CHAPTER 19

Managerial accounting is a field of accounting that provides economic and financial

information for managers and other internal users.
Comparing Managerial and Financial Accounting

Management Functions
Managers’ activities and responsibilities can be classified into three broad functions:
TWO TYPES OF COSTS: MANUFACTURING COSTS & PERIOD COSTS:
Manufacturing Costs
Manufacturing consists of activities and processes that convert raw materials into
finished goods.

 Direct materials: Raw materials that can be physically and directly

associated with the finished product during the manufacturing process
 Examples: include flour in the baking of bread, steel in the making of
automobiles, etc.

 Direct labor: The work of factory employees that can be physically

and directly associated with converting raw materials into finished
goods
 Examples: Bottlers, bakers, equipment operators, inspectors, etc.

 Manufacturing overhead: costs that are indirectly associated with

the manufacture of the finished product.
- Indirect materials: do not physically become part of the finished
product or they are insignificant parts of the finished product in
terms of cost. (Protective pieces of equipment, lubricants, etc)
- Indirect labor: work of employees that has no physical
association with the finished product or for which it is impractical
to trace costs to the goods produced. (Factory maintenance
people, factory supervisors, managers, etc).
- Other manufacturing overhead: depreciation on machinery,
factory/buildings/plant/, insurance, taxes, and maintenance of
factory facilities, etc.
Period costs
 Costs that are matched with the revenue of a specific time period rather than
included as part of the cost of a salable product.
 Be charged to expense as incurred.
 Including selling expenses & administrative expenses
Examples: Advertising, sales commissions, shipping costs, depreciation on office,
salary for sale managers, delivery cost, etc.
 Note: Cách phân biệt Period Costs & Manufacturing Overhead.
 Khi đọc thấy những từ factory/buildings/plant/machinery/… những
từ xác định rõ đó là nơi sản xuất => Manufacturing Overhead.
 Khi đọc thấy những từ như sales/office/marketing/… những từ liên
quan đến văn phòng, hành chính, liên quan tới selling and administration =>
Period Cost.
 Example:
- Plant/Production managers: => MOH
- Sale managers/ Marketing managers: =>PC
Or
- Plant depreciation, factory equipment depreciation:=> MOH
- Office depreciation, office equipment depreciation:=> PC
A.
Product Costs
Direct Direct Manufacturing Period
Cost Item Materials Labor Overhead Cost
Rent on factory equipment $11,000
Insurance on factory building $1,500
Raw materials $75,000
Utility cost for factory $900
Supplies for general office $300
Wages for assembly line workers $58,000
Depreciation on office
equipment $800
Miscellaneous materials $1,100
Factory manager's salary $5,700
Property taxes on factory
building $400
Advertising for helmets $14,000
Sales commissions $10,000
Depreciation on factory building $1,500
Total $75,000 $58,000 $22,100 $25,100

B.
Direct Materials $75,000
Direct Labor $58,000
Manufacturing
Overhead $22,100
Product Costs $155,100
Product cost for one helmet: $15.51
Cost of Goods Sold (COGS)

Cost of Goods Manufactured

 Total Work in Process: (1) Cost of Beginning work in

process + (2) Total Manufacturing costs for the current period

 Total Manufacturing Costs: Direct material costs +

Direct labor costs + Manufacturing overhead in the current year.
Cost of Goods Manufactured Schedule
 Empire
a) Company
Cost of goods manufactured schedule
For the month End October 31, 2017

Work in process, 1/10 $20.000

Direct materials
Raw materials inventory, 1/10 $18.000
Raw materials purchases $264.000
Total raw materials available for use $282.000
Less: raw materials inventory, 31/10 $29.000
Total direct materials $253.000
Direct labor $190.000
Manufactured overhead
Rent on Factory facilities $60.000
Depreciation on factory equipment $31.000
Indirect labor cost $28.000
Utilities expense (75%) $9.000
Insurance expense (60%) $4.800
Total manufactured overhead cost $132.800
Total manufactured cost $575.800
Total cost of work in process $595.800
Less: Work in process, 31/10 14000
Cost of goods manufactured $581.800

b) Empire Company
 Income statement
For the month End October 31, 2017

Sales Revenue 780000

Cost of goods sold
Finished goods, 1/10 30000
Cost of goods manufactured 581800
Less: finished goods, 31/10 50000
Total cost of good sold 561800
Gross profit 218200
Operating expense
Advertising expenses 90000
Selling and administrative salaries 75000
Depreciation on sales equipment 45000
Utilities expense (25%) 3000
Insurance expense (40%) 3200 216200
Net income 2000