Managerial Accounting Concepts and Principles PDF

Managerial Accounting Concepts and Principles Chapter 14 Wild and Shaw Financial and Managerial Accounting 9th Edition Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of...

Managerial Accounting Concepts and Principles Chapter 14 Wild and Shaw Financial and Managerial Accounting 9th Edition Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.  11 - 2 Chapter 14 Learning Objectives CONCEPTUAL C1 Explain the roles and ethics of managerial accounting. C2 Describe accounting concepts useful in classifying costs. C3 Explain manufacturing activities and the flow of manufacturing costs. C4 Describe trends in managerial accounting. ANALYTICAL A1 Assess raw materials inventory management using raw materials inventory turnover and days’ sales in raw materials inventory. PROCEDURAL P1 Prepare an income statement and balance sheet for a manufacturer. P2 Prepare a schedule of cost of goods manufactured and explain its purpose and links to financial statements. © McGraw-Hill Education 14-2  Learning Objective C1 Explain the roles and ethics of managerial accounting. © McGraw-Hill Education 14-3  18 - 4 Managerial Accounting Basics Managerial accounting provides financial and nonfinancial information to an organization’s managers. Learning Objective C1: Explain the roles and ethics of managerial © McGraw-Hill Education 14-4 accounting.  18 - 5 Purpose of Managerial Accounting Exhibit 14.1 Control Planning Process of monitoring and Process of setting goals evaluating an and making plans to organizations activities achieve them. and employees. Learning Objective C1: Explain the roles and ethics of managerial © McGraw-Hill Education 14-5 accounting.  18 - 6 Nature of Managerial Accounting Exhibit 14.2 Learning Objective C1: Explain the roles and ethics of managerial © McGraw-Hill Education 14-6 accounting.  18 - 7 Fraud and Ethics in Managerial Accounting Fraud affects all business and it is costly: The Association of Certified Fraud Examiners (ACFE) estimates the average U.S. business loses 5% of its annual revenues to fraud. An internal control system is procedures managers use to: 1. Ensure reliable accounting 2. Protect assets 3. Uphold company policies 4. Promote efficient operations. The Institute of Management Accountants requires that management accountants be competent, maintain confidentiality, act with integrity, and communicate information in a fair and credible manner. Learning Objective C1: Explain the roles and ethics of managerial © McGraw-Hill Education 14-7 accounting.  18 - 8 Career Paths Managerial accounting information is used in many careers: Marketing staff need sales and cost data to decide which products to promote. Management needs sales force details to evaluate performance. Entrepreneurs use costs, budgets, and financial statements. Decision makers in both for-profit and non-profit Exhibit organizations use accounting data to make informed decisions and secure financing from donors. 14.4 Learning Objective C1: Explain the roles and ethics of managerial © McGraw-Hill Education 14-8 accounting.  Learning Objective C2 Describe accounting concepts useful in classifying costs. © McGraw-Hill Education 14-9  18 - 10 Direct versus Indirect Costs Direct costs Indirect costs  Cost-effectively  Cannot be cost- traceable to a cost effectively traced to object. a cost object. Exhibit 14.5 © McGraw-Hill Education 14-10 Learning Objective C2: Describe accounting concepts useful in classifying costs.  18 - 11 Direct Materials Direct materials costs are costs for direct materials that are can be cost-effectively traced through the manufacturing process to finished goods. Examples in manufacturing a bike: Tires, seats, frame, pedals, brakes, and cables. © McGraw-Hill Education 14-11 Learning Objective C2: Describe accounting concepts useful in classifying costs.  18 - 12 Direct Labor Direct labor costs are the wages and salaries for direct labor that are cost-effectively traced through the manufacturing process to finished goods. Example in manufacture of a bike: Wages paid to bike assembly worker. © McGraw-Hill Education 14-12 Learning Objective C2: Describe accounting concepts useful in classifying costs.  18 - 13 Factory Overhead Factory overhead consists of all manufacturing costs that are not direct materials or direct labor and cannot be cost-effectively traced to finished goods. Examples: Indirect labor – maintenance workers. Indirect material – screws, nuts, staples. Indirect other costs - factory utility costs. © McGraw-Hill Education 14-13 Learning Objective C2: Describe accounting concepts useful in classifying costs.  18 - 14 Prime and Conversion Costs Manufacturing costs are often combined as follows: Direct Direct Factory Material Labor Overhead Prime Conversion Cost Cost © McGraw-Hill Education 14-14 Learning Objective C2: Describe accounting concepts useful in classifying costs.  18 - 15 Manufacturing Costs Direct Direct Factory Labor Material Overhead Product Period costs are nonproduction costs linked to a time period, (not products). Selling expenses are costs to General and Administrative obtain orders and to deliver expenses are costs of staff support finished goods to customers. and administrative functions. © McGraw-Hill Education 14-15 Learning Objective C2: Describe accounting concepts useful in classifying costs.  18 - 16 Product versus Period Costs Exhibit 14.7 © McGraw-Hill Education 14-16 Learning Objective C2: Describe accounting concepts useful in classifying costs.  18 - 17 Reporting Product and Period Costs in Financial Statements Exhibit 14.8 © McGraw-Hill Education 14-17 Learning Objective C2: Describe accounting concepts useful in classifying costs.  