory, Jan. 1, 2008$ 30,000 Add: total manufacturing costs added 284,000 from Step 2 STEP 3:

Click to edit Master title style Determining the Cost of Goods Manufactured Work in process inventory, Jan. 1, 2008$ 30,000 Add: total manufacturing costs added 284,000 Total manufacturing costs$314,000 Less: work in process inven., Dec. 31, ,000 Cost of goods manufactured$290,000 STEP 3:

Click to edit Master title style Manufacturing Company— Income Statement with Statement of Cost of Goods Manufactured (cont’d) to income statement

Click to edit Master title style 54 Manufacturing Company— Income Statement with Statement of Cost of Goods Manufactured from statement of cost of goods manufactured

Click to edit Master title style 55 Example Exercise 1-5 Gauntlet Company has the following information for January: Cost of materials placed in production$25,000 Direct labor35,000 Factory overhead20,000 Work in process inventory, January 130,000 Work in process inventory, January 3125,000 Finished goods inventory, January 115,000 Finished goods inventory, January 3112,000 For January, determine the (a) cost of goods manufactured, and (b) cost of goods sold.

Click to edit Master title style 5655 Follow My Example (a) Work in process inventory, January 1$ 30,000 Cost of materials placed in production$25,000 Direct labor35,000 Factory overhead 20,000 Total manufacturing costs added 80,000 Total manufacturing costs110,000 Less: Work in process inventory, Jan ,000 Cost of goods manufactured$ 85,000 (Continued)

Click to edit Master title style 5756 Follow My Example 1-5 (continued) 1-3 (b) Finished goods inventory, January 1$ 15,000 Cost of goods manufactured 85,000 Cost of finished goods available for sale100,000 Less: Finished goods inventory, January 31 12,000 Cost of goods sold$ 88,000 For Practice: PE 18-5A, PE 18-5B

Click to edit Master title style 58 Describe the uses of managerial accounting information. Objective 4 1-4

Click to edit Master title style Uses of Managerial Accounting Managerial accounting provides information and reports that help managers run the day-to-day operations of their business.

Click to edit Master title style Managerial reports provide data that help managers evaluate the performance of a company’s operations.

Click to edit Master title style Companies use managerial accounting information to support long-term planning decisions, such as investment decisions.

Click to edit Master title style Managerial accounting data can be used to help managers understand how many units need to be sold in a month to cover recurring monthly costs.

Click to edit Master title style 63 End of Lesson 1 18