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They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

Chapter 1 Notes Managerial Accounting Definitions: 1. Managerial Accounting provides information for management to make decisions. Applies to all types of businesses manufacturing, merchandising and, service. a. A field of accounting that provides economic and financial information for managers and other internal users. b.Manufacturing Accounting Activities i. Explaining manufacturing and nonmanufacturing costs and how they are reported in the financial statements ii. Computing the cost of providing a service or manufacturing a product iii. Determining the behavior of costs and expenses as levels change and analyzing cost-volume-profit relationships within a company iv. Accumulating and presenting data for management decision making v. Determining prices for external and internal transactions vi. Assisting management in profit planning and formalizing these plans the form of budgets
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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

vii. Providing a basis for controlling costs and expense by comparing actual results with planned objectives and standard costs viii. Accumulating and presenting data for capital expenditure decisions c. Distinguishing Features i. Applies to all types of business Service, Merchandising, and Manufacturing ii. Applies to all forms of business organizations Proprietorships, Partnerships, and Corporations iii. Applies to not-for-profit as well as profit oriented companies iv. Changed role in collecting and reporting costs to management as a result of increasingly automated business environment v. Now more responsible for strategic cost management-assisting in evaluating how well resources are employed by the company vi. Teams up with people from production, marketing, engineering, etc vii. Aid in making critical strategic decisions
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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

2. Managerial vs. Financial Both deal with economic events of business and both require that economic events be quantified and communicated to interested parties d. Users - Internal vs. External i. Financial-External users-Stockholders, creditors ii. Managerial-Internal Users-officers and managers e. Type of reports Internal reports as needed vs. F/S and quarterly and annual reports i. Financial-Financial statementsQuarterly and Annual ii. Managerial-Internal Reports, as frequently as needed f. Reason Specific vs. general purpose i. Financial-general purpose for reports ii. Managerial-Special purpose for specific decisions of reports g. Contents segments or units, relevant to operations vs. aggregated and in accordance with GAAP i. Financial-Reports pertain to the business as a whole and are highly aggregated (condensed) and GAAP, just cost data

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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

ii. Managerial-Pertains to subunits of the business, very detailed, only relevant data h. Verification None vs. Audited. i. Financial-Audit by CPA j. Managerial-no independent audits 2.Managerial Accountant Functions a. Planning looking ahead by establishing company objectives by maximizing short term profit and market share and performing only activities that add value to the business. i. Key objective-Add Value to the business. Value is measured by trading price of stock and by potential selling price of the company b. Directing coordinating of human resources and directing activities to run smoothly i. Implement planned objectives, Hire and train, produce smooth running operation c. Controlling keeping all on track, insuring that planned goals and activities are being followed or achieved by the use of budgets, responsibility reports and performance evaluations. i. Decide on changes needed to get back on track, a ii. Decision making is not a separate management function, but the outcome
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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

of the exercise of good judgment in planning, direction, and controlling 4. Organizational Structure Shows the interrelationships of activities and the delegation of authority and responsibility within the company. a. Centralized vertical authority and responsibility b. Decentralized horizontal authority and responsibility i. Line positions directly involved in the companys primary revenue generating activities. ii. Staff positions involved in activities that support the efforts of the line employees. iii. Organizational charts pictures of the line and staff relationships. c. Types of Positions Board of Directors formulate the operating policies for the company Chief Executive Officer responsible for managing the company Chief Financial Officer responsible for all of the accounting and finance issues of the company.
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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

Controller responsible for the accounting records and financial statements and taxes Treasurer responsible for the custody of funds and maintaining cash position.

5. Business Ethics Should be a corporate culture of integrity and honesty. All in the business should act ethically. Many companies have codes of ethic Proper incentives realistic goals, adequate monitoring, and better performance evaluation. o Monitoring can have the negative result of producing incentives for unethical actions o Ineffective and unrealistic controls may also result in declining product quality Sarbanes-Oxley Act of 2002 (SOX) top management must certify that the company maintains an adequate system of internal control; accurate financial reports or else there are severe penalties for misconduct. o Clarifies managements responsibilities o Substantially increased penalties for misconduct
o Enron o WorldCom o Global Crossing

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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

6. Manufacturing Costs converting raw materials into finished goods a. Direct (Raw) Materials Materials costs that can
be physically and directly traced to the end unit of product. (Ex. Bottle, ink, caps, wood)

b. Direct labor Labor costs of person who physically


touches or touches through a machine the unit of product while it is being produced. (Ex. Assembly line worker, painter). Work of factory employees that can be physically and directly associated with converting raw materials into finished goods.

c. Manufacturing Overhead tracks other costs that


are required to make a unit of product, but usually are too costly or are not conveniently traced into the end unit of product. Consists of costs that are indirectly associated with manufacturing the finished product. Includes all manufacturing costs except direct materials and direct labor. iii. Indirect Materials may not physically become a part of the product or the amount is too small to trace to the end unit. iv. Indirect Labor workers that have no physical association with the end product or their contribution is too small to trace to each unit of product. v. Supervisors Salaries-that are directly or indirectly associated with production (indirect labor)
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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course. vi. Maintenance/Security-at the plant (indirect vii.

