Chapter 16(1) Managerial Accounting Concepts and Principles 9
chapter
16(1)
Managerial Accounting Concepts and Principles
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OPENING COMMENTS
Chapter 16(1) introduces students to managerial accounting and the manufacturing process. Students will learn how managerial accounting is used in the management decision process. They will also be exposed to the terminology used to describe costs related to manufacturing.
Students learn how costs flow through a manufacturing system.
After studying the chapter, your students should be able to:
1. Describe managerial accounting and the role of managerial accounting in a business.
2. Define and illustrate the following costs: 1. direct and indirect costs, 2. direct materials, direct labor, and factory overhead costs, 3. product and period costs.
3. Describe and illustrate the following statements for a manufacturing business: 1. balance sheet, 2. statement of cost of goods manufactured, 3. income statement.
4. Describe the uses of managerial accounting information.
STUDENT FAQS
· Why is conversion cost considered to be direct labor and factory overhead?
· Why is direct and indirect cost so important to understand?
· Why is product and period cost so important to understand?
· What is the difference between under- and overapplied factory overhead?
· Why do we have to maintain all these costs for each specific job?
· Why is direct labor both a prime and a conversion cost? Isn’t that double accounting?
IN-CLASS AND HOMEWORK ASSIGNMENT CHART
Number / Objective / Description / Difficulty / Time / AACSB / IMA / SS / GL /EO16(1)-1 / 16(1)-1 / Easy / 5 min / Analytic / Cost Management
EO16(1)-2 / 16(1)-1 / Easy / 5 min / Analytic / Cost Management
EO16(1)-3 / 16(1)-1 / Easy / 5 min / Analytic / Cost Management
EO16(1)-4 / 16(1)-1 / Easy / 5 min / Analytic / Cost Management
EO16(1)-5 / 16(1)-1 / Easy / 5 min / Analytic / Cost Management
EO16(1)-6 / 16(1)-1 / Easy / 5 min / Analytic / Cost Management
EO16(1)-7 / 16(1)-1 / Easy / 5 min / Analytic / Cost Management
EO16(1)-8 / 16(1)-1 / Easy / 5 min / Analytic / Cost Management
EO16(1)-9 / 16(1)-1 / Easy / 5 min / Analytic / Cost Management
EO16(1)-10 / 16(1)-2 / Easy / 5 min / Analytic / Cost Management
EO16(1)-11 / 16(1)-2 / Easy / 5 min / Analytic / Cost Management
EO16(1)-12 / 16(1)-2 / Easy / 5 min / Analytic / Cost Management
EO16(1)-13 / 16(1)-2 / Easy / 5 min / Analytic / Cost Management
EO16(1)-14 / 16(1)-2 / Easy / 5 min / Analytic / Cost Management
EO16(1)-15 / 16(1)-2 / Easy / 5 min / Analytic / Cost Management
EO16(1)-16 / 16(1)-3 / Easy / 5 min / Analytic / Cost Management
EO16(1)-17 / 16(1)-3 / Easy / 5 min / Analytic / Cost Management
EO16(1)-18 / 16(1)-3 / Easy / 5 min / Analytic / Cost Management
EO16(1)-19 / 16(1)-3 / Easy / 5 min / Analytic / Cost Management
EO16(1)-20 / 16(1)-3 / Easy / 5 min / Analytic / Cost Management
EO16(1)-21 / 16(1)-3 / Easy / 5 min / Analytic / Cost Management
EO16(1)-22 / 16(1)-4 / Easy / 5 min / Analytic / Cost Management
PE16(1)-1A / 16(1)-1 / Management process / Easy / 5 min / Analytic / Cost Management
PE16(1)-1B / 16(1)-1 / Management process / Easy / 5 min / Analytic / Cost Management
PE16(1)-2A / 16(1)-2 / Direct materials, direct labor, and factory overhead / Easy / 5 min / Analytic / Cost Management
PE16(1)-2B / 16(1)-2 / Direct materials, direct labor, and factory overhead / Easy / 5 min / Analytic / Cost Management
PE16(1)-3A / 16(1)-2 / Prime and conversion costs / Easy / 5 min / Analytic / Cost Management
PE16(1)-3B / 16(1)-2 / Prime and conversion costs / Easy / 5 min / Analytic / Cost Management
PE16(1)-4A / 16(1)-2 / Product and period costs / Easy / 5 min / Analytic / Cost Management
PE16(1)-4B / 16(1)-2 / Product and period costs / Easy / 5 min / Analytic / Cost Management
PE16(1)-5A / 16(1)-3 / Cost of goods sold, cost of goods manufactured / Easy / 10 min / Analytic / Cost Management
