1、Chapter 18 Managerial Accounting Concepts and PrinciplesMANAGERIAL ACCOUNTINGCONCEPTS AND PRINCIPLESChapter 18Managerial accounting provides financial and non-financial informationfor managers of an organization and otherdecision makersFinancial accounting provides generalpurpose financialinformatio
2、n to those who are outside the organization.MANAGERIAL ACCOUNTING BASICSC 1PURPOSE OF MANAGERIAL ACCOUNTINGC 1NATURE OF MANAGERIAL ACCOUNTINGC 1MANAGERIAL ACCOUNTING IN BUSINESSCustomer OrientationGlobalEconomyLean Business ModelElimination of WasteSatisfy the CustomerPositive ReturnLean Business Mo
3、delC 2LEAN PRACTICESCustomer Orientation in a Global EconomyC 2onQuality improvementapplied to all aspects ofbusiness activities.Seek and uncoverwaste.Employees encouraged to try new methods to improve quality.Company emphasizes value of quality through quality awards.TOTAL QUALITY MANAGEMENTC 2Comp
4、lete products just in time to ship to customers.Complete parts just in time for assembly into products.Receive materials just in time for production.Schedule production.Receive customer orders.JUST-IN-TIME (JIT) MANUFACTURINGC 2IMPLICATIONS FORMANAGERIAL ACCOUNTINGUnderstand the nature and sources o
5、f costMeasure value provided to customersPrice paid is an important determinant of valueC 2FRAUD AND ETHICS INMANAGERIAL ACCOUNTINGFraud involves the use of ones job for personal gain through the deliberate misuse of the employers assets. There are many types of fraud, but common characteristics of
6、all fraud are that it:Is done to provide direct or indirect benefit to the employee.Violates the employees duties to his employer.Costs the employer money.Is secret.Fraud increases business costs. Management relies on internal control systems to monitor business activities and on accounting systems
7、to track costs and identify unexpected amounts.Ethics are beliefs that distinguish right from wrong. They are accepted standards of good and bad behavior. The Institute of Management Accountants has issued a code of ethics to help accountants involved in solving ethical dilemmas. C 3ActivityCostActi
8、vityCostTYPES OF COST CLASSIFICATIONSCLASSIFICATION BY BEHAVIORCost behavior refers to how a cost will react to changes in the level of business activity.Total fixed costs do not change when activity changes.Total variable costs change in proportion to activity changes.Mixed costs are combinations o
9、f fixed and variable costs.ActivityCostC 4Direct costsCosts traceable to a single cost object.Examples: material and labor cost for a product.Indirect costsCosts that cannot be traced to a single cost object.Example: A maintenance expenditure benefiting two or more departments.TYPES OF COST CLASSIFI
10、CATIONS CLASSIFICATION BY TRACEABILITYC 4The degree of control depends on the level of management in the organization.More ControlMore ControlVery little controlTYPES OF COST CLASSIFICATIONS CLASSIFICATION BY CONTROLLABILITYC 4TYPES OF COST CLASSIFICATIONS CLASSIFICATION BY RELEVANCESunk costs have
11、already been incurred and cannot be avoided or changed. Sunk costs should not be considered in decisions. Example: An automobile purchased two years ago cost $15,000. The $15,000 cost is sunk because whether the car is driven, sold, traded, or abandoned, the cost will not change.Out-of-pocket costs
12、require future outlays of cash. Out-of-pocket costs should be considered in decisions. Example: You plan on buying a new car for $25,000 next month. The cost of the new car is an out-of-pocket cost because you can choose to spend or not to spend the $25,000 next month.C 4TYPES OF COST CLASSIFICATION
13、S CLASSIFICATION BY RELEVANCEAn opportunity cost is the potential benefit lost by choosing a specific action from two or more alternativesExample: If you were not attending college, you could be earning $20,000 per year. Your opportunity cost of attending college for one year is $20,000.C 4ProductTY
14、PES OF COST CLASSIFICATIONS CLASSIFICATION BY FUNCTIONDirect LaborDirect MaterialManufacturing OverheadPeriod costs are expenses not attached to the product.Administrative costs are non-manufacturing costs of staff support and administrative functions.Selling costs are incurred to obtain orders and
15、to deliver finished goods to customers.C 5Period Costs (Expenses)Product Costs (Inventory)Inventory Not Sold in 2009OperatingExpensesCost ofGoods SoldRaw MaterialsGoods in ProcessFinished GoodsCost ofGoods Sold2009 Costs Incurred2009 IncomeStatement2010 IncomeStatement2010 BalanceSheet InventoryInve
