Managerial Accounting
Tool for Business Decision Making
MGT 113 – Managerial Accounting Hanna D. Miranda, CPA
MANAGERIAL ACCOUNTING BASICS
Definition of Managerial Accounting
A field of accounting that provides
economic and financial information
for managers and other internal users.
Also called Management Accounting
MANAGERIAL ACCOUNTING BASICS
Distinguishing Features
Applies to all types of businesses –
service, merchandising, and manufacturing
Applies to all forms of businesses –
proprietorships, partnerships, and corporations
Applies to not-for-profit and profit-oriented
companies
MANAGERIAL ACCOUNTING BASICS
Distinguishing Features: Continued
More responsible for strategic cost
management.
Team includes members from
production, marketing, engineering,
etc.
Aid in making
critical decisions.
COMPARING MANAGERIAL AND
FINANCIAL ACCOUNTING
Similarities
Both deal with economic events of a business.
Both require that economic events be
quantified and communicated
to interested parties.
COMPARING MANAGERIAL AND
FINANCIAL ACCOUNTING
Differences
MANAGEMENT FUNCTIONS
Management’s activities and
responsibilities can be classified into
the following three broad functions:
Planning
Directing
Controlling
MANAGEMENT FUNCTIONS
Planning
Look ahead
Establish objectives such as
Maximize short-term profit
Commit to environmental protection
Key Objective: Add value to the business
Value measured by trading price of stock and
by potential selling price of the company
MANAGEMENT FUNCTIONS
Directing
Coordinate diverse activities and human
resources
Implement planned objectives
Provide incentives to motivate employees
Hire and train employees including
executives, managers, and supervisors
MANAGEMENT FUNCTIONS
Controlling
Keep activities on track
Determine whether goals are met
Decide changes needed to get back on track
May use an informal or a formal system of
evaluation
Good decision making is the outcome of good
judgment in planning, directing, and
controlling.
ORGANIZATIONAL STRUCTURE
Organizational Chart
Assists in carrying out management’s functions
Prepared by most companies
Organizational charts show:
The interrelationships of activities
The delegation of authority
The delegation of responsibility
A TYPICAL COMPANY’S
ORGANIZATIONAL CHART
MANAGERIAL COST CONCEPTS
Manufacturing Costs
Manufacturing consists of activities to convert raw materials
into finished goods.
In contrast, a merchandising firm sells goods in the form in
which they were bought.
Typical Classification of Manufacturing Costs
MANAGERIAL COST CONCEPTS
Manufacturing Costs - Materials
Direct Materials
Raw materials - basic materials used in manufacturing.
Raw materials that can be physically and directly
associated with the finished product are called
direct materials.
Examples include
Flour in the baking of bread
Syrup in the bottling of soft drinks
Steel used in making automobiles
MANAGERIAL COST CONCEPTS
Manufacturing Costs- Materials
Indirect Materials
Raw materials that cannot be easily associated with the
finished product are called indirect materials.
Indirect materials do not physically become part of the
finished product or represent too small a part of the
finished product in terms of cost
Considered part of manufacturing overhead
MANAGERIAL COST CONCEPTS
Manufacturing Costs - Labor
Direct Labor
Work of factory employees that can be physically and
directly associated with converting raw materials into
finished goods
Examples include
Bottlers at Coca-Cola
Bakers at Sara Lee
Typesetters at a newspaper
MANAGERIAL COST CONCEPTS
Manufacturing Costs - Labor
Indirect Labor
Work of factory workers that have no physical association
with the finished product or for which it is impractical to
trace to the goods produced
Examples include
Wages of maintenance workers
Supervisors
Time-Keepers
MANAGERIAL COST CONCEPTS
Manufacturing Costs – Manufacturing Overhead
Costs that are indirectly associated with manufacturing
the product
Examples include
Indirect materials
Indirect labor
Depreciation on factory buildings
Insurance, taxes, maintenance on
factory facilities
Basically manufacturing overhead includes all
manufacturing costs except direct materials and direct
labor.
PRODUCT VERSUS PERIOD COSTS
Product Costs
Consist of the direct material cost, the direct labor cost,
and the manufacturing overhead cost
A necessary and integral part of producing the
product
Recorded as inventory when incurred
Do not become expenses until the finished goods
inventory is sold
PRODUCT VERSUS PERIOD COSTS
Period Costs
Matched with revenue of a specific time period and charged to
expense as incurred.
Non-manufacturing costs
Deducted from revenues in period incurred to determine net
income
FOR RENT
Include all
Selling expenses
General and Administrative expenses
PRODUCT VERSUS PERIOD COSTS
MANUFACTURING COSTS IN
FINANCIAL STATEMENTS
Income Statement
The income statement for a manufacturer
is similar to that of a merchandiser
except for the cost of goods sold section.
MANUFACTURING COSTS IN
FINANCIAL STATEMENTS
Cost of Goods Sold Components
Merchandiser versus Manufacturer
MANUFACTURING COSTS IN
FINANCIAL STATEMENTS
Cost of Goods Sold Section of the Income Statement
DETERMINING THE
COST OF GOODS MANUFACTURED
Study Objective 6
Work in Process – partially completed units of product
Total Manufacturing Costs – sum of direct material costs, direct
labor costs, and manufacturing overhead; all incurred in the
current year
COST OF GOODS MANUFACTURED SCHEDULE
BALANCE SHEET - Inventories
Merchandising Company Manufacturing Company
One category of May have three
inventory: inventory accounts:
Merchandise Raw Materials
Inventory Work in Process
Finished Goods
BALANCE SHEET - Inventories
