Chapter 18-Managerial Accounting

Published by admin on

Financial Accounting
Information is reported at fixed intervals in general-purpose financial statements. These financial statements are prepared according to GAAP.
(1) prepared according to GAAP
(2) prepared at fixed intervals
(3) prepared for the business as a whole.
Managerial accounting reports do not always have to be:
Financial Accounting Characteristics
-External users.
-Financial statements.
-Annual independent audit.
-Reporting standard follows GAAP.
Managerial Accounting Characteristics
-Internal users.
-Internal reports.
-No independent audits.
-Reporting standard is relevance to the decision to be made.
Product Costs
Are costs that are a necessary and integral part of producing the finished product.
Examples: include materials and labor.
Period Costs
Are costs that are identified with a specific time period.
Examples: include selling and administrative expenses.
1. Indirect
2. Direct
Raw Materials
Direct Materials
Physically and directly a part of the finished goods.
Indirect Materials
Do not physically become a part of the product.
1. Indirect
2. Direct
Indirect Labor
Labor that has no physical association with the finished goods.
Direct Labor
Physically and directly associated with converting raw materials to finished goods.
Factory Overhead
Costs that are indirectly associated with the finished product (e.g., indirect materials, indirect labor, depreciation, insurance, taxes, and maintenance).
1. An integral part of the finished product
2. A significant portion of the total cost of the product
To be classified as a direct materials cost, the cost must be both of the following:
1. An integral part of the finished product
2. A significant portion of the total cost of the product
The cost of employee wages that is an integral part of the finished product is classified as direct labor cost. A direct labor cost must be both of the following:
1. Selling expenses
2. Administrative expenses
Period Costs
Selling Expenses
Which are incurred in marketing the product and delivering the sold product to the customer.
Administrative Expenses
Which are incurred in managing the company and are not directly related to the manufacturing or selling functions.
Prime Costs
Consist of direct materials and direct labor costs.
Conversion Costs
Consist of direct labor and factory overhead costs. Conversion costs are the costs of converting the materials into a finished product.
Merchandising Company (e.g., Wal-Mart)
Shows one category of inventory.
Raw materials.
Work in process (WIP).
Finished goods.
Manufacturing Company shows three categories of inventory:
Finished Goods at Beginning XXX
Cost of goods manufactured XXX*
Goods available for sale XXX
Less: Finished Goods at End (XXX)
_____________ XXX

*a separate schedule is used to calculate the cost of goods manufactured.

Cost of Goods Sold
Raw materials beginning xxx
+ Raw materials purchases xxx
– Raw materials ending (xxx)
_______________ xxx
Direct materials used
Direct materials used xxx
+ Direct labor used xxx
+ Factory overhead xxx
_____________ xxx
Total manufacturing costs
Total manufacturing costs xxx
+ WIP beginning xxx
– WIP ending (xxx)
_____________ xxx
Cost of goods manufactured
WIP — Beginning xxx
+Manufacturing cost (direct labor & materials, OH) xxx
-Cost of goods manufactured (xxx)
________________ xxx
Categories: Managerial Accounting