management accounting: a business partner
DESCRIPTION
Chapter 16. Management Accounting: A Business Partner. Management Accounting: Basic Framework. Comparing Financial Accounting and Management Accounting. Convert raw materials into finished goods. Sell finished goods. Direct materials costs. Direct labor and manufacturing overhead costs. - PowerPoint PPT PresentationTRANSCRIPT
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Management Accounting:A Business Partner
Chapter
16
© The McGraw-Hill Companies, Inc., 2002McGraw-Hill/Irwin
Accounting system s help to identifyw ho has authority over assets.
Accounting inform ation supportsplanning and decision-m aking.
Accounting reports provide a m eans ofm onitoring, evaluating, and rew arding perform ance.
M anagem ent accounting andass igning dec is ion-m ak ing authority.
Management Accounting:Basic Framework
Management Accounting:Basic Framework
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Comparing Financial Accounting and Management Accounting
Comparing Financial Accounting and Management Accounting
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Cost of goods sold.
Cost of goods sold.
Direct labor and manufacturing
overhead costs.
Direct labor and manufacturing
overhead costs.
Direct materials
costs.
Direct materials
costs.
Steps in the Manufacturing Process:
Convert raw materials into
finished goods.
Convert raw materials into
finished goods.
Sell finished goods.
Sell finished goods.
Accounting for Manufacturing Operations
Accounting for Manufacturing Operations
Buy raw materials.
Buy raw materials.
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Raw materials & component
parts that become an
integral part of finished products.
Can be traced directly and conveniently to products.
Direct MaterialsDirect Materials
If materials cannot be traced directly to products, the materials are considered indirect and are part
of manufacturing overhead.
If materials cannot be traced directly to products, the materials are considered indirect and are part
of manufacturing overhead.
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Includes the payroll cost of direct workers.Includes the payroll cost of direct workers.
Direct LaborDirect Labor
Those employees who work directly
on the goods being
manufactured.
Those employees who work directly
on the goods being
manufactured.
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Includes the payroll cost of direct workers.Includes the payroll cost of direct workers.
The cost of employees who do
not work directly on the goods is
considered indirect labor and is part of
manufacturing overhead.
The cost of employees who do
not work directly on the goods is
considered indirect labor and is part of
manufacturing overhead.
Direct LaborDirect Labor
Those employees who work directly
on the goods being
manufactured.
Those employees who work directly
on the goods being
manufactured.
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All manufacturing costs other than direct materials and direct labor.
All manufacturing costs other than direct materials and direct labor.
Includes:Indirect materials.Indirect labor.Machinery and
equipment costs.Cost of regulatory
compliance.
Includes:Indirect materials.Indirect labor.Machinery and
equipment costs.Cost of regulatory
compliance.
Manufacturing OverheadManufacturing Overhead
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All manufacturing costs other than direct materials and direct labor.
All manufacturing costs other than direct materials and direct labor.
Does not include selling or general
and administrative expenses.
Does not include selling or general
and administrative expenses.
Manufacturing OverheadManufacturing Overhead
Includes:Indirect materials.Indirect labor.Machinery and
equipment costs.Cost of regulatory
compliance.
Includes:Indirect materials.Indirect labor.Machinery and
equipment costs.Cost of regulatory
compliance.
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The cost to produce a unit of product includes:
Direct materialDirect laborManufacturing overhead
The cost to produce a unit of product includes:
Direct materialDirect laborManufacturing overhead
Manufacturing OverheadManufacturing Overhead
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The cost to produce a unit of product includes:
Direct materialDirect laborManufacturing overhead
The cost to produce a unit of product includes:
Direct materialDirect laborManufacturing overhead
Manufacturing OverheadManufacturing Overhead
Manufacturing overhead must be mathematically allocated to each unit of
product using a predetermined overhead
application rate.(This will be discussed later in this chapter.)
Manufacturing overhead must be mathematically allocated to each unit of
product using a predetermined overhead
application rate.(This will be discussed later in this chapter.)
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Balance SheetBalance Sheet
Current assets and inventory
Current assets and inventory
Product Costs (manufacturing
costs)
Income Statement
Income Statement
RevenueCOGSGross profitExpensesNet income.
RevenueCOGSGross profitExpensesNet income.
When goods are sold.
When goods are sold.
as incurred
Period Costs (operating
expenses and income taxes.)
as incurred
Product Costs Versus Period CostsProduct Costs Versus Period Costs
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Raw materials - inventory on hand and available for use.
Raw materials - inventory on hand and available for use.
Work in process - partially
completed goods.
Work in process - partially
completed goods.
Finished goods-
completed goods awaiting
sale.
Finished goods-
completed goods awaiting
sale.
