Owners

Government

Creditors

Suppliers

Customers

Managers
. 2

For external reporting

For internal planning and control

Financial Accounting

Management Accounting
. 3

Management versus Financial Accounting

Management Accounting Primary users Purposes of information Internal the companys managers Help managers plan and control operations Financial Accounting External investors and creditors Help with investment and credit decisions

Focus and time dimension

Type of report

Relevance of information; focus on the future

Internal reports No audit needed Detailed reports on a weekly or daily basis Concern about how reports affect employee behavior

Relevance and reliability of information; focus on the past

Financial statements prescribed by GAAP Audit by CAs Summarized reports quarterly and/or annually Concern about adequate disclosure
. 4

Scope of information Behavioral

Seek to provide services Simplest accounting All costs are period costs

Net income

Revenues

Expenses

Resell products purchased from suppliers Keep an inventory of products Cost of goods sold is a major expense

Includes cost to purchase goods plus freight-in

Beginning inventory Plus: Purchases, net Plus: Freight-in Less: Ending inventory Equals: Cost of goods sold

Product costs Part of inventory Expensed when sold

Period costs Not part of inventory Expensed when incurred

Any Company Income Statement For the year ended December 31, 2011 Net sales revenue Cost of goods sold Gross profit Operating expenses Operating income Other income (expense) Net income $$$$ $$$$ $$$ $$$ $$$ $$ $$$

10

Use labor, plant, supplies and facilities to convert raw materials into finished products Three kinds of inventory Finished goods
inventory Work in process inventory Materials inventory

11

Cost object: Anything for which managers want a . separate measurement of cost. Cost drivers: are any factors that affect cost

. Opportunity cost: Is the forgone income from using an asset in its best alternative.
Direct cost: Relate directly to the cost object for which cost is to be measured. Indirect cost: Indirectly related to the cost of a cost object

12

Variable cost: Change in total as the level of activity changes.

Fixed cost: Do not change in total with changes in the level of activity. Semi Variable Cost : cost composed of a mixture of fixed and variable components. Costs are fixed for a set level of production or consumption, becoming variable after the level is exceeded

13

Direct materials

Direct labor

Manufacturing overhead

14

Includes only indirect costs related to manufacturing Examples:

Indirect materials Indirect labor

Copyright (c) 2009 Prentice Hall. All rights reserved.

15

Other costs related to the manufacturing facility and plant assets

Repairs & maintenance Utilities Rent & insurance Property taxes Depreciation

16

Any Manufacturing Company Income Statement For the year ended December 31, 2011 Net sales revenue Cost of goods sold: Beginning finished goods inventory Plus: Cost of goods manufactured Less: Ending finished goods inventory Cost of goods sold Gross profit Selling and administrative expense Operating income $$$$$$$ $$$$$$ $$$$$ ($$$$$) $$$$$$ $$$$$$ $$$$$ $$$$$$
. 17

Type of company

Inventoriable product costs

None

Period costs (Expenses)

Salaries, depreciation, utilities, advertising, insurance, property taxes Salaries, depreciation, utilities, advertising, insurance, property taxes and delivery expense Office salaries, depreciation, utilities, advertising, insurance, property taxes on office, selling expenses
. 18

Service company

Merchandising company

Purchases plus freight in

Manufacturing company

Direct materials, Direct labor and manufacturing overhead

BALANCE SHEET
Purchases of materials

Materials Inventory
Work in Process Inventory Finished Goods Inventory

INCOME STATEMENT

Direct labor & manufacturing overhead

Sales

When sales occur

Cost of Goods Sold

Period Costs

Operating Expenses = Operating Income

. 19

Any Manufacturing Company Schedule of Cost of Goods Manufactured For the year ended December 31, 2011 Beginning Work in process inventory $$$ Add: Direct materials used Beginning direct materials inventory $$$ Plus: Direct materials purchased $$$ Less: Ending direct materials inventory ($$$) Direct materials used $$$ Direct labor $$$ Manufacturing overhead $$$ Total manufacturing costs incurred during the year $$$ Total manufacturing costs to account for $$$ Less: Ending Work in process inventory $$$ Cost of goods manufactured $$$
. 20

Beginning Work in process

Direct materials used

Ending Work in process

Total manufacturing costs

Direct labor
Cost of goods manufactured Manufacturing overhead
. 21