Chapter 1 - Managerial Accounting

Manufacturing Costs

Manufacturing consists of activities and processes that convert raw materials into finished goods. Contrast this type of operation with merchandising, which sells products in the form in which they are purchased. Manufacturing costs are classified as: -direct materials -direct labor -manufacturing overhead.

Manufacture Value Chain

-Research & development / Product design -Acquisition of raw materials -Production -Sales & marketing -Delivery -Customer relations & subsequent services

Activity-Based Costing (ABC)

Activity-based costing (ABC), which allocates overhead based on each product's use of particular activities in making the product. In addition to providing more accurate product costing, ABC also can contribute to increased efficiency in the value chain.

Balanced scorecard

Balanced scorecard is a performance-measurement approach that uses both financial and nonfinancial measures, tied to company objectives, to evaluate a company's operations in an integrated fashion.

Controlling

Controlling is the process of keeping the company's activities on track. In controlling operations, managers determine whether planned goals are met.

Directing

Directing involves coordinating a company's diverse activities and human resources to produce a smooth-running operation. This function relates to implementing planned objectives and providing necessary incentives to motivate employees.

Line Positions

Employees with line positions are directly involved in the company's primary revenue-generating operating activities. Examples of line positions include the vice president of operations, vice president of marketing, plant managers, supervisors, and production personnel.

Staff Positions

Employees with staff positions are involved in activities that support the efforts of the line employees. Employees in finance, legal, and human resources have staff positions.

Indirect Labor

Indirect labor refers to the work of employees that has no physical association with the finished product or for which it is impractical to trace costs to the goods produced. Examples include wages of factory maintenance people, factory time-keepers, and factory supervisors.

Just-in-time (JIT) inventory methods

Just-in-time (JIT) inventory methods, which have significantly lowered inventory levels and costs for many companies, are one innovation that resulted from the focus on the value chain. Under the JIT inventory method, goods are manufactured or purchased just in time for sale. JIT also necessitates increased emphasis on product quality. Because JIT companies do not have excess inventory on hand, they cannot afford to stop production because of defects or machine breakdowns.

Management's activities and responsibilities (3)

Management's activities and responsibilities: -Planning -Directing -Controlling

Manufacturing Overhead

Manufacturing overhead consists of costs that are indirectly associated with the manufacture of the finished product. Manufacturing overhead includes indirect materials, indirect labor, depreciation on factory buildings and machines, and insurance, taxes, and maintenance on factory facilities.

Period Costs (Nonmanufactuing Costs)

Period costs are costs that are matched with the revenue of a specific time period rather than included as part of the cost of a salable product. In order to determine net income, companies deduct these costs from revenues in the period in which they are incurred. -Selling Expenses - Administrative Expenses

Planning

Planning requires managers to look ahead and to establish objectives. These objectives are often diverse: maximizing short-term profits and market share, maintaining a commitment to environmental protection, and contributing to social programs.

Product Costs (Manufacturing Costs)

Product costs are costs that are a necessary and integral part of producing the finished product. -Direct Materials -Direct Labor -Manufacturing Overhead (Indirect materials, Indirect labor, other indirect costs)

Raw Materials

Raw materials are the basic materials and parts used in the manufacturing process.

Direct Materials

Raw materials that can be physically and directly associated with the finished product during the manufacturing process are direct materials. Examples include flour in the baking of bread, syrup in the bottling of soft drinks, and steel in the making of automobiles.

Indirect Materials

Some raw materials cannot be easily associated with the finished product. These are called indirect materials. Indirect materials have one of two characteristics. (1) They do not physically become part of the finished product (such as polishing compounds used by Current Designs for the finishing touches on kayaks). Or, (2) they are impractical to trace to the finished product because their physical association with the finished product is too small in terms of cost (such as cotter pins and lock washers).

Cost of Goods Manufactured

Step 1. beginning work in process inventory + total manufacturing costs = total costs of work in process Step 2. total costs of work in process - ending work in process inventory = cost of good manufactured

Balance Sheet - Merchandiser Vs. Manufacturer

The balance sheet for a merchandising company shows just one category of inventory. In contrast, the balance sheet for a manufacturer may have three inventory accounts: - Raw Materials Inventory - Work in Process Inventory - Finished Good Inventory

Controller vs Treasurer

The controller's responsibilities include (1) maintaining the accounting records, (2) ensuring an adequate system of internal control, and (3) preparing financial statements, tax returns, and internal reports. The treasurer has custody of the corporation's funds and is responsible for maintaining the company's cash position.

Cost of Goods Manufactured Schedule

The cost of goods manufactured schedule reports cost elements used in calculating cost of goods manufactured.

Theory of Constraints

The theory of constraints, involves identification of "bottlenecks"—constraints within the value chain that limit a company's profitability. Once a major constraint has been identified and eliminated, the company moves on to fix the next most significant constraint.

Value Chain

The value chain refers to all business processes associated with providing a product or performing a service.

Direct Labor

The work of factory employees that can be physically and directly associated with converting raw materials into finished goods is direct labor.

Total Quality Management (TQM)

Total quality management (TQM) to reduce defects in finished products, with the goal of zero defects.

Income Statements- Merchandiser Vs. Manufacturer

Under a periodic inventory system, the income statements of a merchandiser and a manufacturer differ in the cost of goods sold section. Merchandisers cost of goods sold = beginning inventory + cost of goods PURCHASED - ending inventory Manufacturers cost of goods sold = beginning inventory + cost of goods MANUFACTURED - ending finished goods inventory

Enterprise Resource Planning (ERP)

enterprise resource planning (ERP) systems, such as those provided by SAP, provide a comprehensive, centralized, integrated source of information to manage all major business processes—from purchasing, to manufacturing, to sales, to human resources.

Managerial accounting

Managerial accounting (management accounting) is a field of accounting that provides economic and financial information for managers and other internal users.

Total Manufacturing Costs

Total manufacturing costs are the sum of the product costs—direct materials, direct labor, and manufacturing overhead—incurred in the current period.