Managerial Accounting

Chapter 1 : 

Chapter 1 Managerial Accounting and the Business Environment

Imports into the United States : 

Imports into the United States 1990 1995 2000 2004

Exports from the United States : 

Exports from the United States 1990 1995 2000 2004

Internet Usage : 

Internet Usage The Internet fuels globalizationby providing companies with greateraccess to geographically dispersedcustomers, employees, and suppliers. The number of internet users morethan doubled during the first fouryears of the new millennium.

Strategy : 

Strategy A strategyis a “game plan”that enables a companyto attract customersby distinguishing itselffrom competitors. The focal point of acompany’s strategy shouldbe its target customers.

Customer Value Propositions : 

Customer Value Propositions

Work of Management : 

Work of Management Planning Controlling Directing and Motivating

Planning : 

Planning Identifyalternatives.

Slide 9: 

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.

Controlling : 

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.

Planning and Control Cycle : 

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

Learning Objective 1 : 

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

Comparison of Financial and Managerial Accounting : 

Comparison of Financial and Managerial Accounting

Learning Objective 2 : 

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

Organizational Structure : 

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

Line and Staff Relationships : 

Line and Staff Relationships 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.

The Chief Financial Officer (CFO) : 

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.

Learning Objective 3 : 

Learning Objective 3 Understand the basic concepts underlying Lean Production, the Theory of Constraints, and Six Sigma.

Process Management : 

Process Management A businessprocess is a series ofsteps that are followed in order tocarry out some task ina business.

Process Management : 

Process Management There are three approaches toimproving business processes . . . LeanProduction Theory ofConstraints (TOC) SixSigma

Traditional “Push”Manufacturing Company : 

Traditional “Push”Manufacturing Company

Traditional “Push”Manufacturing Company : 

Traditional “push”manufacturing Traditional “Push”Manufacturing Company Largeinventories Finishedgoods Rawmaterials Work inprocess

Lean Production : 

Lean Production Exhibit 1-6 The lean thinkingmodel is a fivestep approach.  Identify valuein specificproducts/services.  Identify thebusiness processthat delivers value.  Organize workarrangements around the flow of thebusiness process.  Create a pullsystem that respondsto customer orders.  Continuously pursueperfection in thebusiness process.

Lean Production : 

Lean Production The five step process results in a “pull” manufacturing systemthat reduces inventories, decreases defects, reduceswasted effort, and shortens customer response times.

Lean Production : 

Lean Production Lean thinking may be used to improve business processes that link companies together. The term supply chain management refers to the coordination of business processes across companies to better serve end consumers.

Theory of Constraints : 

A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want. The Theory of Constraints is based on the observation that effectively managing the constraint is the key to success. The constraint in a system is determinedby the step that has the smallest capacity. Theory of Constraints

Theory of Constraints : 

4. Recognize that the weakest linkis no longer so. 1. Identify the weakest link. 2. Allow the weakest link to set the tempo. 3. Focus on improving the weakest link. Only actions that strengthen the weakest link in the “chain” improve the process. Theory of Constraints

Six Sigma : 

Six Sigma A process improvement method relying on customer feedback and fact-based data gathering and analysis techniques to drive process improvement. Refers to a process that generates no morethan 3.4 defects per million opportunities. Sometimes associatedwith the term zero defects.

Six Sigma : 

Six Sigma Exhibit 1-8

E-Commerce : 

E-Commerce E-commerce refers to businessconducted using the Internet. In addition to dot.com companies, traditionalbusinesses, such as banks and retailers,continue to expand their Internet presence. The growth in e-commerce is occurringbecause the Internet has important advantagesover more conventional marketplaces for manykinds of transactions.

Enterprise Systems : 

Enterprise Systems A single software system thatintegrates data across an organization, thereby enabling all employees to have simultaneous access to acommon set of data.

Learning Objective 4 : 

Learning Objective 4 Understand the importance of upholding ethical standards.

Code of Conduct forManagement Accountants : 

Code of Conduct forManagement Accountants The Institute of Management Accountant’s (IMA) Standards of Ethical Conduct for Practitionersof Management Accounting and Financial Management have two major parts, which offer guidelines for:  Ethical behavior.  Resolution for an ethical conflict.

IMA Guidelines for Ethical Behavior : 

Competence Follow applicablelaws, regulationsand standards. Maintain professional competence. Provide accurate, clear, concise, and timely decision support information. IMA Guidelines for Ethical Behavior Recognize and communicate professional limitations that preclude responsible judgment.