Inventories of a Manufacturing Business
Inventories of a Manufacturing Business
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Direct materials
purchased
Materials Warehouse
Finished goods
Finished goods Warehouse
Goods sold
Direct materials
used
Factory
Direct labor &Manufacturing overhead
The Flow of Physical GoodsThe Flow of Physical Goods
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Direct materials
purchased
Direct materials
used
Cost of goods manufacturedCost of
Goods Sold
$$$
Materials Inventory
$$$ $$$
Finished Goods Inventory
$$$ $$$
Work in Process Inventory
$$$ $$$
The Flow of Manufacturing CostsThe Flow of Manufacturing Costs
Direct labor &Manufacturing overhead
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Pure-Ice Inc. had $52,000 of inventory in direct materials inventory on January 1,
2002. During the year, Pure-Ice purchased $586,000 of additional direct
materials. At December 31, 2002, $78,000 of the direct materials were still on hand.
How much direct material was placed into production during 2002?
Pure-Ice Inc. had $52,000 of inventory in direct materials inventory on January 1,
2002. During the year, Pure-Ice purchased $586,000 of additional direct
materials. At December 31, 2002, $78,000 of the direct materials were still on hand.
How much direct material was placed into production during 2002?
The Flow of Manufacturing Costs Example
The Flow of Manufacturing Costs Example
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?
The Flow of Manufacturing Costs Example
The Flow of Manufacturing Costs Example
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!
The Flow of Manufacturing Costs Example
The Flow of Manufacturing Costs Example
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In addition to the direct materials, Pure-Ice incurred $306,000 of direct labor cost during 2002. Manufacturing overhead for
2002 was $724,000.Pure-Ice started 2002 with $132,000 in work in process. During 2002, units
costing $1,480,000 were transfered to finished goods inventory.
What is the ending balance in work in process at December 31, 2002?
In addition to the direct materials, Pure-Ice incurred $306,000 of direct labor cost during 2002. Manufacturing overhead for
2002 was $724,000.Pure-Ice started 2002 with $132,000 in work in process. During 2002, units
costing $1,480,000 were transfered to finished goods inventory.
What is the ending balance in work in process at December 31, 2002?
The Flow of Manufacturing Costs Example
The Flow of Manufacturing Costs Example
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The Flow of Manufacturing Costs Example
The Flow of Manufacturing Costs Example
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!
The Flow of Manufacturing Costs Example
The Flow of Manufacturing Costs Example
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The overhead application rate expresses an expected relationship between
manufacturing overhead costs and some activity base related to the production
process.
The overhead application rate expresses an expected relationship between
manufacturing overhead costs and some activity base related to the production
process.
Overhead Application RatesOverhead Application Rates
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Overhead costs are estimated based on budgets and using mathematical
estimation techniques.
Overhead costs are estimated based on budgets and using mathematical
estimation techniques.
Overhead Application RatesOverhead Application Rates
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The base is the activitiy that “drives” the cost, called the cost driver.
Direct labor hours and machine hours are commonly used cost drivers.
The base is the activitiy that “drives” the cost, called the cost driver.
Direct labor hours and machine hours are commonly used cost drivers.
Overhead Application RatesOverhead Application Rates
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Big “T” Company produces engines for big trucks. Total
overhead for 2002 is estimated to be $2,600,000. Big “T” applies
overhead based on machine hours. Big “T” estimates machine hours
for 2002 to be 162,500 hours.Compute Big “T’s”
predetermined overhead rate for 2002.
Big “T” Company produces engines for big trucks. Total
overhead for 2002 is estimated to be $2,600,000. Big “T” applies
overhead based on machine hours. Big “T” estimates machine hours
for 2002 to be 162,500 hours.Compute Big “T’s”
predetermined overhead rate for 2002.
Overhead Application Rates Example
Overhead Application Rates Example
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Overhead Application Rates Example
Overhead Application Rates Example
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Overhead Application Rates Example
Overhead Application Rates Example
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Some companies use different cost drivers for different manufacturing activities, a
process called ACTIVITY BASED COSTING.
Some companies use different cost drivers for different manufacturing activities, a
process called ACTIVITY BASED COSTING.
Overhead Application RatesOverhead Application Rates
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A schedule of the cost of finished goods manufactured is
prepared to assist managers in
understanding and evaluating the overall cost of manufacturing
products.
A schedule of the cost of finished goods manufactured is
prepared to assist managers in
understanding and evaluating the overall cost of manufacturing
products.
Determining the Cost of Finished Goods Manufactured
Determining the Cost of Finished Goods Manufactured
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The cost of goods completed during the period is used to compute COGS
for the period.
The cost of goods completed during the period is used to compute COGS
for the period.
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The income statement is
prepared using
established financial
accounting procedures.
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This is a great job, but the overhead is killing
my profit margin!
End of Chapter 16End of Chapter 16