Managerial Accounting Overview

• Managerial Accounting is for the Spring semester of 2024-2025, taught by Dr. Mohamed Mahmoud at the Egyptian E-Learning University (EELU).

Managerial Accounting: An Overview

• Financial accounting reports financial information to external parties like stockholders and creditors.
• Managerial accounting provides information to employees within an organization for planning, control, and decision-making.

Key Differences Between Financial and Managerial Accounting

• Financial accounting is for external users making financial decisions.
• Managerial accounting is for managers planning and controlling an organization.
• Financial accounting focuses on historical data, while managerial accounting emphasizes the future.
• Verifiability is key for financial accounting; relevance is key for managerial accounting.
• Financial accounting emphasizes precision, while managerial accounting stresses timeliness.
• Financial accounting reports are company-wide, unlike managerial accounting which focuses on segments.
• Financial accounting must follow GAAP/IFRS; managerial accounting is not bound by these.
• External reports are mandatory for financial accounting while managerial accounting is not.

Managerial Accounting: Planning, Controlling, and Decision Making

• The primary purpose of managerial accounting to teach measurement skills that support planning, controlling, and decision making.

Managerial Accounting: Measurement Skills

• Measurement skills help managers answer important questions.
• Managerial accounting helps create financial plans for the upcoming year.
• Managerial accounting identifies how well a company is performing relative to set plans through measurement skills.

Controlling: Marketing Majors

• Marketing majors use controlling to determine if a budgeted price cut is increasing unit sales as expected.
• Controlling identifies if a company is accumulating too much inventory during the holiday shopping season.

Decision Making: Marketing Majors

• Marketing majors use decision-making skills to decide whether to sell services as a bundle or separately.
• Decision making allows companies to determine if they should sell directly to customers or use a distributor.

Planning: Human Resource Management Majors

• Human resource management majors should plan to spend on occupational safety training.
• Planning what to spend on employee recruitment advertising is key for HR.

Controlling: Human Resource Management Majors

• HR departments ensure employee retention rate exceeds the goals.
• HR departments meet goals for completing timely performance appraisals.

Decision Making: Human Resource Management Majors

• HR departments determine if it would be beneficial to hire an on-site medical staff to lower healthcare costs.
• HR departments use measurements to decide if it is best to hire temporary workers of full-time employees.

Cost Classifications

• Cost classifications are used for assigning costs to cost objects like direct costs and indirect costs.

Purposes of Cost Classification

• Assigning costs to cost objects is a purpose
• Cost classifications assist accounting for costs in manufacturing companies.
• Cost Classifications allow for the preparation of financial statements.
• Cost classifications help in predicting cost behavior in response to changes in activity.
• Cost Classifications assist in making decisions.

Assigning Costs to Cost Objects

• Direct costs can be easily and conveniently traced to a unit of product or other cost object.
• Direct material and direct labor are examples of direct costs.
• Indirect costs cannot be easily and conveniently traced to a unit of product or other cost object.
• Manufacturing overhead is an example of indirect costs.
• Common costs are indirect costs incurred to support a number of cost objects that cannot be traced.

Manufacturing Cost Categories

• Classifications of Manufacturing Costs: Direct Materials, Direct Labor, and Manufacturing Overhead.
• Direct materials are raw materials that become an integral part of the product and are conveniently traced to it, for example, a seat installed in an aircraft.
• Direct labor costs are those labor costs that can be easily traced to individual units of product, such as wages paid to automobile assembly workers.
• Manufacturing overhead includes all manufacturing costs except direct material and direct labor; these costs cannot be readily traced to finished products.
• Indirect materials and indirect labor costs included in manufacturing overhead cannot be traced easily or conveniently to specific units of product.
• Manufacturing overhead includes depreciation of manufacturing equipment, utility costs, property taxes, and insurance premiums for operating a manufacturing facility.
• Only indirect costs associated with operating the factory are included in manufacturing overhead.