IMA Guidelines for Ethical Behavior : 

Confidentiality Do not disclose confidential information unless legally obligated to do so. Ensure that subordinates do not disclose confidential information. Do not use confidential information for unethical or illegal advantage. IMA Guidelines for Ethical Behavior

IMA Guidelines for Ethical Behavior : 

Mitigate conflicts of interest and advise others of potential conflicts. Abstain from activities that might discredit the profession. Refrain from conduct that would prejudice carrying out duties ethically. Integrity IMA Guidelines for Ethical Behavior

IMA Guidelines for Ethical Behavior : 

Communicate information fairly and objectively. Disclose all relevant information that could influence a user’s understanding of reports and recommendations. Credibility IMA Guidelines for Ethical Behavior Disclose delays or deficiencies in information timeliness, processing, or internal controls.

IMA Guidelines for Resolutionof an Ethical Conflict : 

Follow employer’s established policies. For unresolved ethical conflicts: Discuss the conflict with immediate supervisor or next highest uninvolved manager. If immediate supervisor is the CEO, consider the board of directors or the audit committee. Contact with levels above the immediate supervisor should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved. IMA Guidelines for Resolutionof an Ethical Conflict

IMA Guidelines for Resolutionof an Ethical Conflict : 

Follow employer’s established policies. For unresolved ethical conflicts: Except where legally prescribed, maintain confidentiality. Clarify issues in a confidential discussion with an objective advisor. Consult an attorney as to legal obligations. IMA Guidelines for Resolutionof an Ethical Conflict

Why Have Ethical Standards? : 

Why Have Ethical Standards? Ethical standards in business are essential for asmooth functioning advanced market economy.

Company Codes of Conduct : 

Company Codes of Conduct Broad-based statements of acompany’s responsibilities to:

Codes of Conduct onthe International Level : 

Codes of Conduct onthe International Level In addition to competence, objectivity, independence,and confidentiality, the IFAC’s code deals withthe accountant’s ethical responsibilities in: Taxes Independence Fees and commissions Advertising and solicitation Handling of monies Cross-border activities. The Code of Ethics for ProfessionalAccountants, issued by the InternationalFederation of Accountants (IFAC), govern the activities of professional accountants worldwide.

Corporate Governance : 

Corporate Governance The system bywhich a company is directedand controlled.

Corporate Governance : 

Corporate Governance An effective corporate governance system should also protect the interests of thecompany’s other stakeholders.

The Sarbanes-Oxley Act of 2002 : 

The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 was intended to protect theinterests of those who invest in publicly traded companies byimproving the reliability and accuracy of corporate financialreports and disclosures. Six key aspects of the legislation include:   The Act requires both the CEO and CFO to certify in writing that their company’s financial statements and disclosures fairly represent the results of operations.  The Act establishes the Public Company Accounting Oversight Board to provide additional oversight of the audit profession.  The Act places the power to hire, compensate and terminate public accounting firms in the hands of the audit committee.  The Act places restrictions on audit firms, such as prohibiting public accounting firms from providing a variety of non-audit services to an audit client.

The Sarbanes-Oxley Act of 2002 : 

The Sarbanes-Oxley Act of 2002  The Act requires that a company’s annual report contain aninternal control report that is accompanied by an opinion fromthe company’s audit firm about the fairness of that report. The Act establishes severe penalties for certain behaviors,such as: Up to 20 years in prison for altering or destroying anydocuments that may eventually be used in an officialproceeding. Up to 10 years in prison for retaliating against a“whistle blower.”

Enterprise Risk Management : 

Enterprise Risk Management A process usedby a company toproactively identifyand manage risk. Once a company identifies its risks, perhaps themost common risk management tactic is to reduce risks by implementing specific controls.

Quản trị Rủi ro Doanh nghiệp : 

Quản trị Rủi ro Doanh nghiệp

Enterprise Risk Management : 

Enterprise Risk Management

Certified Management Accountant : 

Certified Management Accountant A management accountantwho has the necessary qualifications and who passes a rigorous professional exam earnsthe right to be known as a Certified Management Accountant (CMA). Information about becoming a CMA and the CMAprogram can be accessed on the IMA’s website at www.imanet.org or by calling 1-800-638-4427.