16、ntory Sold in 2009PERIOD AND PRODUCT COSTSIN FINANCIAL STATEMENTSC 5EXAMPLES OF MULTIPLE COST CLASSIFICATIONSC 5I suppose these same cost concepts apply to service companies.COST CONCEPTS FORSERVICE COMPANIESC 5Merchandisers . . .Buy finished goods.Sell finished goods. SaleMartManufacturers . . .Buy
17、 raw materials.Produce and sell finished goods.REPORTING MANUFACTURING ACTIVITIESC 6Completed products for sale.Materials waiting to be processed.Can be director indirect.Partially complete products.Material to which some labor and/or overhead have been added.Raw MaterialsFinished GoodsGoods in Proc
18、essC 6MANUFACTURERS BALANCE SHEETMERCHANDISER Current AssetsCashReceivablesMerchandise InventoryMANUFACTURER Current AssetsCashReceivablesInventoriesRaw MaterialsGoods in ProcessFinished GoodsThe only difference is inventory.MANUFACTURERS BALANCE SHEETC 6Beginning Merchandise InventoryBeginning Fini
19、shed Goods InventoryCost of Goods PurchasedCost of GoodsManufacturedEnding Merchandise InventoryEndingFinished Goods InventoryCost of Goods SoldMerchandiserManufacturer+_+=_The major differenceMANUFACTURERS INCOME STATEMENT C 6COST OF GOODS SOLD FOR AMERCHANDISER AND MANUFACTURERCost of goods sold f
20、or manufacturers differs only slightly from cost of goods sold for merchandisers.P 1Materials that are separately and readily traced to a particular product.Example:Steel used in the frame of a mountain bike.DIRECT MATERIALSP 1Labor costs that are separately and readily traced to finished product. E
21、xample:Wages paid to a mountain bike assembly worker.DIRECT LABORP 1All manufacturing costs except direct material and direct labor.Factory costs that cannot be separately or readily traced directly to products.Examples:Indirect labor maintenanceIndirect material cleaning supplies Factory utility co
22、sts Supervisory costsFACTORY OVERHEADP 1Direct MaterialDirect LaborManufacturing OverheadPrime CostConversion CostManufacturing costs are often combined as follows:PRIME AND CONVERSION COSTSP 1QUESTIONWhat type of account is the goods in process account? a. Income statement expense account.9b. Produ
23、ct costs are directly traceable to product units.c. Product costs are inventoriable.d. Period costs are inventoriable.P 1Finished Goods Beginning InventoryCost of Goods ManufacturedFinished Goods Ending InventoryRaw MaterialsBeginning InventoryRaw Materials PurchasesRaw Materials Ending InventoryCos
24、t of Goods SoldGoods in Process Beginning InventoryDirect LaborFactory OverheadRaw Materials UsedSales activityProduction activityMaterials activityACTIVITIES AND COST FLOWSIN MANUFACTURING Goods in Process Ending InventoryC 7Summarizes the types and amounts of costsIncurred in a companys manufactur
25、ing process.MANUFACTURING STATEMENTDirect Materials Used+Direct Labor+Factory Overhead=Total Manufacturing Costs+Beginning Work in Process Ending Work in Process=Cost of Goods ManufacturedP 2Lets take a look at Rocky Mountain Bikes Manufacturing Statement.MANUFACTURING STATEMENTP 2MANUFACTURING STAT
26、EMENTP 2P 2Include all direct labor costs incurred during the current period.MANUFACTURING STATEMENTP 2MANUFACTURING STATEMENTP 2Beginning work in process inventory is carried over from the prior period.MANUFACTURING STATEMENTP 2Ending work in process inventory contains the cost of unfinished goods,
27、 and is reported in the current assets section of the balance sheet.MANUFACTURING STATEMENTP 2Process time is the only value-added time.Wait TimeProcess Time + Inspection Time + Move Time + Queue TimeTotal Cycle TimeOrder ReceivedProduction StartedGoods ShippedManufacturing Cycle TimeA 1CYCLE TIME A
28、ND CYCLE EFFICIENCYManufacturingCycleEfficiencyValue-added time Manufacturing cycle time=CYCLE TIME AND CYCLE EFFICIENCYWait TimeProcess Time + Inspection Time + Move Time + Queue TimeOrder ReceivedProduction StartedGoods ShippedManufacturing Cycle TimeTotal Cycle TimeA 1END OF CHAPTER 18Chapter 18:
29、 Managerial Accounting Concepts and Principles*The purpose of both managerial and financial accounting is providing useful information to decision makers. Both areas of accounting report monetary information, although managerial accounting includes the practice of reporting non-monetary information.
