financial accounting

1. Chapter 16
Introduction to
Managerial
Accounting

2. Learning Objectives
1. Define managerial
accounting and
understand how it is used
2. Describe the differences
between service,
merchandising, and
manufacturing companies
3. Classify costs for service,
merchandising, and
manufacturing companies

3. Learning Objectives
4. Prepare an income
statement and schedule
of cost of goods
manufactured for a
manufacturing company
and calculate cost per
item
5. Calculate cost per service
for a service company
and cost per item for a
merchandising company

4. Learning Objective 1
Define managerial accounting
and understand how it is
used

5. Why Is Managerial Accounting
Important?

6. Financial Versus Managerial
Accounting
• Financial accounting:
– Financial statements are used by investors,
creditors, and government authorities.
• Managerial accounting:
– Reports are generated for planning.
• One planning tool is the budget.
– Controlling involves evaluating the plan and
comparing the actual results to the budget.
– Weighing the costs against the benefits is
called cost/benefit analysis.

7. Financial Versus Managerial
Accounting

8. Management Accountability
• Management accountability is the manager’s
responsibility to the various stakeholders to
wisely manage the organization’s resources.
• Stakeholders have an interest in the business
and include the following:
– Customers
– Creditors
– Suppliers
– Investors

9. Management Accountability

10. Today’s Business Environment
• Shift toward a service economy
• Global competition
• Time-based competition:
– Enterprise Resource Planning (ERP) systems
integrate companies data.
– E-commerce allows companies to sell products to
customers around the world.
– Just-in-Time (JIT) Management is an inventory
management tool.

11. Today’s Business Environment
• Total Quality Management (TQM) is a philosophy of
continuous improvement in products and processes.
– Creates a culture of cooperation.
– Each step adds value to the end product, and this is
referred to as the value chain.
• The economic, social, and environmental impact of
doing business is referred to as the triple bottom line,
which includes:
– Profits
– People
– Planet

12. Ethical Standards

13. Learning Objective 2
Describe the differences
between service,
merchandising, and
manufacturing companies

14. How Do Service, Merchandising, and
Manufacturing Companies Differ?
• Service companies sell their time, skill, and
knowledge.
– All of their costs are period costs and are expensed in
the period incurred.
• Merchandising companies resell products they
previously bought from suppliers.
– Cost of goods sold is an inventoriable product cost,
also called a product cost.
• Manufacturing companies create products
customers want.

15. Manufacturing Companies
• Manufacturing companies convert raw
materials into finished products.
• The three types of inventory are:
– Raw Materials Inventory (RM)
• Materials used to manufacture a product.
– Work-in-Process Inventory (WIP)
• Goods that have been started but are not compete.
– Finished Goods Inventory (FG)
• Completed goods that have not yet been sold.

16. How Do Service, Merchandising, and
Manufacturing Companies Differ?

17. Learning Objective 3
Classify costs for service,
merchandising, and
manufacturing
companies

18. How Are Costs Classified?

19. Product Costs
• Direct materials (DM)
• Raw materials used in production
• Direct labor (DL)
• Labor of employees working on the products
• Manufacturing overhead (MOH)
• The indirect product costs associated with production,
including:
• Indirect materials
• Indirect labor
• Factory costs for rent, utilities, insurance, etc.

20. Product Costs

21. Prime and Conversion Costs
• Prime costs combine direct costs of
direct materials and direct labor.
• Conversion costs are the costs to
convert raw materials into finished
goods: direct labor plus manufacturing
overhead.

22. Learning Objective 4
Prepare an income
statement and schedule of
cost of goods manufactured
for a manufacturing
company and calculate cost
per item

23. How Do Manufacturing Companies
Determine the Cost of
Manufactured Products?
• Income statement
– Calculating cost of goods sold
• The Finished Goods Inventory account provides
information for the cost of goods sold section of the
income statement
– Gross profit
• Gross profit = Net Sales Revenue – Cost of Goods Sold
– Operating income
• Operating income = Gross profit – sales and
administrative expenses

24. Calculating Cost of Goods Sold

25. Calculating Cost of Goods
Manufactured
• Cost of goods manufactured is the
manufacturing costs of the goods that finished
the production process in a given accounting
period.
– Costs are determined from activities that took
place in the past.

26. Calculating Cost of Goods
Manufactured

27. Calculating Cost of Goods
Manufactured

28. Flow of Costs Through the Inventory
Accounts

29. Calculating Unit Product Cost
• Managers make decisions on pricing products
based on unit cost.
– Cost per unit is found by dividing cost of goods
manufactured by total units produced.
– The cost per unit is used to determine the Cost of
Goods Sold for the units sold to customers.

30. Learning Objective 5
Calculate cost per service
for a service company and
cost per item for a
merchandising company

31. How Is Managerial Accounting Used in
Service and Merchandising
Companies?
Managers of service and merchandising
organizations make decisions on pricing based
on cost per service or cost per item.

32. Thanks dear Students & Teachers
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