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Building Blocks of Managerial Accounting

Building Blocks of Managerial Accounting. Chapter 2. Objective 1. Distinguish among service, merchandising, and manufacturing companies. Three types of companies. Service Merchandisers Manufacturers. Service Companies. Provide a service only No inventory Examples Accountants Banks

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Building Blocks of Managerial Accounting

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  1. Building Blocks of Managerial Accounting Chapter 2

  2. Objective 1 Distinguish among service, merchandising, and manufacturing companies

  3. Three types of companies • Service • Merchandisers • Manufacturers

  4. Service Companies • Provide a service only • No inventory • Examples • Accountants • Banks • Doctors • Lawyers

  5. Merchandisers • Resell products purchased from suppliers • One inventory account • Examples • Amazon.com • J. C. Penney • Sears • Retailers vs. Wholesalers

  6. Manufacturers • Use labor and other inputs to convert raw materials into finished products • Examples • Crayola Crayons • Dell Computers • Craftsman Tools • 3 inventory accounts

  7. Manufacturers • 3 inventory accounts • Raw materials • Work in process • Finished goods

  8. Objective 2 Describe the value chain and its elements

  9. Value Chain • Activities that add value to products and services and cost money. R&D Design Production/ Purchases Customer Service Distribution Marketing

  10. Now turn to E2-16A

  11. E2-16A

  12. E2-16A

  13. E2-16A

  14. E2-16A

  15. E2-16A (cont.)

  16. E2-16A (cont.)

  17. E2-16A (cont.)

  18. E2-17A (cont.)

  19. E2-16A (cont.)

  20. E2-16A (cont.)

  21. E2-16A (cont.)

  22. E2-16A (cont.)

  23. Objective 3 Distinguish between direct and indirect costs

  24. Cost Object • Anything for which managers want a separate measurement of cost • Direct cost • Indirect cost

  25. Now turn to S2-4

  26. S2-4 Direct Indirect Direct Direct

  27. S2-4 (cont.) Direct Indirect Direct Indirect

  28. Objective 4 Identify the inventoriable product costs and period costs of merchandising and manufacturing firms

  29. Two definitions of product cost • Total costs – used internally only (will see this in later chapters) • Inventoriable product costs – used for external reporting

  30. Inventoriable product costs Inventoriable Product Costs R&D Design Production/ Purchases Customer Service Distribution Marketing

  31. Period Costs: All costs incurred in the other stages of the value chain R&D Design Customer Service Distribution Marketing Period Costs

  32. Inventoriable Product Costs -- Merchandiser • + Purchase price from suppliers • + Cost to get ready for sale • + Freight-in • + Import duties or tariffs

  33. Inventoriable Product Costs -- Manufacturer • Direct materials • Direct labor • Manufacturing overhead Direct Costs Indirect Costs

  34. Manufacturing Overhead • Indirect costs related to manufacturing that are not direct materials or direct labor • Indirect materials • Indirect labor • Other indirect manufacturing overhead

  35. Now turn to S2-7

  36. S2-7 Period Product, DM Period Product, DL

  37. S2-7 (cont.) Period Product,MOH Product,MOH

  38. S2-7 (cont.) Product,MOH Period Period

  39. Prime and Conversion Costs Direct Materials Direct Labor Manufacturing Overhead Prime Costs Conversion Costs

  40. Direct and indirect labor costs include • Salaries and wages • Fringe benefits • Payroll taxes

  41. Objective 5 Prepare the financial statements for service, merchandising and manufacturing companies

  42. Income Statement – Service Company • Simplest income statement • All costs are period costs Service Revenues - Operating expenses Operating income

  43. Cost of Goods Sold Calculation – Merchandiser + Beginning inventory + Purchases + Import duties or tariffs + Freight-in = Cost of goods available for sale • Ending inventory = Cost of goods sold

  44. Now turn to S2-9

  45. S2-9 Cost of Goods Sold Computation Beginning inventory $ 4,200 Purchases $42,000 1,100 Import duties Freight - in 3,600 46,700 50,900 Cost of goods avail for sale Ending inventory (5,400 ) Cost of goods sold $45,500

  46. Income Statement – Merchandiser + Sales - Cost of goods sold = Gross profit - Operating expenses = Operating income

  47. Now turn to S2-10

  48. S2-10 Salon Secrets Income Statement Sales revenue $39,330,000 Cost of goods sold: Beginning inventory $ 3,350,000 Purchases 23,975,000 Cost of goods avail. 27,325,000 Ending inventory (4,315,000 ) Cost of goods sold (23,010,000 ) Gross profit 16,290,000 Operating expenses (6,150,000 ) Operating income $ 10,140,000

  49. Product costs 2010 Income Statement Cost of goods sold Inventory sold in 2010 2010 Balance Sheet 2010 Product costs Inventory Inventory sold in 2011 2011 Income Statement Cost of goods sold

  50. Cost of Goods Manufactured Calculation – Manufacturer + Beginning work in process inventory + Direct materials used + Direct labor + Manufacturing overhead = Total manufacturing costs to account for • Ending work in process inventory = Cost of goods manufactured

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