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Chapter 1

Chapter 1. Managerial Accounting and Cost Concepts. PowerPoint Authors: Jon A. Booker, Ph.D., CPA, CIA Charles W. Caldwell, D.B.A., CMA Susan Coomer Galbreath, Ph.D., CPA. 1- 2. Work of Management. Planning. Directing and Motivating. Controlling. 1- 3.

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Chapter 1

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  1. Chapter 1 Managerial Accounting and Cost Concepts PowerPoint Authors: Jon A. Booker, Ph.D., CPA, CIA Charles W. Caldwell, D.B.A., CMA Susan Coomer Galbreath, Ph.D., CPA

  2. 1-2 Work of Management Planning Directing and Motivating Controlling

  3. 1-3 Select alternative that does the best job of furtheringorganization’s objectives. Develop budgets to guideprogress toward theselected alternative. Planning Identifyalternatives.

  4. 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. 1-4 Directing and Motivating

  5. 1-5 Controlling The control function ensuresthat plans are being followed. Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.

  6. 1-6 Planning and Control Cycle Formulating long-and short-term plans (Planning) Begin Comparing actualto planned performance (Controlling) Implementing plans (Directing and Motivating) DecisionMaking Measuringperformance (Controlling)

  7. 1-7 Learning Objective 1 Identify the major differences and similarities between financial and managerial accounting.

  8. 1-8 Comparison of Financial and Managerial Accounting

  9. 1-9 Learning Objective 2 Identify and give examples of each of the three basic manufacturing cost categories.

  10. 1-10 DirectMaterials DirectLabor ManufacturingOverhead Manufacturing Costs The Product

  11. Raw materials that become an integral part of the product and that can be conveniently traced directly to it. 1-11 Direct Materials Example:A radio installed in an automobile

  12. Those labor costs that can be easily traced to individual units of product. 1-12 Direct Labor Example:Wages paid to automobile assembly workers

  13. Manufacturing costs cannot be traced directly to specific units produced. 1-13 Materials used to support the production process. Examples: Lubricants and cleaning supplies used in the automobile assembly plant. Wages paid to employees who are not directly involved in production work. Examples: Maintenance workers, janitors and security guards. Manufacturing Overhead Examples:Indirect materials and indirect labor

  14. 1-14 Selling Costs Administrative Costs Costs necessary to get the order and deliver the product. All executive, organizational, and clerical costs. Classifications of Nonmanufacturing Costs

  15. 1-15 Learning Objective 3 Distinguish between product costs and period costs and give examples of each.

  16. 1-16 Cost of Goods Sold Inventory Expense Sale BalanceSheet IncomeStatement IncomeStatement Product Costs Versus Period Costs Product costsinclude direct materials, direct labor, and manufacturing overhead. Period costsare not included in product costs. They are expensed on the income statement.

  17. 1-17 Quick Check  Which of the following costs would be considered a period rather than a product cost in a manufacturing company? (There may be more than one correct answer.) 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.

  18. 1-18 Quick Check  Which of the following costs would be considered a period rather than a product cost in a manufacturing company? (There may be more than one correct answer.) 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.

  19. Manufacturing costs are oftenclassified as follows: 1-19 PrimeCost ConversionCost Prime Cost and Conversion Cost DirectMaterial DirectLabor ManufacturingOverhead

  20. Merchandisers . . . Purchase finished goods from suppliers for resale to customers. Manufacturers . . . Purchases raw materials from suppliers. Produce and sell finished goods to customers. 1-20 MegaLoMart Comparing Merchandising and Manufacturing Activities

  21. 1-21 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

  22. 1-22 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

  23. 1-23 Learning Objective 4 Prepare an income statement including calculation of the cost of goods sold.

  24. Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers. 1-24 The Income Statement

  25. 1-25 Ending balance Withdrawalsfrom inventory Beginning balance Additionsto inventory + = + Inventory Flows

  26. 1-26 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.

  27. 1-27 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

  28. 1-28 Learning Objective 5 Prepare a schedule of cost of goods manufactured.

  29. 1-29 Schedule of Cost of Goods Manufactured Calculates the cost of raw materials, direct labor and manufacturing overhead used in production. Calculates the manufacturing costs associated with goods that were finished during the period.

  30. 1-30 Schedule of Cost of Goods Manufactured As items are removed from raw materials inventory and placed into the production process, they are called direct materials.

  31. 1-31 Conversion costs are costs incurred to convert the direct materials into a finished product. Schedule of Cost of Goods Manufactured As items are removed from raw materials inventory and placed into the production process, they arecalled direct materials.

  32. 1-32 Schedule of Cost of Goods Manufactured All manufacturing costs incurred during the period are added to the beginning balance of work in process.

  33. 1-33 Schedule of Cost of Goods Manufactured Costs associated with the goods that are completed during the period are transferred to finished goods inventory.

  34. 1-34 Cost of Goods Sold

  35. 1-35 Material Purchases Raw Materials Direct Labor Work in Process ManufacturingOverhead Cost of GoodsSold FinishedGoods Period Costs Selling andAdministrative Manufacturing Cost Flows Balance Sheet Costs Inventories Income StatementExpenses Selling andAdministrative

  36. 1-36 Quick Check  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

  37. 1-37 Quick Check  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

  38. 1-38 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.

  39. 1-39 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.

  40. 1-40 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.

  41. 1-41 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.

  42. 1-42 Quick Check  Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. The ending finished goods inventory was $150,000. What was the cost of goods sold for the month? A. $ 20,000. B. $740,000. C. $780,000. D. $760,000.

  43. 1-43 Quick Check  Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. The ending finished goods inventory was $150,000. What was the cost of goods sold for the month? A. $ 20,000. B. $740,000. C. $780,000. D. $760,000. $130,000 + $760,000 = $890,000 $890,000 - $150,000 = $740,000

  44. 1-44 Learning Objective 6 Understand the differences between variable costs and fixed costs.

  45. 1-45 Cost Classifications for Predicting Cost Behavior How a cost will react to changes in the level of business activity. • Totalvariable costschange when activity changes. • Totalfixed costsremain unchanged when activity changes.

  46. 1-46 Total Texting Bill Number of Texts Sent Variable Cost Your total texting bill is based on how many texts you send.

  47. 1-47 Cost Per Text Sent Number of Texts Sent Variable Cost Per Unit The cost per text sent is constant at 5 cents per text.

  48. 1-48 Monthly Cell Phone Contract Fee Number of Minutes UsedWithin Monthly Plan Fixed Cost Your monthly contract fee for your cell phone is fixed for the number of monthly minutes in your contract. The monthly contract fee does not change based on the number of calls you make.

  49. 1-49 Monthly Cell Phone Contract Fee Number of Minutes UsedWithin Monthly Plan Fixed Cost Per Unit Within the monthly contract allotment, the average fixed cost per cell phone call made decreases as more calls are made.

  50. 1-50 Cost Classifications for Predicting Cost Behavior

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