PE16(1)-5B / 16(1)-3 / Cost of goods sold, cost of goods manufactured / Easy / 10 min / Analytic / Cost Management
Ex16(1)-1 / 16(1)-2 / Classifying costs as materials, labor, or factory overhead / Easy / 10 min / Analytic / Cost Management
Ex16(1)-2 / 16(1)-2 / Classifying costs as materials, labor, or factory overhead / Easy / 10 min / Analytic / Cost Management
Ex16(1)-3 / 16(1)-2 / Classifying costs as factory overhead / Easy / 10 min / Analytic / Cost Management
Ex16(1)-4 / 16(1)-2 / Classifying costs as product or period costs / Easy / 10 min / Analytic / Cost Management
Ex16(1)-5 / 16(1)-1, 16(1)-2 / Concepts and terminology / Easy / 5 min / Analytic / Cost Management
Ex16(1)-6 / 16-(1)1, 16(1)-2 / Concepts and terminology / Easy / 5 min / Analytic / Cost Management
Ex16(1)-7 / 16(1)-2 / Classifying costs in a service company / Easy / 10 min / Analytic / Cost Management
Ex16(1)-8 / 16(1)-2, 16(1)-3 / Classifying costs / Moderate / 15 min / Analytic / Cost Management
Ex16(1)-9 / 16(1)-3 / Financial statements of a manufacturing firm / Moderate / 30 min / Analytic / Cost Management
Ex16(1)-10 / 16(1)-3 / Manufacturing company balance sheet / Easy / 10 min / Analytic / Cost Management
Ex16(1)-11 / 16(1)-3 / Cost of materials placed in production for a manufacturing company / Easy / 10 min / Analytic / Cost Management
Ex16(1)-12 / 16(1)-3 / Cot of goods manufactured for a manufacturing company / Easy / 10 min / Analytic / Cost Management
Ex16(1)-13 / 16(1)-3 / Cost of goods manufactured for a manufacturing company / Easy / 10 min / Analytic / Cost Management
Ex16(1)-14 / 16(1)-3 / Income statement for a manufacturing company / Easy / 10 min / Analytic / Cost Management
Ex16(1)-15 / 16(1)-3 / Statement of cost of goods manufactured for a manufacturing company / Moderate / 30 min / Analytic / Cost Management / Exl
Ex16(1)-16 / 16(1)-3 / Cost of goods sold, profit margin, and net income for a manufacturing company / Moderate / 15 min / Analytic / Cost Management
Ex16(1)-17 / 16(1)-3 / Cost flow relationships / Moderate / 30 min / Analytic / Cost Management
Pr16(1)-1A / 16(1)-2 / Classifying costs / Moderate / 45 min / Analytic / Cost Management
Pr16(1)-2A / 16(1)-2 / Classifying costs / Moderate / 45 min / Analytic / Cost Management
Pr16(1)-3A / 16(1)-2 / Cost classifications-service company / Moderate / 45 min / Analytic / Cost Management
Pr16(1)-4A / 16(1)-2, 16(1)-3 / Manufacturing income statement, statement of cost of goods manufactured / Difficult / 1 1/2 hr / Analytic / Cost Management / Exl
Pr16(1)-5A / 16(1)-2, 16(1)-3 / Statement of cost of goods manufactured and income statement for a manufacturing company / Difficult / 1 hr / Analytic / Cost Management / Exl
Pr16(1)-1B / 16(1)-2 / Classifying costs / Moderate / 45 min / Analytic / Cost Management
Pr16(1)-2B / 16(1)-2 / Classifying costs / Moderate / 45 min / Analytic / Cost Management
Pr16(1)-3B / 16(1)-2 / Cost classifications-service company / Moderate / 45 min / Analytic / Cost Management
Pr16(1)-4B / 16(1)-2, 16(1)-3 / Manufacturing income statement, statement of cost of goods manufactured / Difficult / 1 1/2 hr / Analytic / Cost Management / Exl
Pr16(1)-5B / 16(1)-2, 16(1)-3 / Statement of cost of goods manufactured and income statement for a manufacturing company / Difficult / 1 hr / Analytic / Cost Management / Exl
SA16(1)-1 / 16(1)-1 / Ethics and professional conduct in business / Easy / 15 min / Ethics / Cost Management
SA16(1)-2 / 16(1)-1 / Financial vs. managerial accounting / Easy / 15 min / Analytic / Cost Management
SA16(1)-3 / 16(1)-1 / Managerial accounting in the management process / Easy / 15 min / Analytic / Cost Management
SA16(1)-4 / 16(1)-2 / Classifying costs / Moderate / 1 hr / Analytic / Cost Management
SA16(1)-5 / 16(1)-4 / Using managerial accounting information / Easy / 30 min / Analytic / Cost Management
SA16(1)-6 / 16(1)-2 / Classifying costs / Moderate / 2 hr / Analytic / Cost Management
OBJECTIVE 1
Describe managerial accounting and the role of managerial accounting in a business.