30、 The focus of managerial and financial accounting are different, however.*Planning is the process of setting goals and making plans to achieve them. Strategic plans usually set a firms long-term direction by developing a road map based on opportunities such as new products, new markets, and capital
31、investments. Medium- and short-term plans are more operational in nature. They translate the strategic plans into actions. A short-term plan often covers a one-year period that, then translated into monetary terms is knows as a budget.Control is the process of monitoring planning decisions and evalu
32、ating an organizations activities and employees. It includes the measurement and evaluation of actions, processes, and outcomes. Feedback provided by the control system allows managers to revise their plans and take corrective actions to avoid undesirable outcomes.*Here we see a detailed comparison
33、of financial accounting and managerial accounting. In addition to the focus on internal decisions, note particularly that managerial accounting information may follow a flexible format, involves frequent, timely reports, and may contain more estimates and projections than financial accounting.*By me
34、eting customer needs in an efficient manner, a lean business model provides a positive return to its owners. Todays customers have many choices, both domestic and foreign. To be successful, a business must deliver quality products and services to customers in a cost efficient manner. Adopting the le
35、an business model can be challenging because to foster its implementation, all systems and procedures that a company follows must be realigned. Managerial accounting has an important role to play by providing accurate cost and performance information.*Lean business practices include total quality ma
36、nagement and just-in-time manufacturing. The central focus is always on the customer. Continuous improvement rejects the notion of “good enough” or “acceptable” and challenges employees and managers to continuously experiment with new and improved business practices. This has led to adopting practic
37、es such as total quality management and just-in-time manufacturing.*Total quality management focuses on quality improvement and applies this standard to all aspects of business activities. Awards such as the Malcolm Baldrige National Quality Awards encourage an emphasis on quality. *Just-in-time man
38、ufacturers acquire inventories and produces goods only when needed. Companies manufacture products only after they receive an order (a demand-pull system) and then deliver customers orders on time. To be successful JIT manufacturers, companies must improve processes to eliminate delays and inefficie
39、ncies, and they must establish good relations with suppliers to ensure on-time deliveries of high quality supplies and components.*Managerial accounting has an important role to play by providing accurate cost and performance information. Companies must understand the nature and sources of cost and
40、develop systems that capture costs accurately. Developing such a system is important to measuring the “value” provided to customers. The price that customers pay is an important determinant of value. In turn, the costs a company incurs are key determinants of price. All else being equal, the better
41、a company is at controlling its costs, the better its performance.*Part I.Fraud involves the use of ones job for personal gain through the deliberate misuse of the employers assets. There are many types of fraud, but common characteristics of all fraud are that it: Is done to provide direct or indir
42、ect benefit to the employee.Violates the employees duties to his employer.Costs the employer money.Is secret.Part II.Fraud increases business costs. Management relies on internal control systems to monitor business activities and on accounting systems to track costs and identify unexpected amounts.P
43、art III.Ethics are beliefs that distinguish right from wrong. They are accepted standards of good and bad behavior. The Institute of Management Accountants has issued a code of ethics to help accountants involved in solving ethical dilemmas. *Cost behavior refers to how a cost will react to changes
44、in the level of business activity. Total fixed costs do not change when activity changes. Total variable costschange in proportion to activity changes. Mixed costs are combinations of fixed and variable costs. Classification of costs by behavior is helpful in cost-volume-profit analyses and short-te
45、rm decision making. These are discussed in future chapters.*Cost objects may be products, services, departments, or customers to which costs are assigned. Direct Costs can be traced to a single cost object. Examples of direct costs are material and labor costs for a product. Indirect costs cannot be
46、 traced to a single cost object. An example of an indirect cost is a maintenance expenditure that benefits two or more departments. *Managers at higher levels in the organization have a greater degree of control over costs than do managers at lower levels in the organization. Classifying costs by co
47、ntrollability is an important part of assigning cost, responsibility, and evaluating a managers cost control performance. *Part I.Sunk costs have already been incurred and cannot be avoided or changed. Sunk costs are never relevant to current and future decisions. Example: An automobile purchased tw
48、o years ago cost $15,000. The $15,000 cost is sunk because whether the car is driven, sold, traded, or abandoned, the cost will not change.Part II.Out-of-pocket costs require future outlays of cash. Out-of-pocket costs are always relevant to current and future decisions. Example: You plan on buying
49、a new car for $25,000 next month. The cost of the new car is an out-of-pocket cost because you can choose to spend or not to spend the $25,000 next month.*An opportunity cost is the potential benefit lost by choosing a specific action from two or more alternatives. Opportunity costs are always relevant to a selection decision. Example: If you were not attending college, you could be earning $20,000 per year. Your opportunity cost of attending college for one year is $20,000.*Part I.Product costs are incurred to manufacture a product. Product costs are not expensed
