Chapter
19-1


CHAPTER 19

MANAGERIAL
ACCOUNTING
Accounting Principles, Eighth Edition
Chapter
19-2


Study
Study Objectives
Objectives
1.

Explain the distinguishing features of managerial
accounting.

2.

Identify the 3 broad functions of management.

3.

Define the 3 classes of manufacturing costs.

4.

Distinguish between product and period costs.

5.

Explain the differences between a merchandising
and a manufacturing income statement.

Chapter
19-3


Study
Study Objectives
Objectives

Chapter
19-4

6.

Indicate how cost of
goods manufactured is
determined.

7.

Explain the difference
between a merchandising
and a manufacturing
balance sheet.


8.

Identify trends in
managerial accounting.


Preview
Preview of
of Chapter
Chapter
Managerial Accounting Basics
Compare managerial and financial accounting
Management functions and Business Ethics

Managerial Cost Concepts
Manufacturing costs
Product vs. period costs

Manufacturing Costs in Financial Statements
Income Statement and Balance Sheet
Cost concepts – A review

Managerial Accounting Today
Service industry trends
Chapter
19-5

Managerial accounting practices



Managerial
Managerial Accounting
Accounting

Managerial
Managerial
Accounting
Accounting
Basics
Compare
Managerial and
Financial
Accounting
Management
Functions
Business Ethics

Chapter
19-6

Managerial
Managerial
Cost
Cost
Concepts
Manufacturing
Costs
Product vs
Period Costs


Manufacturing
Manufacturing
Costs
Costs in
in
Financial
Statements
Statements
Income
Statement
Balance Sheet
Cost Concepts
– A Review

Managerial
Managerial
Accounting
Today
Today
Service
Industry
Trends
Managerial
Accounting
Practices


Managerial
Managerial Accounting

Accounting Basics
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

Chapter
19-7


Managerial
Managerial Accounting
Accounting Basics
Basics
Managerial Accounting Activities
Explain manufacturing and nonmanufacturing costs and
how they are reported (Chapter 19)
Compute cost of providing a service or manufacturing
a product. (Chapters 20 and 21)
Determine behavior of costs and expenses as activity
changes. (Chapter 22)

Chapter
19-8


Managerial
Managerial Accounting

Accounting Basics
Basics
Managerial Activities: Continued
Assist management in profit planning and formalizing
these plans in the form of budgets. (Chapter 23)
Help to control costs by comparing actual results with
planned objectives and standard costs. (Chapters 24 and 25)
Accumulate and present data for making decisions .
(Chapter 26)

Chapter
19-9


Managerial
Managerial Accounting
Accounting Basics
Basics
Distinguishing Features
Applies to all types of business Service, Merchandising, and Manufacturing
Applies to all forms of businesses –
Proprietorships, Partnerships, and Corporations
Applies to not-for-profit and profit oriented companies

Chapter
19-10

LO 1 Explain the distinguishing features of managerial accounting.



Managerial
Managerial Accounting
Accounting Basics
Basics
Distinguishing Features: Continued
More responsible for strategic
cost management
Teams with people from production,
marketing, engineering, etc.
Aid in making critical decisions

Chapter
19-11

LO 1 Explain the distinguishing features of managerial accounting.


Comparing
Comparing Managerial
Managerial and
and Financial
Financial Accounting
Accounting
Similarities
Both deal with economic events of a business –
Thus, interests overlap
Both require that economic events be
quantified and communicated to
interested parties –
Determining unit cost is part of

managerial accounting,
Reporting cost of goods manufactured
is a part of financial accounting

Chapter
19-12

LO 1 Explain the distinguishing features of managerial accounting.


Comparing
Comparing Managerial
Managerial and
and Financial
Financial Accounting
Accounting
Differences

Chapter
19-13

LO 1 Explain the distinguishing features of managerial accounting.


Managerial
Managerial Accounting
Accounting Basics
Basics
Review Question
Managerial accounting:

a. Pertains to the entity as a whole and is highly
aggregated.
aggregated
b. Places emphasis on special-purpose information.
c.

Is limited to cost data.

d. Is governed by generally accepted accounting
principles.
Chapter
19-14

LO 1 Explain the distinguishing features of managerial accounting.


Managerial
Managerial Accounting
Accounting Basics
Basics
Management Functions
Management’s activities and responsibilities can be
classified into the following three broad functions:

Planning

Chapter
19-15

Directing


Controlling

LO 2 Identify the 3 broad functions of management.


Management
Management Functions
Functions
Planning
Look ahead and 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

Chapter
19-16

LO 2 Identify the 3 broad functions of management.


Management
Management Functions
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
Produce smooth-running operation
Chapter
19-17

LO 2 Identify the 3 broad functions of management.


Management
Management Functions
Functions
Controlling
Keep activities on track
Determine whether goals are met
Decide changes needed to get back on track
May use an informal or formal system of evaluations

Good decision making is the outcome of good judgment
in planning, directing, and controlling.
Chapter
19-18

LO 2 Identify the 3 broad functions of management.


Good
Good Ethics
Ethics –– Good

Good Business
Business
Business Ethics
Business scandals caused massive investment
losses and employee layoffs.
Corporate fraud has increased 13% in last 5 years.
Employee fraud – 60% of all fraud
Intentional misstatement of financial reports
Aka financial reporting fraud
Most costly to companies

Chapter
19-19


Good
Good Ethics
Ethics –– Good
Good Business
Business
Creating Proper Incentives
Systems to monitor and evaluate employees
may produce incentives for unethical actions.
Employees may feel that they must succeed no
matter what.
Ineffective and unrealistic controls may result
in declining product quality.

Chapter
19-20



Good
Good Ethics
Ethics –– Good
Good Business
Business
Code of Ethical Standards
Sarbanes-Oxley Act of 2002
Clarifies management’s responsibilities.
Certifications by CEO and CFO fairness of financial statements and
adequacy of internal control

Selection criteria for Board of Directors and Audit
Committee
Substantially increased penalties for misconduct
IMA Statement of Ethical Professional Practices
Chapter
19-21


Management
Management Functions
Functions
Review Question
The management of an organization performs several
broad functions. They are:
a. Planning, directing, and selling.
selling
b. Directing, manufacturing, and controlling.

c.

Planning, manufacturing, and controlling.

d. Planning, directing, and controlling.

Chapter
19-22

LO 2 Identify the 3 broad functions of management.


Managerial
Managerial Cost
Cost Concepts
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.
Categories of manufacturing costs include:

Chapter
19-23

LO 3 – Define the three classes of manufacturing costs.


Manufacturing

Manufacturing Costs
Costs
Materials
Raw Materials
Basic materials used in manufacturing
Direct Materials
Raw materials that can be physically and
directly associated with the finished product

Chapter
19-24

LO 3 Define the three classes of manufacturing costs.


Manufacturing
Manufacturing Costs
Costs
Materials
Indirect Materials
Raw materials that cannot be easily associated
with the finished product
Not physically part of the finished product or
they are an insignificant part of finished
product in terms of cost
Considered part of manufacturing overhead

Chapter
19-25


LO 3 Define the three classes of manufacturing costs.