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Ch.14: Manangerial Accounting

Managerial Accounting
A field of accounting that provides economic and financial information for managers and other INTERNAL users; places emphasis on special purpose accounting.
What are the 3 distinguishing features of Managerial Accounting vs. Financial Accounting?
1. Primary users of reports in financial accounting is EXTERNAL users: stockholders, creditors, and regulators. The primary users of managerial accounting is INTERNAL users: officers and managers.
2. Financial accounting uses financial statements and they are quarterly and annually. Managerial accounting uses internal reports as frequently as needed.
3. Content of reports for financial accounting is limited to double-entry accounting and cost data, highly aggregated (condensed), pertains to business as a whole, and generally accepted accounting principles. Managerial accounting is extended beyond double-entry accounting to any relevant data, very detailed, pertains to subunits of the business, and standard is relevance to decisions
What are the 3 management functions?
Planning, Directing, and Controlling
Requires Managers to look ahead and establish objectives.
-Maximize short-term profit and market share
-Commit to environmental protection and social problems
-Add value to the business (KEY objective)
Involves coordinating a company’s diverse activities and human resources to produce a smooth-running operation
-Coordinate diverse activities and human resources
-Implement planned objectives
-Provide incentives to motivate employees
-Hire and train employees
-Produce a smooth-running operation
Keeping the company’s activities on track.
-Determine whether goals are met
-Decide changes needed to get back on track
What are the three classes of manufacturing costs?
Direct Materials, Direct Labor, and Manufacturing Overhead
Manufacturing Costs
Activities and processes that convert raw materials into finished goods
Direct Materials
Raw materials that can be physically and directly associated with the finished product
Ex: sheets of metal, cloth, etc./ Tires, seats, wheels
Direct Labor
Work of factory employees that can be physically and directly associated with converting raw materials into finished goods.
Ex: Assembly Line worker, production worker
Indirect Labor
work of factory employees that have no physical association with the finished product
Ex: Factory Supervisor Salaries, maintenance personnel
-> Considered MOH
Manufacturing Overhead
Consists of costs that are indirectly associated with the manufacturing of the finished product. Also includes costs that cannot be classified as DM or DL.
Ex: Indirect Materials, Indirect Labor, Depreciation on Factory buildings and machines, insurance on factory, taxes on factory, maintenance on factory facilities
Product Costs
Costs that are an integral part of producing the product.
Components: DM, DL, and MOH
-Recorded in “Inventory” account
Period Costs
-Charged to expense as incurred
-Non-manufacturing costs (selling and administrative)
Ex: Selling-related to sale of a product: advertising expense, sales commission, Administrative- general operating expenses: repairs to office equipment, general office supplies
Total Manufacturing Costs
DM + DL + MOH =
Beginning FG Inventory + COGM = Total Available for Sale – Ending FG Inventory =
Beginning WIP Inventory + Total Manuf. Costs (DM=DL+MOH) = Total Cost of WIP – Ending WIP Inventory =
TRUE OR FALSE: Sales manager’s salary is an element of Manufacturing Overhead
Salaries for assembly line inspectors
Insurance on Factory machines
Upholstery used in manufacturing furniture
Glue, nails, paint, and other small parts used in production
(indirect materials) MOH

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