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1
Introduction to Managerial Accounting
and Cost Concepts
Presented by:
Engr. Richard A. Abayhon, MSc
Assistant Professor, Industrial Engineering
Managerial Accounting and
Financial Accounting
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Work of Management
Planning
Directing and
Motivating
Controlling
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Planning and Control Cycle
Formulating Long-and Begin
Short-Term Plans
(Planning)
Measuring
Performance
(Controlling)
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Differences Between Financial and
Managerial Accounting
Financial Managerial
Accounting Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization
2. Time focus Historical perspective Future emphasis
3. Verifiability Emphasis on Emphasis on relevance
versus relevance verifiability for planning and control
4. Precision versus Emphasis on Emphasis on
timeliness precision timeliness
5. Subject Primary focus is on Focuses on segments
the whole organization of an organization
6. Requirements Must follow GAAP Need not follow GAAP
and prescribed formats or any prescribed format
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Comparing Merchandising and
Manufacturing Activities
Merchandisers . . . Manufacturers . . .
Buy finished goods. Buy raw materials.
Sell finished goods. Produce and sell
finished goods.
MegaLoMart
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Manufacturing Costs
The Product
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Direct Materials
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Direct Labor
Those labor costs that can be easily traced to
individual units of product.
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Manufacturing Overhead
Manufacturing costs that cannot be traced
directly to specific units produced.
Examples: Indirect labor and indirect materials
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Classifications of Costs
Prime Conversion
Cost Cost
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Nonmanufacturing Costs
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Quick Check
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Quick Check
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Product Costs Versus Period Costs
Sale
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Quick Check
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Quick Check
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Balance Sheet
Merchandiser Manufacturer
Current assets Current Assets
Cash Cash
Receivables Receivables
Prepaid expenses Prepaid Expenses
Merchandise inventory Inventories
Raw Materials
Work in Process
Finished Goods
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Balance Sheet
Merchandiser Manufacturer
Current assets Current Assets
Cash Cash
Receivables Receivables
Materials waiting to
Prepaid expenses Prepaid
be processed.
Expenses
Merchandise inventory
Partially complete Inventories
products some Raw Materials
material, labor, or Work in Process
overhead has been Finished Goods
added.
Completed products
awaiting sale.
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The Income Statement
Cost of goods sold for manufacturers differs only
slightly from cost of goods sold for merchandisers.
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Manufacturing Cost Flows
Income
Balance Sheet Statement
Costs Inventories Expenses
Material Purchases Raw Materials
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Quick Check
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Inventory Flows
Beginning
Additions Available
balance + $$$ = $$$$$
$$
_ Withdrawals Ending
Available
$$$$$ $$$ = balance
$$
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Quick Check
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Quick Check
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Product Costs - A Closer Look
Manufacturing Work
Raw Materials Costs In Process
Beginning raw
materials inventory
Beginning inventory
is the inventory
carried over from
the prior period.
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Product Costs - A Closer Look
Manufacturing Work
Raw Materials Costs In Process
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Quick Check
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Product Costs - A Closer Look
Manufacturing Work
Raw Materials Costs In Process
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Product Costs - A Closer Look
Manufacturing Work
Raw Materials Costs In Process
Conversion
Beginning raw Direct materials
materials inventory + Direct labor
costs are costs
+ Raw materials + Mfg. overhead incurred to
purchased = Total manufacturing convert the
= Raw materials costs
direct material
available for use
in production into a finished
Ending raw materials product.
inventory
= Raw materials used
in production
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Quick Check
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Quick Check
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Product Costs - A Closer Look
Manufacturing Work
Raw Materials Costs In Process
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Product Costs - A Closer Look
Manufacturing Work
Raw Materials Costs In Process
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Quick Check
Beginning work in process was $125,000.
Manufacturing costs incurred for the month
were $835,000. There were $200,000 of
partially finished goods remaining in work in
process inventory at the end of the month.
What was the cost of goods manufactured
during the month?
A. $1,160,000
B. $ 910,000
C. $ 760,000
D. Cannot be determined.
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Quick Check
Beginning work in process was $125,000.
Manufacturing costs incurred for the month
were $835,000. There were $200,000 of
partially finished goods remaining in work in
process inventory at theBeginning
end ofwork theinmonth.
What was the cost of goods manufactured
process inventory
+ Mfg. costs incurred
$ 125,000
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Product Costs - A Closer Look
Work
In Process Finished Goods
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Quick Check
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Quick Check
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Cost Classifications for Predicting
Cost Behavior
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Total Variable Cost
Minutes Talked
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Variable Cost Per Unit
Telephone Charge
Per Minute
Minutes Talked
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Total Fixed Cost
Your monthly basic telephone bill probably
does not change when you make more local
calls.
Telephone Bill
Monthly Basic
Variable Total variable cost changes Variable cost per unit remains
as activity level changes. the same over wide ranges
of activity.
Fixed Total fixed cost remains Fixed cost per unit goes
the same even when the down as activity level goes up.
activity level changes.
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Quick Check
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Direct Costs and Indirect Costs
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Differential Costs and Revenues
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Quick Check
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Note
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Opportunity Costs
The potential benefit that is
given up when one alternative
is selected over another.
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Quick Check
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Quick Check
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End of Chapter 1
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