MANAGEMENT 9 ACCOUNTING

Transcription

1 Chapter MANAGEMENT 9 ACCOUNTING A BUSINESS PARTNER To explain the three principles guiding the design of management accounting systems. LO1 Management Accounting: Basic Framework 9-3 Management Accounting System Framework 9-4 Management accounting and assigning g decision-making authority. Top Management Accounting systems help to identify who has authority over assets. Budget Plans: Future Actual Results: Current Performance Evaluation: Past Accounting information supports planning and decision-making. Accounting reports provide a means of monitoring, evaluating, and rewarding performance. Assign Support Evaluate ate Decision Making Decision Making Decision Making

2 Comparing Financial Accounting and Management Accounting Financial i Accounting Management Accounting Provide information about the Provide information for Purpose financial position and planning, evaluating, and performance of the company. rewarding performance. Balance sheet, income Types of statement, and statement of Reports cash flows. Various, non-standard reports. Standards GAAP None Reporting Usually, the company taken A component of the Entity as a whole. company's value chain. Time Usually a year, quarter, or a Periods month. Any period. Users Investors, creditors, and other Management, customers, and external parties. others in the value chain. To describe the three basic types of manufacturing costs. LO2 Accounting for Manufacturing Operations 9-7 Direct Materials 9-8 The cost to produce a unit of product includes: Direct material Direct t labor Manufacturing overhead Raw materials & component parts that become an integral part of finished products. Can be traced directly and conveniently to products. If materials cannot be traced directly to products, the materials are considered indirect and are part of manufacturing overhead.

3 Direct Labor Includes the payroll cost of direct workers. Direct labor hours Wage rate Those employees who work directly on the goods being manufactured. The cost of employees who do not work directly on the goods is considered indirect labor and is part of manufacturing overhead. Manufacturing Overhead All manufacturing costs other than direct materials and direct labor. Includes: Indirect materials. Indirect labor. Machinery and equipment costs. D t i l d Cost of regulatory compliance. administrative Does not include selling or general and expenses. Flow of Physical Goods in Production 9-11 Accounting for Manufacturing Operations 9-12 Direct Materials Purchased Direct Materials Used Manufacturing costs are often combined as follows: Finished Goods Direct Direct Manufacturing Materials Labor Overhead Direct Manufacturing Labor Overhead Goods Sold MegaLoMart Prime Cost Conversion Cost

4 Product Costs versus Period Costs To distinguish between product and period costs. Product Costs (manufacturing costs) as incurred Balance Sheet Current assets and dfinished i goods inventory Income Statement When goods are sold LO3 Period Costs (operating expenses and income taxes) as incurred Revenue COGS Gross margin Period expenses Operating profit Ethics, Fraud, and Corporate Governance Product costs are capitalized as part of inventory and only charged to expense when the inventory is sold. Period costs are charged to expense as incurred. To describe how manufacturing costs flow through perpetual inventory accounts. Income will be artificially inflated if period costs are capitalized. LO4

5 Inventories of a Manufacturing Business Raw materials - inventory on hand and available for use. Direct Materials Direct Work in Process materials Inventory materials Inventory purchased used $$$ $$$ $$$ $$$ Direct labor & Manufacturing Overhead Finished Work in goods- process - completed partially goods awaiting completed sale. goods. Cost of goods manufactured Finished Goods Inventory $$$ $$$ Cost of Goods Sold $$$ Pure-Ice Inc. had $52,000 of inventory in direct materials inventory on January 1, of this year. During the year, Pure-Ice purchased $586,000 of additional direct materials. At December 31 of this year $78,000 of the direct materials were still on hand. How much direct material was placed into production during the year? Beginning materials inventory $ 52,000 + Materials purchased 586,000 Materials available to be = placed into production 638,000 Materials placed into production? Ending materials = inventory $ 78,000

6 Beginning materials inventory $ 52,000 + Materials purchased 586,000 Materials available to be =! placed into production 638,000 Materials placed into production 560,000 Ending materials = inventory $ 78,000 In addition to the direct materials, Pure- Ice incurred $306,000 of direct labor cost during the year. Manufacturing overhead for the year was $724,000. Pure-Ice started the year with $132,000 in work in process. During the year, units costing $1,480,000 were transferred to finished goods inventory. What is the balance in work in process at the end of the year? Beginning work in process inventory $ 132,000 + Manufacturing costs added 1,590,000 Direct Materials $ 560,000 Direct Labor 306,000 Manufacturing Overhead 724,000 Total costs added during the year $ 1,590, Beginning work in process inventory $ 132,000 + Manufacturing costs added 1,590,000 = Tota l costs in process! during the year 1,722,000 Cost of goods completed during the year (1,480,000), = Ending work in process inventory $ 242,000

7 Direct Costs and Indirect Costs To distinguish between direct and indirect costs. LO5 Direct costs Costs that can be easily and conveniently traced to a unit of product or other cost objective. Examples: direct material and direct labor Indirect costs Costs cannot be easily and conveniently traced to a unit of product or other cost object. Example: manufacturing overhead 9-27 Determining the Cost of Finished Goods Manufactured 9-28 To prepare a schedule of the cost of finished goods manufactured. LO6 A schedule of the cost of ffinished i goods manufactured is prepared dto provide managers with an overview of manufacturing activities iti during a period.

8 CONQUEST, INC. Schedule of the Cost of Finished Goods Manufactured For the Year Ended December 31, 2007 Work in process inventory, beg. $ 30,000 Manufacturing actu cost assg assigned to production: Direct materials $ 150,000 Direct labor 300,000 Manufacturing overhead 360,000 Total manufacturing costs 810,000 Total cost of all work in process during the year 840,000 Less: Work in process inventory, end of year (40,000) 000) Cost of finished goods manufactured $ 800, Beginning finished goods inventory $ 150,000 Add: Cost of finished goods manufactured during the year 800, Cost of finished goods available for sale 950,000 $ Less: Ending finished goods inventory 168,000 $, Cost of goods sold $ 782,000 CONQUEST, INC. Schedule of the Cost of Finished Goods Manufactured For the Year Ended December 31, 2007 Work in process inventory, beg. 30,000 Manufacturing cost assigned to production: Direct Materials 150,000 Direct Labor 300,000 Manufacturing overhead 360,000 Total manufacturing costs 810,000 Total cost of all work in process during the year 840,000 Less: Work in process inventory, end of year (40,000) Cost of finished goods manufactured $ 800, The cost of goods completed during the period is used to compute COGS for the period CONQUEST, INC. Income Statement The income For the Year Ended December 31, 2007 statement t t is prepared Sales $ 1,300,000 using Cost of goods sold 782,000 established Gross profit on sales $ 518,000 financial Operating expenses 400, accounting Income from operations $ 118,000 procedures. Less: Interest expense 18,000 Income before income taxes $ 100,000 Income tax expense 30,000 Net income $ 70, CONQUEST, INC. Partial Balance Sheet December 31, 2007 Current Assets: Cash and Cash Equivalents $ 60, Accounts Receivable, net 190,000 Inventories Materials $ 20,000 Work in Process 40,000 Finished Goods 168,000 Total Inventories 228,000 Total current Assets $ 478,000 Manufacturers have three inventory accounts. 9-32