Professional Documents
Culture Documents
CHAPTER
Basic
Management
Accounting
Concepts
2 -2
Objectives
1. Describe theAfter
cost studying
assignmentthisprocess.
Define tangible and intangible
chapter, you shouldproducts and
explain why therebeare different
able to: product cost
definitions.
Prepare income statements for manufacturing
and service organizations.
Outline the differences between functional-
based and activity-based management
accounting systems.
2 -3
Cost
I see…is the
It’scash or cash-equivalent
a dollar
valuemeasure
sacrificed offor
thegoods and services
thatresources
is expected usedtoto
bring a current or what is
Exactly
future benefit
achieve to the organization.
a given meant by “cost”?
benefit.
2 -4
Direct Driver
Allocation
Tracing Tracing
Cost Objects
Interface of Services with 2 -9
Management Accounting
Services cannot be stored.
No patent protection.
1. Intangibility Cannot display or
Services benefits expire
communicate services.
quickly. directly
Customer
2. Perishability Price difficult to set.
Services
involvedmay be repeated
with
often for oneofcustomer.
production service.
3. Inseparability
Centralized mass
Wide variation in
production of services
4. Heterogeneity service products
difficult.
possible.
Derived Properties
Interface of Services with 2 -10
Management Accounting
No inventories.
Strong ethical code.
1. Intangibility Price difficult to set.
Demand for more accurate
No inventories.
Costs often accounted
2. Perishability cost for
Need assignments.
standards and
for by customer type.
consistent high quality.
Demand for and
Productivity measure-
quality
3. Inseparability
ment and control
measurement andof
quality to
control maintain
must be
4. Heterogeneity
consistency.
ongoing.
Total quality manage-
Impact on Management
Accounting ment critical.
2 -11
Design
Service Develop
Distribute Produce
Market
Product Costing Definitions 2 -13
Marketing Marketing
Customer Customer
Service Service
Pricing Decisions Strategic Design Decisions External Financial
Product-Mix Decisions Tactical Profitability Reporting
Strategic Profitability Analysis
Analysis
2 -14
Prime Cost :
Direct Materials Costs + Direct Labor Costs
Conversion Cost:
Direct Labor Costs + Overhead Costs
2 -19
External
Financial
Statements
Manufacturing Organization 2 -20
2-20
Income Statement
For the Year Ended December 31, 2004
Sales $2,800,000
Less cost of goods sold:
Beginning finished goods inventory $ 500,000
Add: Cost of goods manufactured 1,200,000
Cost of goods available for sale $1,700,000
Less: Ending finished goods inventory 300,000 1,400,000
Gross margin $1,400,000
Less operating expenses:
Selling expenses $ 600,000
Administrative expenses 300,000 900,000
Income before taxes $ 500,000
Statement of Cost of Goods Manufactured 2 -21
2-21
Income Statement
For the Year Ended December 31, 2004
Sales $300,000
Less expenses:
Cost of services sold:
Beginning work in process $ 5,000
Service costs added:
Direct materials $ 40,000
Direct labor 80,000
Overhead 100,000 220,000
Total $225,000
Less: Ending work in process 10,000 215,000
Gross margin $ 85,000
Less operating expenses:
Selling expenses $ 8,000
Administrative expenses 22,000 30,000
Income before income taxes $ 55,000
Functional-Based 2 -24
Management Model
Cost View
Resources
Operational View
Efficiency Performance
Functions
Analysis Analysis
Products
Activity-Based 2 -25
Management Model
Cost View
Resources
Process View
Driver Performance
Activities
Analysis Analysis
Why? What? How Well?
Products and
Customers
2 -26
Functional-Based Activity-Based
1. Unit-based drivers 1. Unit- and nonunit-based
drivers
2. Allocation-intensive 2. Tracing intensive
3. Narrow and rigid product 3. Broad, flexible product
costing costing
4. Focus on managing cost 4. Focus on managing
activities
5. Sparse activity information 5. Detailed activity
information
6. Maximization of individual 6. Systematic performance
unit performance maximization
7. Use of financial measures of 7. Use of both financial and
performance nonfinancial measures of
performance
2 -27
Chapter Two
The End
2 -28