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Transcript of 19 - 1 ©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber...
19 - 1©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Introduction toManagement Accounting
Chapter 19
19 - 2©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Planning Acting
Feedback
Controlling
The Functions of Management
19 - 3©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Distinguish between financial
accounting and managementaccounting.
Objective 1
19 - 4©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Management Accounting and Financial Accounting
Internal managers of the businessInternal managers of the business
Investors, Creditors,Government authorities (IRS, SEC, etc.)
Investors, Creditors,Government authorities (IRS, SEC, etc.)
Primary Users
19 - 5©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Management Accounting and Financial Accounting
Help managers plan andcontrol business operations
Help managers plan andcontrol business operations
Help investors, creditors, and others makeinvestment, credit, and other decisions
Help investors, creditors, and others makeinvestment, credit, and other decisions
Purpose of Information
19 - 6©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Management Accounting and Financial Accounting
RelevanceRelevance
Reliability, objectivity, and focus on the pastReliability, objectivity, and focus on the past
Focus and Time Dimension
19 - 7©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Management Accounting and Financial Accounting
Internal reports not restricted by GAAPInternal reports not restricted by GAAP
Financial statements restricted by GAAPFinancial statements restricted by GAAP
Type of Report
19 - 8©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Management Accounting and Financial Accounting
No independent auditNo independent audit
Annual independent audit by CPAsAnnual independent audit by CPAs
Verification
19 - 9©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Management Accounting and Financial Accounting
Detailed reports onparts of the company
Detailed reports onparts of the company
Summary reports primarilyon the company as a wholeSummary reports primarilyon the company as a whole
Scope of Information
19 - 10©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Management Accounting and Financial Accounting
Concern about how reportswill affect employees behavior
Concern about how reportswill affect employees behavior
Concern about adequacy of disclosureConcern about adequacy of disclosure
Behavioral Implications
19 - 11©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Service, Merchandising, and Manufacturing Companies
Service Company:provides intangible services,rather than tangible products
Service Company:provides intangible services,rather than tangible products
Merchandising Company:resells products previously
bought from suppliers
Merchandising Company:resells products previously
bought from suppliers
19 - 12©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Service, Merchandising, and Manufacturing Companies
Manufacturing Company:uses labor, plant, and equipment to convert
raw materials into finished products
Manufacturing Company:uses labor, plant, and equipment to convert
raw materials into finished products
Materials inventoryWork in process inventoryFinished goods inventory
Materials inventoryWork in process inventoryFinished goods inventory
19 - 13©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Describe the value chain
and classify costs byvalue-chain functions.
Objective 2
19 - 14©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Value Chain
Research andDevelopment
DesignProduction or
Purchases
Marketing Distribution CustomerServices
19 - 15©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Distinguish direct costs
from indirect costs.
Objective 3
19 - 16©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Cost Objects, Direct Costs,and Indirect Costs
Cost objects are anything for which a separate measurement of costs is desired.
Cost drivers are any factors that affect cost.
19 - 17©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Cost Objects, Direct Costs,and Indirect Costs
What are examples of cost objects?– individual products– alternative marketing strategies– geographic segments of the business– departments
19 - 18©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Cost Objects, Direct Costs,and Indirect Costs
What are direct costs? Direct costs are those costs that can be
specifically traced to the cost object. What are indirect costs? Indirect costs are costs that cannot be
specifically traced to the cost object.
19 - 19©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Distinguish among full product
costs, inventoriable productcosts, and period costs.
Objective 4
19 - 20©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Inventoriableproduct
costs
Inventoriableproduct
costs
Fullproduct
costs
Fullproduct
costs
Product Costs
What are product costs? They are the costs to produce (or purchase)
tangible products intended for sale. There are two types of product costs:
19 - 21©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
External Reporting
Inventoriableproduct
costs
Inventoriableproduct
costs
PeriodcostsPeriodcosts
19 - 22©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Inventoriable Product Costs
For external reporting, merchandisers’ inventoriable product costs include only costs that are incurred in the purchase of goods.
Inventoriable costs are an asset. Period costs flow as expenses directly to the
income statement.
19 - 23©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Inventoriable Product Costs
For external reporting, manufacturers’ inventoriable product costs include raw materials plus all other costs incurred in the manufacturing process.
Inventoriable product costs are incurred only in the third element of the value chain.
Costs incurred in other elements of the value chain are period costs.
19 - 24©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
DirectMaterials
DirectLabor
IndirectLabor
IndirectMaterials
Other
Manufacturing Overhead
Inventoriable Product Costs
19 - 25©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Inventoriable Product Costs
DirectMaterials
DirectLabor
Prime Costs = Direct Materials + Direct Labor
19 - 26©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Inventoriable Product Costs
Conversion Costs = Direct Labor + Manufacturing Overhead
DirectLabor
IndirectLabor
IndirectMaterials
Other
19 - 27©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Prepare the financial statements
of a manufacturing company.
