Welcome to Managerial Accounting

1. Welcome to Managerial Accounting

2. Course Introduction • Let’s take a look at the course outline http://web.skku.edu/~acpae/13gma/ • Who am I? http://web.skku.edu/~acpae/

3. Managerial Accounting and the Business Environment Chapter One

4. Objective of Firms • In this course, we mainly focus on profit-seeking companies, i.e., organizations whose objective is to maximize their profits. • However, as you will see, most of our discussions can also apply to non-profit organizations (e.g., Red Cross, universities, governments, etc).

5. Work of Management Planning Directing and Motivating Controlling

6. Planning and Control Cycle Exhibit1-2 Formulating long-and short-term plans (Planning) Begin Comparing actualto planned performance (Controlling) Implementing plans (Directing and Motivating) DecisionMaking Measuringperformance (Controlling)

7. Select an alternative that does the best job of achieving organization’s objectives. Develop budgets to guideprogress toward theselected alternative. Planning Identifyalternatives.

8. Directing and Motivating Directing and motivating involves managing day-to-day activities to keep the organization running smoothly. • Employee work assignments • Routine problem solving • Conflict resolution • Effective communications

9. Controlling Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.

10. Learning Objective 1 Identify the major differences and similarities between financial and managerial accounting.

11. Comparison of Financial and Managerial Accounting

12. Learning Objective 2 Understand the role of management accountants in an organization.

13. Organizational Structure Decentralization is the delegation of decision-making authority throughout an organization.

14. Line positions are directly related to achievement of the basic objectives of an organization. Example: Production supervisors in a manufacturing plant. Staff positions support and assist line positions. Example: Cost accountants in the manufacturing plant. Line and Staff Relationships

15. The Chief Financial Officer (CFO) A member of the top management team responsible for: • Providing timely and relevant data to support planning and control activities. • Preparing financial statements for external users.

16. End of Chapter 1

17. Cost Terms, Concepts and Classifications Chapter Two

18. Merchandisers . . . Buy finished goods. Sell finished goods. Manufacturers . . . Buy machine and raw materials, hire people. Produce and sell finished goods. MegaLoMart Comparing Merchandising and Manufacturing Activities

19. Learning Objective 1 Identify and give examples of each of the three basic manufacturing cost categories.

20. Costs Manufacturing costs: The cost of resources that are used for activities related to manufacturing Non-manufacturing costs: The cost of resources that are used for activities not related to manufacturing

21. DirectMaterials DirectLabor ManufacturingOverhead Manufacturing Costs The Product

22. Direct Materials Raw materials that become an integral part of the product and that can be conveniently traced directly to the product. Example:A radio installed in an automobile

23. Direct Labor Those labor costs that can be easily traced to individual units of product. Example:Wages paid to automobile assembly workers

24. Manufacturing Overhead Manufacturing costs that cannot be traced directly to specific units produced. • Indirect materials • Materials used to support the production process. • Examples: lubricants and cleaning supplies used in the automobile assembly plant. • Indirect labor • Wages paid to employees who are not directly involved in the production process. • Examples: maintenance workers, janitors and security guards. • Overhead • Examples: factory depreciation, insurance for factory building, utilities, etc.

25. Manufacturing costs are oftenclassified as follows: PrimeCost ConversionCost Classifications of Costs DirectMaterial DirectLabor ManufacturingOverhead

26. Selling Costs Administrative Costs Costs necessary to get the order and deliver the product. All executive, organizational, and clerical costs. Non-manufacturing Costs

27. Learning Objective 2 Distinguish between product costs and period costs and give examples of each.

28. Product costs include direct materials, direct labor, and manufacturing overhead. Period costs include all selling costs and administrative costs. Inventory Expense Cost of Good Sold Sale BalanceSheet IncomeStatement IncomeStatement Product Costs Versus Period Costs

29. Quick Check  Which of the following costs would be considered a period rather than a product cost in a manufacturing company? A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions.

30. Quick Check  Which of the following costs would be considered a period rather than a product cost in a manufacturing company? A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions.

31. Balance Sheet Merchandiser Current assets • Cash • Receivables • Prepaid Expenses • Merchandise Inventory • Manufacturer • Current Assets • Cash • Receivables • Prepaid Expenses • Inventories • Raw Materials • Work in Process • Finished Goods

32. Materials waiting to be processed. Partially complete products – some material, labor, or overhead has been added. Completed products awaiting sale. Balance Sheet Merchandiser Current assets • Cash • Receivables • Prepaid Expenses • Merchandise Inventory • Manufacturer • Current Assets • Cash • Receivables • Prepaid Expenses • Inventories • Raw Materials • Work in Process • Finished Goods

33. Learning Objective 3 Prepare an income statement including calculation of the cost of goods sold.

34. Ending balance Withdrawalsfrom inventory Beginning balance Additionsto inventory = - + Basic Equation for Inventory Accounts

35. The Income Statement Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.

36. Quick Check  If your inventory balance at the beginning of the month was $1,000, you bought $100 during the month, and sold $300 during the month, what would be the balance at the end of the month? A. $1,000. B. $ 800. C. $1,200. D. $ 200.

37. Quick Check  If your inventory balance at the beginning of the month was $1,000, you bought $100 during the month, and sold $300 during the month, what would be the balance at the end of the month? A. $1,000. B. $ 800. C. $1,200. D. $ 200. $1,000 + $100 = $1,100 $1,100 - $300 = $800

38. Learning Objective 4 Prepare a schedule of cost of goods manufactured.

39. Product Cost Flows As items are removed from raw materials inventory and placed into the production process, they arecalled direct materials.

40. Conversion costs are costs incurred to convert the direct material into a finished product. Product Cost Flows

41. Product Cost Flows All manufacturing costs incurred during the period are added to the beginning balance of work in process.

42. Product Cost Flows Costs associated with the goods that are completed during the period are transferred to finished goods inventory.

43. Product Cost Flows

44. Material Purchases Raw Materials Direct Labor Work in Process ManufacturingOverhead Cost of GoodsSold FinishedGoods Period Costs Selling andAdministrative Selling andAdministrative Manufacturing Cost Flows Income StatementExpenses Balance Sheet Costs Inventories

45. Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used? A. $276,000 B. $272,000 C. $280,000 D. $ 2,000 Quick Check 

46. Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used? A. $276,000 B. $272,000 C. $280,000 D. $ 2,000 Quick Check 

47. Quick Check  Direct materials used in production totaled $280,000. Direct labor was $375,000 and factory overhead was $180,000. What were total manufacturing costs incurred for the month? A. $555,000 B. $835,000 C. $655,000 D. Cannot be determined.

48. Quick Check  Direct materials used in production totaled $280,000. Direct labor was $375,000 and factory overhead was $180,000. What were total manufacturing costs incurred for the month? A. $555,000 B. $835,000 C. $655,000 D. Cannot be determined.

49. Quick Check  Beginning work in process was $125,000. Manufacturing costs incurred for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month? A. $1,160,000 B. $ 910,000 C. $ 760,000 D. Cannot be determined.

50. Quick Check  Beginning work in process was $125,000. Manufacturing costs incurred for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods manufactured during the month? A. $1,160,000 B. $ 910,000 C. $ 760,000 D. Cannot be determined.