INTRODUCTION TO MANAGERIAL ACCOUNTING Course 1 – Panos Papadopoulos

WHO AM I Name: Panos Papadopoulos Education: Bsc in Business Administration Msc in Finance, ACCA Member Working Experience: Various Finance positions in multinational companies (Interxion, NetApp, Liberty Global) Currently I am working as Head of Finance

WHAT IS MANAGEMENT ACCOUNTING Management Accounting is “the process of identification, measurement, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its Resource (economics) resources.

Distinguish between financial accounting and management accounting. OBJECTIVE

MANAGEMENT ACCOUNTING VS FINANCIAL ACCOUNTING

Describe the value chain and classify costs by value-chain functions. OBJECTIVE

VALUE CHAIN Research and Development Design Production or Purchases Marketing Distribution Customer Services A value chain is the full range of activities — including design, production, marketing and distribution — businesses go through to bring a product or service from conception to delivery

Distinguish direct costs from indirect costs. OBJECTIVE

DIRECT COSTS AND INDIRECT COSTS What are direct costs? Direct costs are those costs that can be specifically traced to the cost object. What are indirect costs? Indirect costs are costs that cannot be specifically traced to the cost object.

Classify costs and prepare an income statement for a service company OBJECTIVE

11 SERVICE COMPANY Simplest accounting All costs are period costs - costs that are incurred and expensed in the same accounting period Operating income = Service revenue – operating expenses

12 EXAMPLE Fido Grooming Income Statement For the Month Ended July 31, 2007 Service revenue$15,000 Operating expenses: Wages$4,800 Grooming supplies1,200 Building rent1,000 Utilities250 Depreciation, equipment1007,350 Operating income$7,650 Cost to groom one dog = $7,350/600 dogs = $12.25

Classify costs and prepare an income statement for a merchandising company OBJECTIVE

Resell products purchased from suppliers Keep an inventory of products Cost of goods sold is a major expense 14 MERCHANDISING COMPANY

Includes cost to purchase goods plus freight-in PRODUCT COSTS 15 Beginning inventory Plus: Purchases, net Plus: Freight-in Less: Ending inventory Equals: Cost of goods sold

EXAMPLE 16

OBJECTIVE Classify costs and prepare an income statement and statement of cost of goods manufactured for a manufacturing company

Use labor, plant, supplies and facilities to convert raw materials into finished products Three kinds of inventory 18 MANUFACTURING COMPANIES Materials inventory Work in process inventory Finished goods inventory

Direct materials Direct labor Manufacturing overhead PRODUCT COSTS BREAKDOWN 19

Includes only indirect costs related to manufacturing Examples: Indirect materials Indirect labor 20 MANUFACTURING OVERHEAD

Other costs related to the manufacturing facility and plant assets Repairs & maintenance Utilities Rent & insurance Property taxes Depreciation OTHER MANUFACTURING OVERHEAD 21

Type of companyInventoriable product costs Period costs (Expenses) Service company NoneSalaries, depreciation, utilities, advertising, insurance, property taxes Merchandising company Purchases plus freight in Salaries, depreciation, utilities, advertising, insurance, property taxes and delivery expense Manufacturing company Direct materials, Direct labor and manufacturing overhead Office salaries, depreciation, utilities, advertising, insurance, property taxes on office, selling expenses COMPARISON OF PRODUCT AND PERIOD COSTS 22

FLOW OF COSTS THROUGH A MANUFACTURER’S INVENTORY ACCOUNT 23 Direct materials inventory Work in process inventory Finished goods inventory Beginning inventory + Purchases and freight-in + Direct materials used + Cost of goods manufactured = Direct materials available for use + Direct labor= Cost of goods available for sale + Manuf. overhead - Ending inventory = Direct materials used = Cost of goods manufactured = Cost of goods sold

EXAMPLE 24