University:
California State University, Northridge
Course:
ACCT 230 | Introduction to Managerial Accounting
Academic year:

2024
Views:

464

Pages:

22
Author:

unentafq3

Chapter 1 Managerial Accounting Part 1 Managerial Accounting Basics Managerial accounting (management accounting) is a field of accounting that provides economic and financial information for managers and other internal users. Managerial Accounting Basics The activities that are part of managerial accounting are as follows: 1 Explaining manufacturing and nonmanufacturing costs and how they are reported in the financial statements. 2 Computing the cost of rendering a service or manufacturing a product. 3 Determining the behavior of costs and expenses as activity levels change and analyzing cost-volumeprofit relationships within a company. Managerial Accounting Basics The activities that are part of managerial accounting are as follows: 4 Assisting management in profit planning and formalizing the plans in the form of budgets. 5 Providing a basis for controlling costs and expenses by comparing actual results with planned objectives and standard costs. 6 Accumulating and using relevant data for management decision making. Study Objective 1 Explain the distinguishing features of managerial accounting. Differences Between Financial and Managerial Accounting FINANCIAL ACCOUNTING MANAGERIAL ACCOUNTING Primary Users of Reports External users, who are Internal users, who are officers, stockholders, creditors, and department heads, managers, regulatory agencies. and supervisors in the company. Types and Frequency of Reports Classified financial statements. Internal reports Issued quarterly and annually. Issued as frequently as needed. Purpose of Reports To provide general-purpose To provide special-purpose information for all users. information for a particular user for a specific decision. Illustration 1-1a Differences Between Financial and Managerial Accounting FINANCIAL ACCOUNTING MANAGERIAL ACCOUNTING Content of Reports Pertains to subunits of the Pertains to entity as a whole entity and may be very and is highly aggregated (condensed). detailed. May extend beyond doubleLimited to double-entry accounting system and cost entry accounting system to data. any type of relevant data. Reporting standard is generally Reporting standard is relevance accepted accounting to the decision to be made. principles. Verification Process Annual independent audit by No independent audits. certified public accountant. Illustration 1-1b Ethical Standards for Managerial Accountants  Managerial accountants recognize that they have an ethical obligation to their companies and the public.  To provide guidance for managerial accountants in the performance of their duties, the Institute of Management Accountants (IMA) has developed a code of ethical standards, entitled Standards of Ethical Conduct for Management Accountants.  This code divides the managerial accountant’s responsibilities into 4 areas: – competence, – confidentiality, – integrity, and – objectivity. Study Objective 2 Identify the three broad functions of management. Management Functions The management of an organization performs three broad functions:  Planning  Directing and motivating  Controlling Management Functions: Planning  Planning requires management to – look ahead, and – establish objectives.  These objectives are usually quite diverse, but a key modern management objective appears to be to add value to the business under its control.  Value is usually measured by – the trading price of the company’s stock and – the potential selling price of the company. Management Functions: Directing and Motivating  Directing and motivating involves coordinating diverse activities and human resources to produce a smooth-running operation.  This function relates to the implementation of planned objectives.  Most companies prepare organization charts to show – the interrelationship of activities, and – the delegation of authority and responsibility within the company. Management Functions: Controlling  Controlling is the process of keeping the firm’s activities on track.  In controlling operations, management determines – whether planned goals are being met, and – what changes are necessary when there are deviations from targeted objectives. Managerial Cost Concepts To perform the three management functions effectively, management needs information. One very important type of information is related to costs. For example, questions such as the following need answering: – What costs are involved in making the product? – If production volume is decreased, will costs decrease? – What impact will automation have on total costs? – How can costs best be controlled in the organization? Management Functions Review Decision Making Controlling Page 7 Study Objective 3 Define the three classes of manufacturing costs. Managerial Cost Concepts Manufacturing consists of activities and processes that convert raw materials into finished goods. Manufacturing costs are usually classified as follows: – Direct Materials – Direct Labor – Manufacturing Overhead Manufacturing Costs: Direct Materials  Raw materials represent the basic materials and parts that are to be used in the manufacturing process.  Raw materials that can be physically and conveniently associated with the finished product during the manufacturing process are termed direct materials. DIRECT MATERIALS Manufacturing Costs: Indirect Materials Some raw materials cannot be easily associated with the finished product. These are considered indirect materials. Indirect materials – do not physically become part of the finished product, or – cannot be traced because their physical association with the finished product is too small in terms of cost. Indirect materials are accounted for as part of manufacturing overhead. Manufacturing Costs: Direct Labor Direct labor is the work of factory employees that can be physically and conveniently associated with converting raw materials into finished goods. DIRECT LABOR Manufacturing Costs: Indirect Labor The wages of maintenance people, timekeepers, and supervisors are normally categorized as indirect labor because their efforts have no physical association with the finished product or it is impractical to trace the costs to the goods provided.. Like indirect materials, indirect labor is part of manufacturing overhead. Manufacturing Costs: Manufacturing Overhead Manufacturing overhead consists of costs that are indirectly associated with the manufacture of the finished product. These costs may also be defined as manufacturing costs that cannot be classified as either direct materials or direct labor. Manufacturing overhead includes MANUFACTURING – indirect materials; OVERHEAD – indirect labor; – depreciation on factory buildings and machinery; and – insurance, taxes, and maintenance on factory facilities.