1. Introduction to Management Accounting
So far – financial accounting
For whom are financial accounting reports prepared primarily?
Managerial – internal users.

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3. The Functions of Management
Planning
Acting
Controlling
Planning – Choosing goals and deciding how to achieve them
Acting – carry out plan
Controlling – evaluating results by comparing the actual results to the plan.
You work for Baskin Robins – one of its goals is to increase operating income
How do you do it?
Incr sales price
Incr sales volume
Lower costs
The accounting system, by tracking costs, helps managers evaluate performance
Feedback

4. Objective 1
Distinguish between financial accounting and management accounting.

5. Primary Users Financial Management Investors
Creditors
Government authorities (IRS, SEC, etc.)
Management
Internal managers of the business

6. Purpose of Information
Financial
Help investors, creditors, and others make investment, credit, and other decisions
Management
Help managers plan and control business operations

7. Focus and Time Dimension
Financial
Reliability, objectivity, and focus on the past
Management
Relevance

8. Type of Report Financial Management
Financial statements restricted by GAAP
Management
Internal reports not restricted by GAAP; determined by cost-benefit analysis
Cost benefit analysis Weighing costs against benefits
But must always consider qualitative factors as well

9. Verification Financial Management Annual independent audit by CPAs
No independent audit

10. Scope of Information Financial Management
Summary reports primarily on the company as a whole
Management
Detailed reports on parts of the company

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12. Behavioral Implications
Financial
Concern about adequacy of disclosure
Management
Concern about how reports will affect employees behavior

13. Service, Merchandising, and Manufacturing Companies
Provides intangible services, rather than tangible products
Merchandising
resells products previously bought from suppliers

14. Service, Merchandising, and Manufacturing Companies
Manufacturing Company:
uses labor, plant, and equipment to convert raw materials into finished products
Materials inventory
Work in process inventory
Finished goods inventory

15. Describe the value chain value-chain functions.
Objective 2
Describe the value chain
and classify costs by
value-chain functions.

16. Value Chain Research & Development Design Production or Purchases
Activities that add value to a firm’s products and services
Marketing
Distribution
Customer
Services

17. Distinguish direct costs
Objective 3
Distinguish direct costs
from indirect costs.

18. Cost Objects, Direct Costs, and Indirect Costs
Cost objects are anything for which a separate measurement of costs is desired.
Cost drivers are any factors that affect cost.

19. Cost Objects, Direct Costs, and Indirect Costs
What are examples of cost objects?
individual products
alternative marketing strategies
geographic segments of the business
departments

20. Cost Objects, 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.

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22. Distinguish among full product costs, inventoriable product
Objective 4
Distinguish among full product costs, inventoriable product
costs, and period costs.

23. Product Costs What are product costs?
They are the costs to produce (or purchase) tangible products intended for sale.

24. Product Costs There are two types of product costs: Full Inventoriable

25. External Reporting
Inventoriable
product
costs
Period
costs

26. Inventoriable Product Costs
For external reporting, merchandisers’ inventoriable product costs include only costs that are incurred in the purchase of goods.
Inventoriable costs are an asset.
Period costs flow as expenses directly to the income statement.

27. Inventoriable Product Costs
For external reporting, manufacturers’ inventoriable product costs include raw materials plus all other costs incurred in the manufacturing process.
Inventoriable product costs are incurred only in the third element of the value chain.
Costs incurred in other elements of the value chain are period costs.

28. Inventoriable Product Costs
Direct
Materials
Direct
Labor
Indirect
Labor
Indirect
Materials
Other
Manufacturing Overhead

29. Inventoriable Product Costs
Direct
Materials
Direct
Labor
Prime Costs = Direct Materials + Direct Labor

30. Inventoriable Product Costs
Direct
Labor
Indirect
Labor
Indirect
Materials
Other
Conversion Costs = Direct Labor
+ Manufacturing Overhead

31. Prepare the financial statements of a manufacturing company.
Objective 5
Prepare the financial statements
of a manufacturing company.

