1. McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Fourteen Management Accounting: A Value-Added Discipline

2. 14-2 Learning Objective 1 Distinguish between managerial and financial accounting.

3. 14-3 Relationship Between User and Information

4. 14-4 Managerial Versus Financial Accounting Information

5. 14-5 Learning Objective 2 Identify the cost components of a product made by a manufacturing company: the cost of materials, labor, and overhead.

6. 14-6 Product Costing Managers need to know the cost of their products and services. Cost Plus Pricing A common business practice

7. 14-7 Product Costs in Manufacturing Companies MaterialsLaborOverhead

8. 14-8 Transforming Cash into Finished Goods

9. 14-9 Learning Objective 3 Explain the need for determining the average cost per unit of a product.

10. 14-10 Average Cost per Unit Total Cost Number of Units = Average Cost per Unit = $250 $1,000 4 Tabor Example Average Cost Per Unit

11. 14-11 Learning Objective 4 Distinguish between a cost and an expense.

12. 14-12 Costs Can Be Assets or Expenses Period Cost ExpenseCOGSAsset Product Cost

13. 14-13 Cost Classification for Tabor Manufacturing

14. 14-14 Learning Objective 5 Explain the effects on financial statements of product costs versus general, selling, and administrative costs.

15. 14-15 Patillo Manufacturing Company Transactions

16. 14-16 Effect on Financial Statements

17. 14-17 Labor Costs

18. 14-18 Overhead Costs

19. 14-19 Total Product Cost

20. 14-20 Patillo’s Financial Statements

21. 14-21 Overhead Costs: A Closer Look Indirect Costs Depreciation Supervisor’s Salary Utilities

22. 14-22 Indirect Cost Allocation

23. 14-23 Manufacturing Cost Summary

24. 14-24 Learning Objective 6 Explain how cost classification affects financial statements and managerial decisions.

25. 14-25 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 (materials, labor and overhead) of $8,000. 4.MMC made 1,000 units of product and sold 700 of the units for $18 each. Let’s look at two scenarios for MMC.

26. 14-26 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.

27. 14-27 Financial Statements Under Alternative Scenarios

28. 14-28 Practical Implications The financial statement differences between Scenario One and Scenario Two are timing differences. When the remaining 300 units of inventory are sold, the $1,200 of design and planning costs will be expensed through cost of goods sold. Once the entire inventory is sold, total expenses and retained earnings are the same under both scenarios.

29. 14-29 Learning Objective 7 Identify the standards of ethical conduct and the features that motivate misconduct.

30. 14-30 Ethical Considerations

31. 14-31 Common Features of Criminal and Ethical Misconduct Secret Problem Opportunity Rationalization

32. 14-32 Learning Objective 8 Distinguish product costs from upstream and downstream costs.

33. 14-33 Upstream and Downstream Costs Upstream Costs Downstrea m Costs Costs occur before the manufacturing process begins. Costs occur after the manufacturing process begins.

34. 14-34 Learning Objective 9 Explain how products provided by service companies differ from products made by manufacturing companies.

35. 14-35 Product Costs in Service Companies Service companies, like manufacturing companies, incur materials, labor and overhead costs in the process of providing services. For example, a hospital providing medical services to a patient incurs costs for medical supplies (materials), salaries for doctors and nurses (labor), and depreciation, utilities, insurance, and so on (overhead).

36. 14-36 Learning Objective 10 Explain how emerging trends such as activity-based management, value-added assessment, and just-in-time inventory are affecting the managerial accounting discipline.

37. 14-37 Emerging Trends in Managerial Accounting Benchmarking Best Practices Total Quality Management Activity-Based Management Value-Added Activities Just-in-Time Inventory

38. 14-38 Total Quality Management (TQM) Continuous Improvement Problem- Solving Philosophy Customer Satisfaction to achieve

39. 14-39 Activity-Based Management and Value-Added Activities An organization cannot manage costs. Instead, it manages the activities that cause costs to be incurred. Activities represent the measures an organization takes to accomplish its goals.

40. 14-40 Just-in-Time Inventory Inventory Holding Costs Nonvalue- Added Activity 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.

41. 14-41 End of Chapter Fourteen