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ACTG 2120 - Chapter 18

ACTG 2120 - Chapter 18. Managerial Accounting Concepts and Principles. Purpose and Nature of Managerial Accounting. Managers’ Main Responsibilities: Planning Control. Nature of Managerial Accounting. Managerial Financial Internal External Future-oriented Historical

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ACTG 2120 - Chapter 18

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  1. ACTG 2120 - Chapter 18 Managerial Accounting Concepts and Principles

  2. Purpose and Nature of Managerial Accounting • Managers’ Main Responsibilities: • Planning • Control

  3. Nature of Managerial Accounting • ManagerialFinancial • Internal External • Future-oriented Historical • Segmented Whole company • Flexible Follows GAAP • Any time Has deadlines • Any period Has distinct time • periods

  4. Fraud and Ethical Issues for Accountants • Increased Importance • IMA Code of Ethics • Competence • Confidentiality • Integrity • Credibility • Resolution of Ethical Conflict Codes of Ethics – Company • Codes of Conduct on the International Level

  5. Sarbannes-Oxley Act of 2002 • Executives (CEO and CFO) are now responsible for everything in their financial statements!!!! • They must both sign the financial statements and say that the financial statements do not omit “material” information. • They must disclose that they have evaluated the company’s internal controls. • They must notify the company’s auditors and the audit committee of the board of any fraud that involves management. • Executives signing off on fraudulent statements will go to criminal jail (No country clubs!)

  6. Classification by Cost Behavior • Variable costs • Fixed costs • Relevant range • Unit costs • Total costs

  7. Classification by Cost Object • Cost object - what it is you are trying to determine a cost for • Direct - costs directly related to cost object • Always direct materials and direct labor • Indirect - costs not specifically associated with the cost object; varies based on cost object • Cost objects: 1 Nissan truck, the Nissan truck division, the Smyrna Nissan plant

  8. Controllability of Costs • Controllable • Not controllable • If a cost is not controllable by a manager, they should not be held accountable for it.

  9. Product/Period Costs • Inventoriable (Product) costs – only the costs associated with making or buying products to sell (RECORDED AS AN ASSET) • Period costs – marketing, selling, and general and administrative costs (EXPENSED IN PERIOD INCURRED)

  10. Types of Businesses and Tasks • Service Organizations – perform activities for others • Incur wages and rent expense, have little inventory • Merchandising companies – resell goods • Incur cost of goods sold, wages, rent expenses; have merchandise inventory • Manufacturing companies – makes goods that are sold • Incur manufacturing costs along with wages and rent • Inventories include: Raw materials inventory, Goods in process inventory, and Finished goods inventory

  11. Manufacturing Costs • Direct materials (DM) • Direct labor (DL) • Factory overhead (OH) • Prime costs – combination of DM and DL • Conversion costs – combination of DL and OH

  12. Flow of Costs • Purchase materials (Raw materials inventory) • Use materials and add direct labor and factory overhead in production department (Goods in process inventory) • Finished products are transferred to warehouse (Finished goods inventory) • Finished products are sold (Cost of Goods Sold)

  13. Schedule of Cost of Goods Manufactured • Replaces “Purchases” in the Cost of Goods Sold section of the income statement • Used to determine the cost of the finished goods that are ready to be sold • 1) Accumulate total manufacturing costs • 2) Determine cost of goods manufactured: Add beginning goods in process inventory to total manufacturing costs and subtract ending goods in process inventory.

  14. Cost of Goods Sold • Beginning finished goods inventory • + Cost of goods manufactured • = Goods available for sale • Less ending finished goods inventory • = COST OF GOODS SOLD

  15. Flow of Manufacturing Activities • Materials activity • Purchase • Use • Production activity • Make products as quickly as possible • Sales activity • Sell products as quickly as possible

  16. Trends in Managerial Accounting • Customer Orientation • Global Economy • E-Commerce • Service Economy • Lean Practices • Value Chain

  17. Homework • Problems 18-3B, 18-7B*, BTN 18-3 • DUE WITH EXAM, FRIDAY, MAY 23

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