Professional Documents
Culture Documents
Chapter 1
Managerial Accounting
Concepts and Principles
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C1
Managerial accounting
provides financial and
non-financial information
for managers of an
organization and other
decision makers
Financial accounting
provides general
purpose financial
information to those
who are outside
the organization.
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C1
Nature of Managerial
Accounting
1-7
C2
Global
Economy
Lean
Business
Model
Elimination
of Waste
Satisfy the
Customer
Positive
Return
1-8
C2
Lean Practices
Customer
Orientation
in a Global
Economy
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C2
on
Employees encouraged
to try new methods
to improve quality.
Company emphasizes
value of quality through
quality awards.
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Just-In-Time (JIT)
Manufacturing
C2
Receive
customer
orders.
Complete products
just in time to
ship to customers.
Schedule
production.
Receive materials
just in time for
production.
Complete parts
just in time for
assembly into products.
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C2
Just-In-Time (JIT)
Manufacturing
To accomplish just-in-time
manufacturing:
Processes must be
aligned to eliminate
delays and
inefficiencies
Companies must
establish good
relations with
suppliers
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C2
Implications of Lean
Manufacturing
Understand
the nature and
sources of
cost
Measure
value provided
to customers
Determine
price
customers
pay
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C3
Fraud in Accounting
C3
Ethics in Accounting
1-15
C4
Behavior
Traceability
Controllability
Relevance
Function
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C4
Classification by Behavior
Cost behavior means how a cost will
react to changes in the level of
business activity.
A fixed cost does not change with
changes in the volume of activity
A variable cost changes in
proportion to changes in the volume
of activity
A mixed cost refers to a combination of
fixed and variable
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C4
Classification by Traceability
Direct costs
Costs traceable to a
single cost object.
Examples: material
and labor cost for a
product.
Indirect costs
Example:
maintenance
expenditures
benefiting two or
more departments.
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C4
Classification by Controllability
tr o
Co
ntr
n
Co
l
Mo
re
e
or
M
ol
C4
Classification by Relevance:
Sunk Costs
All costs incurred in the past that cannot be avoided
or changed.
Sunk costs should not be considered in decisions.
Example: You bought an automobile that cost
$15,000 two years ago. The $15,000 cost is
sunk because whether you drive it, park it, trade
it, or sell it, you cannot change the $15,000 cost.
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C4
Classification by Relevance:
Out-of-Pocket Costs
A cost that requires a future outlay 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 the $25,000 or not in the future
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C4
Classification by Relevance:
Opportunity Costs
The potential benefit lost by choosing a specific
action from two or more alternatives
C5
Classification by Function:
Product Costs
Direct
Labor
Direct
Material
Manufacturing
Overhead
The
Product
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C5
Period Costs
(Expenses)
2010 Income
Statement
Operating
Expenses
2010 Costs
Incurred
Cost of
Goods Sold
Inventory
Sold in 2010
Product Costs
(Inventory)
Inventory Not
Sold in 2010
2010 Balance
Sheet Inventory
Raw Materials
Goods in Process
Finished Goods
2011 Income
Statement
Cost of
Goods Sold
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Balance Sheet of a
Manufacturer
C6
Raw
Materials
Materials
waiting to be
processed.
Can be direct
or indirect.
Goods in
Process
Partially complete
products.
Material to which
some labor and/or
overhead have
been added.
Finished
Goods
Completed
products
for sale.
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Income Statement of a
Manufacturer
P1
Merchandiser
Manufacturer
Beginning
Merchandise
Inventory
Beginning
Finished Goods
Inventory
Cost of Goods
Purchased
The major
difference
Ending
Merchandise
Inventory
Cost of Goods
Manufactured
Ending
Finished Goods
Inventory
Cost of Goods
Sold
=
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P1
Income Statement of a
Manufacturer
Cost of goods sold for manufacturers differs only
slightly from cost of goods sold for merchandisers.
Merchandising Company
Cost of goods sold:
Beg. merchandise
inventory
+ Purchases
= Goods available
for sale
- Ending
merchandise
inventory
= Cost of goods
sold
$ 14,200
234,150
$ 248,350
(12,100)
$ 236,250
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C7
Income Statement of a
Manufacturer
Direct
Direct Materials
Materials
Materials
Materials that
that are
are separately
separately and
and
readily
readily traced
traced to
to aa particular
particular product.
product.
Example:
Example:
Steel
Steel used
used to
to
manufacture
manufacture
the
theautomobile.
automobile.
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C7
Income Statement of a
Manufacturer
Direct
Direct Labor
Labor
Labor
Labor costs
costs that
that are
are separately
separately and
and
readily
readily traced
traced to
to finished
finished product.
product.
Example:
Example:
Wages
Wagespaid
paidto
toan
an
automobile
automobileassembly
assembly
worker.
worker.
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C7
Income Statement of a
Manufacturer
Factory
Factory Overhead
Overhead
All
All manufacturing
manufacturing costs
costs except
except
direct
direct material
material and
and direct
direct labor
labor
Factory
Factory costs
costs that
that cannot
cannot be
be
separately
separately or
or readily
readily traced
traced directly
directly to
to
products.
products.
Examples:
Indirect labor maintenance
Indirect material cleaning supplies
Factory utility costs
Supervisory costs
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Income Statement of a
Manufacturer
C7
Direct
Labor
Prime
Cost
Manufacturing
Overhead
Conversion
Cost
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Flow of Manufacturing
Activities
C7
Materials
activity
Production activity
Sales activity
Raw
Materials
Beginning
Inventory
Goods in Process
Finished Goods
Raw
Materials
Purchases
Factory
Overhead
Beginning Inventory
Beginning Inventory
Direct Labor
Cost of Goods
Manufactured
Raw Materials
Used
Finished
Goods
Ending
Inventory
Raw Materials
Goods in Process
Ending Inventory
Ending Inventory
Cost
of
Goods
Sold
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P2
Manufacturing Statement
Summarizes the types and amounts of costs
Incurred in a companys manufacturing process.
Direct Materials Used
+Direct Labor
+Factory Overhead
=Total Manufacturing Costs
+Beginning Work in Process
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P2
Manufacturing Statement
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P2
8,000
86,500
$ 94,500
9,000
$ 85,500
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P2
Manufacturing Statement
Include all direct labor
costs incurred during the
current period.
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P2
9,000
6,000
Manufacturing Statement
Factory supervision
Factory utilities
2,600
1,900
600
1,100
5,300
3,500
30,000
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P2
Manufacturing Statement
Beginning work in
process inventory is
carried over from the
prior period.
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P2
Manufacturing Statement
Ending work in process inventory
contains the cost of unfinished
goods, and is reported in the current
assets section of the balance sheet.
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End of Chapter 1
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