18 - 18 Cost Concepts for Service Companies The cost concepts described are generally applicable to service organizations. Service companies can classify costs as direct materials, direct labor, overhead, selling, or general and administrative costs. © McGraw-Hill Education 14-18 Learning Objective C2: Describe accounting concepts useful in classifying costs.  Learning Objective P1 Prepare an income statement and balance sheet for a manufacturer. © McGraw-Hill Education 14-19  18 - 20 Reporting Inventory on the Balance Sheet Raw Work in Finished Materials Process Goods Inventory Inventory Inventory Materials Partially complete Completed waiting to be products. products processed. ready Some materials, for sale. labor and/or overhead have been added. © McGraw-Hill Education 14-20 Learning Objective P1: Prepare an income statement and balance sheet for a manufacturer.  18 - 21 Balance Sheets for Manufacturers, Merchandisers, and Servicers Exhibit 14.10 The primary difference is inventory. © McGraw-Hill Education 14-21 Learning Objective P1: Prepare an income statement and balance sheet for a manufacturer.  18 - 22 Reporting Costs and the Income Statement Exhibit 14.11 Exhibit 14.12 © McGraw-Hill Education 14-22 Learning Objective P1: Prepare an income statement and balance sheet for a manufacturer.  Learning Objective C3 Explain manufacturing activities and the flow of manufacturing costs. © McGraw-Hill Education 14-23  18 - 24 Flow of Manufacturing Activities Exhibit 14.13 © McGraw-Hill Education 14-24 Learning Objective C3: Explain manufacturing activities and the flow of manufacturing costs.  Learning Prepare a schedule Objective P2 of cost of goods manufactured and explain its purpose and links to financial statements. © McGraw-Hill Education 14-25  18 - 26 Schedule of Cost of Good Manufactured Summarizes the types and amounts of costs incurred in a company’s manufacturing process. Direct Materials Used + Direct Labor + Factory Overhead = Total Manufacturing Costs + Beginning Work in Process – Ending Work in Process = Cost of Goods Manufactured © McGraw-Hill Education 14-26 Learning Objective P2: Prepare a schedule of cost of goods manufactured and explain its purpose and links to financial statements.  18 - 27 Manufacturing Statement Exhibit 14.14 © McGraw-Hill Education 14-27 Learning Objective P2: Prepare a schedule of cost of goods manufactured and explain its purpose and links to financial statements.  18 - 28 Key Calculations in Schedule of Cost of Goods Manufactured. © McGraw-Hill Education 14-28 Learning Objective P2: Prepare a schedule of cost of goods manufactured and explain its purpose and links to financial statements.  18 - 29 Manufacturing Cost Flows Across Accounting Reports Exhibit 14.15 © McGraw-Hill Education 14-29 Learning Objective P2: Prepare a schedule of cost of goods manufactured and explain its purpose and links to financial statements.  Learning Objective C4 Describe trends in managerial accounting. © McGraw-Hill Education 14-30  18 - 31 Trends in Managerial Accounting Digital Manufacturing Customer Global Orientation Economy Service E-Commerce Economy Lean Practices Value Chain © McGraw-Hill Education 14-31 Learning Objective C4: Describe trends in managerial accounting.  18 - 32 Lean Principles The goal of a lean business model is to eliminate waste while “satisfying the customer” and “providing a positive return” to the company. Continuous improvement rejects the notion of “good enough” and challenges employees and managers to continuously improve operations. © McGraw-Hill Education 14-32 Learning Objective C4: Describe trends in managerial accounting.  18 - 33 Total Quality Management Quality improvement Seek and uncover applied to its waste. business activities. Constant Focus on Higher Standards © McGraw-Hill Education 14-33 Learning Objective C4: Describe trends in managerial accounting.  18 - 34 Just-In-Time (JIT) Manufacturing Receive customer Complete products orders just-in-time to ship to customers Schedule Production Receive materials Complete parts just-in-time for just-in-time for production assembly into products © McGraw-Hill Education 14-34 Learning Objective C4: Describe trends in managerial accounting.  18 - 35 Value Chain Exhibit 14.16 The value chain refers to the series of principles that add value to a company’s products or services. Companies can use lean principles to increase efficiency and profits. © McGraw-Hill Education 14-35 Learning Objective C4: Describe trends in managerial accounting.  18 - 36 Corporate Social Responsibility Corporations must consider demands of employees, suppliers, and society. Corporate social responsibility (CSR) goes beyond law. Triple bottom line focuses on financial, social and environmental measures. Adopting a triple bottom line impacts how business report. © McGraw-Hill Education 14-36 Learning Objective C4: Describe trends in managerial accounting.  Learning Objective A1 Assess raw materials inventory management using raw materials inventory turnover and days’ sales in raw materials inventory. © McGraw-Hill Education 14-37  18 - 38 Raw Materials Inventory Turnover Raw materials Raw materials used Inventory turnover = Average raw materials inventory Beg material Inv. + End material Inv. Where Average materials inventory = 2 Learning Objective A1: Assess raw materials inventory management using raw materials inventory © McGraw-Hill Education 14-38 turnover and days’ sales in raw materials inventory.  18 - 39 Days’ Sales in Raw Materials Inventory Ending raw materials Days’ sales in raw inventory materials inventory = X 365 Raw materials used Learning Objective A1: Assess raw materials inventory management using raw materials inventory © McGraw-Hill Education 14-39 turnover and days’ sales in raw materials inventory.  18 - 40 End of Chapter 14 © McGraw-Hill Education 14-40