End of Chapter 1 : 

End of Chapter 1

Costs Terms, Concepts and Classifications : 

Costs Terms, Concepts and Classifications Chapter Two

Learning Objective 1 : 

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

Manufacturing Costs : 

The Product Manufacturing Costs

Direct Materials : 

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

Direct Labor : 

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

Manufacturing Overhead : 

Manufacturing costs that cannot be traced directly to specific units produced. Manufacturing Overhead Examples: Indirect labor and indirect materials

Non-manufacturing Costs : 

Non-manufacturing Costs

Learning Objective 2 : 

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

Product Costs Versus Period Costs : 

Product Costs Versus Period Costs Product costs include direct materials, direct labor, and manufacturing overhead. Period costs include all selling costs and administrative costs.

Quick Check  : 

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.

Quick Check  : 

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.

Classifications of Costs : 

Classifications of Costs DirectMaterial DirectLabor ManufacturingOverhead Manufacturing costs are oftenclassified as follows:

Comparing Merchandising and Manufacturing Activities : 

Comparing Merchandising and Manufacturing Activities Merchandisers . . . Buy finished goods. Sell finished goods. Manufacturers . . . Buy raw materials. Produce and sell finished goods.

Balance Sheet : 

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

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 Balance Sheet

Learning Objective 3 : 

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

The Income Statement : 

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

Basic Equation for Inventory Accounts : 

Basic Equation for Inventory Accounts

Quick Check  : 

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.

Quick Check  : 

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

Learning Objective 4 : 

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

Schedule of Cost of Goods Manufactured : 

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

Product Cost Flows : 

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

Product Cost Flows : 

Product Cost Flows

Product Cost Flows : 

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

Product Cost Flows : 

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

Product Cost Flows : 

Product Cost Flows

Manufacturing Cost Flows : 

Manufacturing Cost Flows Balance Sheet Costs Inventories Income StatementExpenses

Quick Check  : 

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

Quick Check  : 

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

Quick Check  : 

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.

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. Quick Check 

Quick Check  : 

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.

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. Quick Check 

Quick Check  : 

Quick Check  Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And 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.

Quick Check  : 

Quick Check  Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And 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

Learning Objective 5 : 

Learning Objective 5 Understand the differences between variable costs and fixed costs.

Cost Classifications for Predicting Cost Behavior : 

Cost Classifications for Predicting Cost Behavior How a cost will react to changes in the level of activity within the relevant range. Total variable costs change when activity changes. Total fixed costs remain unchanged when activity changes.

Variable Cost : 

Variable Cost Your total long distance telephone bill is based on how many minutes you talk.

Variable Cost Per Unit : 

Variable Cost Per Unit The cost per long distance minute talked is constant. For example, 10 cents per minute.

Fixed Cost : 

Fixed Cost Your monthly basic telephone bill probably does not change when you make more local calls.

Fixed Cost Per Unit : 

Fixed Cost Per Unit The average fixed cost per local call decreases as more local calls are made.

Cost Classifications for Predicting Cost Behavior : 

Cost Classifications for Predicting Cost Behavior

Quick Check  : 

Quick Check  Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.) A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers.

Quick Check  : 

Quick Check  Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.) A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers.

Learning Objective 6 : 

Learning Objective 6 Understand the differences between direct and indirect costs.

Assigning Costs to Cost Objects : 

Assigning Costs to Cost Objects Direct costs Costs that can beeasily and conveniently traced to a unit of product or other cost object. Examples: direct material and direct labor Indirect costs Costs that cannot be easily and conveniently traced to a unit of product or other cost object. Example: manufacturing overhead

Learning Objective 7 : 

Learning Objective 7 Define and give examples of cost classifications used in making decisions: differential costs, opportunity costs, and sunk costs.

Cost Classifications for Decision Making : 

Every decision involves a choice between at least two alternatives. Only those costs and benefits that differ between alternatives are relevant in a decision. All other costs and benefits can and should be ignored. Cost Classifications for Decision Making

Differential Cost and Revenue : 

Differential Cost and Revenue Costs and revenues that differ among alternatives. Example: You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month. Differential revenue is: $2,000 – $1,500 = $500 Differential cost is: $300

Opportunity Cost : 

Opportunity Cost The potential benefit that is given up when one alternative is selected over another. Example: If you werenot attending college,you could be earning$15,000 per year. Your opportunity costof attending college for one year is $15,000.

Sunk Costs : 

Sunk Costs Sunk costs have already been incurred and cannot be changed now or in the future. They should be ignored when making decisions. Example: You bought an automobile that cost $10,000 two years ago. The $10,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $10,000 cost.