32. Financial Statements for Service Companies
There is no inventory and thus no inventoriable costs.
The income statement does not include cost of goods sold.
Revenues – Expenses = Operating income

33. Financial Statements for Merchandising Companies
BALANCE SHEET
INCOME STATEMENT
Inventoriable
Costs
Sales Revenue
when
sales
occur
deduct
Purchases of
Inventory plus
Freight-In
Inventory
Cost of
Goods Sold
equals Gross Margin
deduct
Period
Costs
Operating
Expenses
equals Operating Income

34. Financial Statements for Manufacturing Companies
BALANCE SHEET
INCOME STATEMENT
Inventoriable
Costs
Sales Revenue
Materials
Inventory
when
sales
occur
deduct
Finished
Goods
Inventory
Cost of
Goods Sold
equals Gross Margin
deduct
Work in
Process
Inventory
Period
Costs
Operating
Expenses
equals Operating Income

35. Manufacturing Company Example
Kendall Manufacturing Company:
Beginning and ending work-in-process inventories were Rs20,000 and Rs18,000.
Direct materials used were Rs70,000.
Direct labor was Rs100,000.
Manufacturing overhead incurred was Rs150,000.

36. Manufacturing Company Example
What is the cost of goods manufactured?
Beginning work in process Rs 20,000
Direct labor Rs100,000
Direct materials ,000
Mfg. overhead , ,000
Ending work in process (18,000)
Cost of goods manufactured Rs322,000

37. Manufacturing Company Example
Kendall Manufacturing Company’s beginning finished goods inventory was Rs60,000 and its ending finished goods inventory was Rs55,000.
How much is the cost of goods sold?

38. Manufacturing Company Example
Beg. finished goods inventory Rs 60,000
+ Cost of goods manufactured ,000
= Cost of goods available for sale Rs382,000
– Ending finished goods ,000
= Cost of goods sold Rs327,000

39. Manufacturing Company Example
Kendall Manufacturing Company had sales of Rs627,000 for the period.
How much is the gross margin?
Sales Rs627,000
– Cost of goods sold ,000
= Gross margin Rs300,000

40. Manufacturing Company Example
Kendall Manufacturing Company had operating expenses as follows:
Rs80,000 Sales salaries ,000 Delivery expense
30,000 Administrative expenses Rs120,000 Total
What is Kendall’s operating income?

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42. Manufacturing Company Example
Gross margin Rs300,000
– Operating expenses ,000
= Operating income Rs180,000

43. Flow of Costs through a Manufacturer’s Accounts
Direct Materials Inventory
Beginning inventory
Purchases and freight-in
Direct materials available for use
Ending inventory
Direct materials used
Work in Process Inventory
Beginning inventory
Direct materials used
Direct labor
Manufacturing overhead
Total manufacturing costs
to account for
Ending inventory
Cost of goods manufactured

44. Flow of Costs through a Manufacturer’s Accounts
Finished Goods Inventory
Beginning inventory
Cost of goods manufactured
Cost of goods available for sale
Ending inventory
Cost of goods sold

45. Identify major trends in the business environment, and use
Objective 6
Identify major trends in the
business environment, and use
cost-benefit analysis to make
business decisions.

46. Shift to a Service Economy
In the U.S., 55% of the workforce
is employed in service companies.

47. Competing in the Global Marketplace
Foreign operations account
for over 30% of GE’s revenues.

48. Just-in-Time
JIT philosophy means that the company schedules production just in time to satisfy needs.
Speeding up of the production process reduces throughput time.
Throughput time is the time between buying raw materials and selling the finished products.

49. Total Quality Management
The goal of total quality management (TQM) is to please customers by providing them with superior products and services.
TQM emphasizes educating, training, and cross-training employees.
Quality improvement programs cost money today.
The benefits usually do not occur until later.

50. Total Quality Management
Total Benefits Total Cost
Initial benefits
and costs Rs170 million Rs200 million
Additional
expected benefits million
Total Rs238 million Rs200 million

51. Use reasonable standards to make ethical judgments.
Objective 7
Use reasonable standards to
make ethical judgments.

52. Professional Ethics for Management Accountants
In many situations the ethical path is not so clear.
The Institute of Management Accountants (IMA) has developed standards to help management accountants deal with these situations.

53. Standards of Ethical Conduct for Management Accountants
Competence
Integrity
Confidentiality
Objectivity

54. JOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B. COM
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