Transparency Master 16(1)-1
FINANCIAL ACCOUNTING AND MANAGERIAL ACCOUNTING
Financial Accounting
1.External Focus: Primarily reports results of
business operations to persons "outside" the
company
2.Reports historical data
3.Must follow generally accepted accounting
principles
Managerial Accounting
1.Internal Focus: Reports information used by management in overseeing daily operations of company
2.Reports historical data and budgets or estimates for the future
3.Reports more detailed information
4.Not restricted by generally accepted accounting principles
5.Usefulness to management is guiding principle
Transparency Master 16(1)-2
WRITING EXERCISE
Why is it permissible to violate generally accepted accounting principles when preparing reports used strictly by company management?
Transparency Master 16(1)-3
CERTIFICATE IN MANAGEMENT ACCOUNTING (CMA)
Professional credential available to management accountants with a bachelor's degree and 2 years of work experience in managerial accounting. An accountant with an associate’s degree may take the CMA exam by earning a score of 50% or better on the Graduate Records Examination (GRE).
Must complete a 2-day examination covering the following:
1.Economics, finance, and management
2.Financial accounting and reporting
3.Management reporting, analysis, and behavioral issues
4.Decision analysis and information systems
Must earn 30 hours of continuing professional education credit every year to maintain certificate.
Transparency Master 16(1)-4
MANUFACTURING COSTS
Direct Materials—materials and component parts that become an integral part of the final product. These materials can be traceddirectly to a finished unit of product.
Direct Labor—cost of wages paid to employees who work directly on the product.
Factory Overhead—all other costs incurred in making the product. These costs include the following:
1.General manufacturing costs that cannot be traced directly to the product:
Utilities (heating, lighting)
Depreciation on machines
Property taxes
Insurance
2.Indirect Labor—wages/salaries paid to workers who are necessary to keep the factory running, but do not work directly on the product:
Maintenance workers
Janitorial staff
Factory personnel department
Plant manager and supervisors
3.Indirect Materials—materials used in the manufacturing process that do not end up in the final product:
Materials used to test machines
Lubrication used on machines
NOTE:Direct materials and direct labor costs may be treated as factory overhead costs if they are insignificant.
Transparency Master 16(1)-5
MANUFACTURING COSTS
Product Costs
Direct Direct Factory
Materials Labor Overhead
Conversion Costs
Transparency Master 16(1)-6
COSTS INCURRED BY A MANUFACTURING COMPANY
Product CostsPeriod Costs
Direct Direct FactorySellingAdministrative
Materials Labor OverheadExpensesExpenses
Conversion Costs
Transparency Master 16(1)-7
Statement of Cost of Goods Manufactured
Work in process inventory, beginning of period $XXX
Direct Materials:
Materials inventory, beginning of period $XXX
Purchases XXX
Cost of materials available for use $XXX
Less materials inventory, ending XX
Cost of materials placed in production $XXX
Direct labor XXX
Factory overhead:
Indirect labor $XXX
Depreciation on factory equipment XXX
Factory utility expenses XXX
Total factory overhead XXX
Total manufacturing costs added XXX
Total manufacturing cost $XXX
Less work in process inventory, ending XX
Cost of goods manufactured $XXX
Transparency Master 16(1)-8
Income Statement
Sales $XXX
Cost of good sold:
Finished goods inventory, beginning $XXX
Cost of goods manufactured XXX
Cost of finished goods available for sale XXX
Less finished goods inventory, ending XXX
Cost of goods sold XXX
Gross profit $XXX
Operating expenses:
Selling expenses $XXX
Administrative expenses XXX
Total operating expenses XXX
Net income $XXX