Chapter 25

1. Chapter 25 Managerial Accounting Concepts and Principles

2. LO1 Managerial accountingprovides financial and non-financial information to managers of anorganization and other decision makers. Financial accountingprovides general purpose financial information to thosewho are outsidethe organization. Learning Objective 1Explain the purpose and nature of managerial accounting. Managerial Accounting vs. Financial Accounting

3. LO2 CustomerOrientationin a GlobalEconomy Learning Objective 2Describe the lean business model. Continuous Improvement New ways to improve operations

4. Just-In-Time (JIT) Manufacturing LO2 Receivecustomerorders. Complete productsjust in time toship to customers. Scheduleproduction. Complete partsjust in time forassembly into products. Receive materialsjust in time forproduction. To accomplish just-in-time manufacturing: Processes must be aligned to eliminate delays and inefficiencies. Companies must establish good relations with suppliers.

5. LO3 Learning Objective 3Describe accounting concepts useful in classifying costs. Cost behavior means how a cost will react to changes in the level of business activity. A fixed cost does not change with changes in the volume of activity. A variable cost changes in proportionto changes in the volume of activity. A mixed cost refers to a combinationof fixed and variable costs. Direct costs • Costs traceable to a single cost object. • Examples: material and labor cost for a product. Indirect costs • Costs that cannot be traced to a single cost object. • Example: maintenance expenditures benefiting two or more departments.

6. LO3 Sunk costs: All costs incurred in the pastthat cannot be avoided or changed. Sunkcosts should not be considered in decisions. Out-of-pocket costs: Cost that requires a future outlay of cash. Out-of-pocket costs should be considered in decisions. Opportunity Costs: The potential benefit lost by choosing a specific action from two or more alternatives.

7. LO4 Period costs are expensesnot attached to the product. DirectMaterial DirectLabor Selling Costs Costs incurred to obtain customer orders and todeliver finished goods to customers –advertising and shipping. Administrative Costs Non-manufacturing costsof staff support andadministrative functions –accounting, data processing,personnel, researchand development. Manufacturing Overhead Learning Objective 4 Define product and period costs and explain how they impact financial statements. TheProduct

8. LO4 Period and Product Costs inFinancial Statements 2009 Income Statement Period Costs(Expenses) Operating Expenses Cost of Goods Sold 2009 CostsIncurred InventorySold in 2009 2009 Balance Sheet Inventory Product Costs(Inventory) 2010Income Statement Raw Materials Goods in Process Finished Goods Inventory Not Sold in 2009 Cost of Goods Sold

9. Learning Objective 5 Explain how balance sheets and income statements for manufacturing and merchandising companies differ. LO5 Partially completeproducts. Material to whichsome labor and/oroverhead havebeen added. Completedproductsfor sale. Balance Sheet of a Manufacturer Merchandisers buy goods that are already completed and make them available to customers. Manufacturers buy raw materials and convert the raw materials into completed goods for their customers. Goods inProcess RawMaterials Balance Sheet of a Manufacturer: The only difference is inventory. FinishedGoods Materialswaiting to beprocessed. Can be direct or indirect.

10. LO6 Learning Objective 6Compute cost of goods sold for a manufacturer. Manufacturer’s Income Statement Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.

11. Manufacturer’s Income Statement LO6 Direct Materials Materials that are separately and readily traced to a particular product. Example: Steel used to manufacturethe automobile. Direct Labor Labor costs that are separately and readily traced to finished product. Example: Wages paid to anautomobile assembly worker. Factory Overhead All manufacturing costs except direct material and direct labor. Factory costs that cannot be separately or readily traced directly to products. Examples: Indirect labor – maintenance Indirect material – cleaning suppliesFactory utility costsSupervisory costs

12. LO7 Learning Objective 7Explain manufacturing activities and the flow of manufacturing costs. Production activity Sales activity Materialsactivity Finished GoodsBeginning Inventory Goods in ProcessBeginning Inventory RawMaterials BeginningInventory Direct Labor Cost of GoodsManufactured RawMaterialsPurchases FactoryOverhead FinishedGoodsEndingInventory CostofGoodsSold Raw MaterialsUsed Raw MaterialsEnding Inventory Goods in ProcessEnding Inventory

13. LO8 Learning Objective 8Prepare a manufacturing statement and explain its purpose and links to financial statements. Materials Used + Direct Labor + Factory Overhead = Total Manufacturing Costs + Beginning Work in Process – Ending Work in Process = Cost of Goods Manufactured Summarizes the types and amounts of costs incurred in a company’s manufacturing process.

14. LO9 Cycletime Processtime Inspectiontime Move time Wait time = + + + Cycleefficiency Value-added timeCycle time = Time spentproducingthe product. Time that anorder sits withno productionapplied to it. Time spent inspecting raw materials, goods in process,and finished goods. Time spent moving rawmaterials, goods in process,and finished goods. Learning Objective 9Compute cycle time and cycle efficiency and explain their importance to production management. Process timeis the only value-added time.

15. End of Chapter 25