Objective 5
19 - 28©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Revenues – Expenses = Operating income
Financial Statements forService Companies
There is no inventory and thus no inventoriable costs.
The income statement does not include cost of goods sold.
19 - 29©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Financial Statements for Merchandising Companies
Purchases ofInventory plus
Freight-In Inventory
Sales Revenue
Cost ofGoods Sold
INCOME STATEMENT
Operating Expenses
InventoriableCosts
BALANCE SHEET
equals Operating Income
whensalesoccur
deduct
equals Gross Margindeduct
PeriodCosts
19 - 30©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Financial Statements forManufacturing Companies
MaterialsInventory
FinishedGoods
Inventory
Sales Revenue
Cost ofGoods Sold
INCOME STATEMENT
Operating Expenses
InventoriableCosts
BALANCE SHEET
equals Operating Income
whensalesoccur
deduct
equals Gross Margindeduct
Work inProcess
Inventory
PeriodCosts
19 - 31©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Manufacturing Company Example
Kendall Manufacturing Company: Beginning and ending work-in-process
inventories were $20,000 and $18,000. Direct materials used were $70,000. Direct labor was $100,000. Manufacturing overhead incurred was
$150,000.
19 - 32©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Manufacturing Company Example
What is the cost of goods manufactured?
Beginning work in process $ 20,000Direct labor $100,000Direct materials 70,000Mfg. overhead 150,000 320,000Ending work in process 18,000Cost of goods manufactured $322,000
19 - 33©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Manufacturing Company Example
Kendall Manufacturing Company’s beginning finished goods inventory was $60,000 and its ending finished goods inventory was $55,000.
How much is the cost of goods sold?
19 - 34©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Manufacturing Company Example
Beg. finished goods inventory $ 60,000+ Cost of goods manufactured 322,000= Cost of goods available for sale $382,000– Ending finished goods 55,000= Cost of goods sold $327,000
19 - 35©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Manufacturing Company Example
Kendall Manufacturing Company had sales of $627,000 for the period.
How much is the gross margin?
Sales $627,000– Cost of goods sold 327,000= Gross margin $300,000
19 - 36©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Manufacturing Company Example
Kendall Manufacturing Company had operating expenses as follows:
Sales salaries and commissions $ 80,000 Delivery expense 10,000 Administrative expenses 30,000 Total$120,000
What is Kendall’s operating income?
19 - 37©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Manufacturing Company Example
Gross margin $300,000– Operating expenses 120,000= Operating income $180,000
19 - 38©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Flow of Costs through a Manufacturer’s Accounts
Direct Materials Inventory Beginning inventory+ Purchases and freight-in
= Direct materials availablefor use
– Ending inventory= Direct materials used
Work in Process Inventory Beginning inventory+ Direct materials used+ Direct labor+ Manufacturing overhead= Total manufacturing costs
to account for– Ending inventory= Cost of goods manufactured
19 - 39©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Flow of Costs through a Manufacturer’s Accounts
Finished Goods Inventory Beginning inventory+ Cost of goods manufactured= Cost of goods available for sale– Ending inventory= Cost of goods sold
19 - 40©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Identify major trends in thebusiness environment, and
usecost-benefit analysis to make
business decisions.
Objective 6
19 - 41©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Shift to a Service Economy
In the U.S., 55% of the workforceis employed in service companies.
Service Industries Other
19 - 42©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Competing in the Global Marketplace
Foreign Operations Other
Foreign operations accountfor over 30% of GE’s revenues.
19 - 43©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Just-in-Time
JIT philosophy means that the company schedules production just in time to satisfy needs.
Speeding up of the production process reduces throughput time.
Throughput time is the time between buying raw materials and selling the finished products.
19 - 44©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Total Quality Management
The goal of total quality management (TQM) is to please customers by providing them with superior products and services.
TQM emphasizes educating, training, and cross-training employees.
Quality improvement programs cost money today.
The benefits usually do not occur until later.
19 - 45©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Total Quality Management
Initial benefits and costs $170 million $200 million
Additionalexpected benefits 68 million
Total $238 million $200 million
Total Benefits Total Cost
19 - 46©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Use reasonable standards to
make ethical judgments.
Objective 7
19 - 47©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Professional Ethics for Management Accountants
In many situations the ethical path is not so clear.
The Institute of Management Accountants (IMA) has developed standards to help management accountants deal with these situations.
19 - 48©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber
Standards of Ethical Conduct for Management Accountants
Confidentiality
Integrity
Objectivity
Competence