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Transcript of The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 1-1 Fundamental Managerial Accounting Concepts...
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
1-1
Fundamental Managerial Accounting Concepts
4th Edition
Thomas P. Edmonds
Bor-Yi Tsay
Phillip R. Olds
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
CHAPTER 1
Management Accounting and
Corporate Governance
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Learning Objective
LO1LO1
To distinguish between
managerial and financial accounting
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Learning Objective
LO2LO2
To identify the cost components of a product made by a manufacturing
company: the cost of materials, labor, and
overhead
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Product Costing
Product Costing
Managers need to know the cost of their products and
services.
Cost Plus Pricing
A common business practice.
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Product Costs in Manufacturing Companies
Materials Labor Overhead
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Average Cost per Unit
Total Cost
Number of Units= Average Cost per Unit
= $250$1,000
4
Tabor Example Average Cost Per Unit
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Costs Can Be Assets or Expenses
Period Cost
Expense
COGSAssetProduct
Cost
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Learning Objective
LO3LO3
To explain the effects on financial
statements of product costs versus general,
selling, and administrative costs
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Patillo Manufacturing Company Transactions
Event 1 Acquired additional $15,000 cash by issuing common stock. Event 2 Paid $2,000 for the materials that were used to make its products. All
products started were completed during the period. Event 3 Paid $1,200 for salaries of selling and administrative employees. Event 4 Paid $3,000 for wages of production workers. Event 5 Paid $2,800 for furniture used in selling and administrative offices. Event 6 Recognized depreciation expense on office furniture purchased in Event
5. The furniture acquired on January 1 had a $400 estimated salvage value and a four-year useful life. The annual depreciation charge is $600 [($2,800 - $400)/4].
Event 7 Paid $4,500 for manufacturing equipment. Event 8 Recognized depreciation expense on equipment purchased in Event 7.
The equipment acquired on January 1 had a $1,500 estimated salvage value and a three-year useful life. The annual depreciation charge is $1,000 [($4,500 - $1,500)/3].
Event 9 Sold inventory to customers for $7,500 cash. Event 10 The inventory sold in Event 9 cost $4,000 to make.
Patillo Manufacturing Company experienced the following transactions:
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Overhead Costs: A Closer Look
Indirect Costs
DepreciationSupervisor’s Salary
Utilities
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Learning Objective
LO4LO4
To distinguish product costs from
upstream and downstream costs
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
1-24
Upstream and Downstream Costs
Upstream Costs
Occur before the
manufacturing process begins.
Downstream Costs
Occur after the manufacturing process begins.
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Learning Objective
LO5LO5
To explain how product costing
differs in service, merchandising, and
manufacturing companies
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Product Costing in Service and Merchandising Companies
ServiceCompanies
Merchandising Companies
Provide services to customersSell products other companies make
Service and merchandising companies also incur materials, labor and overhead costs. However, these
costs are normally treated as general, selling and administrative expenses rather than accumulated in
inventory accounts.
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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Learning Objective
LO6LO6
To explain how just-in-time
inventory can increase
profitability
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Just-in-TimeMany 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.
For example, hamburgers that are cooked to order
are fresher and more individualized than those
that are prepared in advance and stored until a
customer orders one.
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Corporate GovernanceCorporate governance is a set of relationships between
the board of directors, management, shareholders, auditors, and other stakeholders that determine how a
company is operated.
Board of Directors
Auditors
Management
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Learning Objective
LO7LO7
To explain how cost classifications can be used to manipulate financial statements
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The Motive to Manipulate
PromotionsPay raisesBonuses
Stock options
Passed over for promotionsDemoted
Fired
Strong Financials Weak Financials
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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 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.
The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
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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.
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Learning Objective
LO8LO8
To identify the standards of ethical
conduct and the features that
motivate misconduct
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Common Features of Criminal and Ethical Misconduct
Fraud Triangle
Opportunity
RationalizationPressure
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Internal Control Practices
Separating Duties
Hiring Competent Personnel
Bonding Employees
Using Prenumbered Documents
Establishing Physical Controls
Performing Evaluations at
Regular Intervals
Requiring Extended Absences
Establishing Clear Lines of
Authority & Responsibility
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Learning Objective
LO9LO9
To explain how the Sarbanes-Oxley
Act affects management accountants
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Sarbanes-Oxley Act of 2002
Internal Controls
Internal Controls
CEO and CFO Certification
CEO and CFO Certification
Code of Ethics
Code of Ethics
Hotline for Anonymous Reporting
Hotline for Anonymous Reporting