Quick Check  : 

Quick Check  Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland? A. Yes, the cost of the train ticket is relevant. B. No, the cost of the train ticket is not relevant.

Quick Check  : 

Quick Check  Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Portland? A. Yes, the cost of the train ticket is relevant. B. No, the cost of the train ticket is not relevant.

Quick Check  : 

Quick Check  Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision? A. Yes, the licensing cost is relevant. B. No, the licensing cost is not relevant.

Quick Check  : 

Quick Check  Suppose you are trying to decide whether to drive or take the train to Portland to attend a concert. You have ample cash to do either, but you don’t want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision? A. Yes, the licensing cost is relevant. B. No, the licensing cost is not relevant.

Quick Check  : 

Quick Check  Suppose that your car could be sold now for $5,000. Is this a sunk cost? A. Yes, it is a sunk cost. B. No, it is not a sunk cost.

Quick Check  : 

Quick Check  Suppose that your car could be sold now for $5,000. Is this a sunk cost? A. Yes, it is a sunk cost. B. No, it is not a sunk cost.

Summary of the Types of Cost Classifications : 

Summary of the Types of Cost Classifications Financial reporting Predicting cost behavior Assigning costs to cost objects Decision making

Further Classification of Labor Costs : 

Further Classification of Labor Costs Appendix 2A

Learning Objective 8 : 

Learning Objective 8 (Appendix 2A) Properly account for labor costs associated with idle time, overtime, and fringe benefits.

Idle Time : 

Idle Time The labor costs incurred during idle time are ordinarily treated as manufacturing overhead. Machine Breakdowns Material Shortages Power Failures

Overtime : 

Overtime The overtime premiums for all factory workers are usually considered to be part of manufacturing overhead.

Labor Fringe Benefits : 

Labor Fringe Benefits Fringe benefits include employer paid costs for insurance programs, retirement plans, supplemental unemployment programs, Social Security, Medicare, workers’ compensation and unemployment taxes. Some companies include all of these costs in manufacturing overhead. Other companies treat fringe benefit expenses of direct laborers as additional direct labor costs.

Cost of Quality : 

Cost of Quality Appendix 2B

Learning Objective 9 : 

Learning Objective 9 (Appendix 2B) Identify the four types of quality costs and explain how they interact.

Quality of Conformance : 

Quality of Conformance When the overwhelming majority of products produced conform to design specifications and are free from defects.

Prevention and Appraisal Costs : 

Prevention and Appraisal Costs

Internal and External Failure Costs : 

Internal and External Failure Costs

Examples of Quality Costs : 

Examples of Quality Costs Prevention Costs Quality training Quality circles Statistical process control activities Appraisal Costs Testing & inspecting incoming materials Final product testing Depreciation of testing equipment Internal Failure Costs Scrap Spoilage Rework External Failure Costs Cost of field servicing & handling complaints Warranty repairs Lost sales

Distribution of Quality Costs : 

Distribution of Quality Costs When quality of conformance is low, total quality cost is high and consists mostly of internal and external failure. Total quality costs drop rapidly as the quality of conformance increases. Companies reduce their total quality costs by focusing their efforts on prevention and appraisal because the cost savings from reduced defects usually overwhelm the costs of additional prevention and appraisal. Total quality costs are minimized when the quality of conformance is slightly less than 100%.

Learning Objective 10 : 

Learning Objective 10 (Appendix 2B) Prepare and interpret a quality cost report.

Slide 124: 

Quality cost reports provide an estimate of the financial consequences of the company’s current defect rate.

Quality Cost Reports in Graphic Form : 

Quality Cost Reports in Graphic Form Quality reports can also be prepared in graphic form.

Uses of Quality Cost Information : 

Uses of Quality Cost Information Help managers see the financial significance of defects. Help managers identify the relative importance of the quality problems. Help managers see whether their quality costs are poorly distributed.

Limitations of Quality Cost Information : 

Limitations of Quality Cost Information Simply measuring quality cost problems does not solve quality problems. Results usually lag behind quality improvement programs. The most important quality cost, lost sales, is often omitted from quality cost reports.

ISO 9000 Standards : 

ISO 9000 Standards ISO 9000 standards have become international measures of quality. To become ISO 9000 certified, a company must demonstrate: A quality control system is in use, and the system clearly defines an expected level of quality. The system is fully operational and is backed up with detailed documentation of quality control procedures. The intended level of quality is being achieved on a sustained basis.

End of Chapter 2 : 

End of Chapter 2