viii.
ix.

x. xi. xii.

labor and materials) Depreciation-of equipment or other things that are associated with production Insurance Real Estate Taxes not income taxes (factory only) License and Permits Rent Utilities

7. Product Costs costs of making a unit of product. Usually includes Direct Materials, Direct Labor and Overhead. These costs occur in the factory and occur because of units of activity of the product. (Capitalized asset as they occur inventory; expensed at sale; COGS). Product costs are costs that are necessary and integral part of producing the finished product. Recorded as INVENTORY when incurred thus they may be call Inventoriable Costs. They are not an expense until the finished goods inventory is sold then they are Cost of Goods Sold

+ MOH

**Product

Costs = DM Used + DL

8. Period Costs Matched with Revenue of a specific time period and charged to expense as incurred. Costs that occur outside of the factory and
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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

happen with the passage of time. NonManufacturing Costs. Deducted from revenues in period incurred to determine net income. Appear usually in the form of selling and administrative costs. (Expensed as they occur)

*Period Cost=Selling Expenses + Administrative Expenses


*Net Income=Revenues-Period costs 9. Prime Costs The basic costs of a unit of product Direct Materials Used + Direct labor 10. Conversion Costs The costs of transforming a raw material into a finished unit of product. Direct Labor + Manufacturing Overhead Question: Is product cost = Prime + Conversion Costs? Answer: 11. Differences in Financial Statements a. Income Statement Costs of Goods Purchased vs. Cost of Goods Manufactured. (a) The income statement for a manufacturer is similar to that of a merchandiser except for the cost of goods sold section (COGS).

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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

(b) COGS=Beginning Finished Goods Inventory + Cost of Goods Manufactured Ending Finished Goods Inventory (c) Costs of Goods Manufactured are the difference in Total Cost of Work in Process and Ending Work in Process Inventory. (d) Cost of Goods Manufactured Schedulereports cost elements used in calculating cost of goods manufactured. Shows beginning and ending inventories for: Raw Materials and Work in Process (e) Work in Process-partially completed units of product (f) Total Manufacturing Costs-sum of direct materials, direct labor costs, and manufacturing overhead; all incurred in the current period.

c. Balance Sheet Merchandise Inventory vs., Finished Goods, Work in Process Inventory and
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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

Raw Materials Inventory (for recording purposes only) a. Merchandising Company has only one category of inventory: Merchandise Inventory b. Manufacturing Company has 3 inventories i. Raw Materials Inventory-shows the cost of raw materials on hand ii. Work in Process Inventory-shows the cost applicable to units that have been started into production but are only partially completed iii. Finished Goods-shows cost of completed goods on hand

12. Cost of Goods Manufactured Schedule + Beginning Work In Process (what happened yesterday) + Current Manufacturing Costs (today) +Direct Materials Used: +Beginning Raw materials + Purchases = Available for Use - Ending Raw Materials = Used in Production
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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

+Direct labor +Manufacturing Overhead Applied = Total Current Manufacturing Costs (today) = Total Costs of Work in Process (BWIP + TCMC)
(all)

EWIP = Cost of Goods Manufactured

13. Cost of Goods Sold (section of Inc Stmt) Beginning Finished Goods + Cost of Goods Manufactured = Available for Sale - Ending Finished Goods = Cost of Goods Sold (+ or adjustment for under or over applied OH) Service industry trends o U.S. economy, in general, has shifted toward an emphasis on providing services rather than goods o Over 50% of U.S. workers are no employed by service companies o Trend is expected to continue in the future o Most of the techniques learned for manufacturing firms are applicable to service companies
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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

14. Value chain refers to all activities associated with providing a product or service. a. For a manufacturing firm these include the following: a. R&D b. Acquisition of raw materials c. Production d. Sales and Marketing e. Delivery f. Customer Relations and Subsequent Services 15. Technological Changes Enterprise Resource Planning (ERP) software system that manage the value chain. Programs that are designed to manage all major business processes. It connects many smaller software packages. Computer Integrated Manufacturing (CIM) means to manufacture products that are untouched by human hands. It reduces labor costs. Manufacturing products with increased automation. Example: Robotic equipment

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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

16. Just in time Inventory goods are manufactured or purchased just in time for use. More in Chapter 4.

17. Total Quality Control the goal is to achieve zero defects. Increased emphasis on product quality because goods are produced only as needed 18. Activity Based Costing The process of allocating overhead based on each products use of activities in making the product. Results in more accurate product costing and scrutiny of all activities in the value chain 19. Theory of Constraints A specific approach used to identify and manage constraints in order to achieve company goals through the avoidance of bottlenecks. Constraints limit the companys potential profitability. 20. Balanced Scorecard A performancemeasurement approach that uses both financial and non-financial measures to evaluate all aspects of a companys operations in an integrated fashion. Links performance measures to overall company objectives.
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Disclaimer: These teaching notes are not intended to used as a substitute for the content of the text. They should also not be construed as encompassing the complete body of knowledge required for successful completion of this course.

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