KEY TERMS
Continuous Process Improvement Management Process
Controller Managerial Accounting
Controlling Objectives (goals)
Decision Making Operational Planning
Directing Planning
Feedback Staff Department
Financial Accounting Strategic Planning
Line Department Strategies
Management by Exception
SUGGESTED APPROACH — Differences in Financial and Managerial Accounting
Use TM 16(1)-1 to review the basic differences between financial and managerial accounting. It is helpful to point out that financial accounting stresses stewardship of assets (a historical orientation), while managerial accounting stresses the best alternative uses of assets (a future orientation).
CLASS DISCUSSION — Managerial Accounting Reports
Ask students whether they receive or prepare any financial reports in their jobs, other than the financial accounting reports discussed in previous chapters. Ask them to describe these reports and comment on how management uses them to run the business.
WRITING EXERCISE — Managerial Accounting
Instruct your students to write an answer to the following question (TM 16(1)-2):
Why is it permissible to violate generally accepted accounting principles when preparing reports used strictly by company management?
CLASS DISCUSSION — Management Accountants
The role of the management accountant is to provide management with information needed to plan and control the operations of a business. The group learning activity below will ask your students to assume the role of a manager in a variety of business situations. In this role, they must request information from their company’s management accounting department to assist them in their management functions. This exercise allows students to experience how management accountants participate in the management process.
This section also introduces your students to the controller’s position in the typical organizational chart. This is an opportune time to expose students to the Certificate in Management Accounting (CMA) program. TM 16(1)-3 outlines the requirements for obtaining this credential. The following website is also helpful in determining the CMA requirements: http://www.imanet.org/index.asp.
GROUP LEARNING ACTIVITY — Managerial Accounting in the Management Process
Divide the class into small groups. Handouts 16(1)-1 through 16(1)-6 each present a manager who needs information that can be supplied by managerial accounting. Assign each of the groups one of these scenarios. Ask them to read the scenario and list the information that the manager should request from the management accounting department.
GROUP LEARNING ACTIVITY — Organizational Chart
Ask your students to work in groups to construct an organizational chart for your college. You may want to give them a list of major departments/divisions within the organization. Once the chart is complete, instruct students to identify staff and line functions.
SUGGESTED APPROACH — Management Process
After covering the five basic phases of the management process of
a. Planning—used by management to develop the organization’s objectives (goals) and to translate these objectives into courses of actions.
1. Strategic planning—long-range courses of action to achieve goals usually in five to ten years
2. Operational Planning—short-range courses of action.
b. Directing—is the process by which managers run day-to-day operations.
c. Controlling—consists of monitoring the operating results of implemented plans and comparing the actual results with the expected results.
d. Improving—Continuous process improvement uses process information to eliminate the source of problems in a process, so that the process delivers the right product (service) in the right quantities at the right time.
e. Decision Making—is in each of the four management processes above developing a future plan to respond to unfavorable performances.
INTERNET ACTIVITY — Resources for Management Accountants
Direct your students to visit the Institute of Management Accountants’ (IMA) Web site at http://www.imanet.org/index.asp. The IMA is the professional organization supporting management accountants. To familiarize students with the resources available to management accountants through the IMA, instruct your students to print out one or more of the following: the IMA’s mission, information on the IMA Ethics Center, the IMA’s Standards of Ethical Conduct, or information on the CMA certification.
OBJECTIVE 2
Describe and illustrate the following costs: 1. direct and indirect costs, 2. direct materials, direct labor, and factory overhead costs, 3. product and period costs.
KEY TERMS
Conversion Costs Factory Overhead Cost
Cost Indirect Costs
Cost Object Manufacturing Overhead
Direct Cost Period Costs
Direct Labor Cost Prime Costs
Direct Materials Cost Product Costs
Factory Burden
SUGGESTED APPROACH
Begin by contrasting merchandising and manufacturing operations. Remind students that merchandisers purchase a product and sell it. Manufacturers purchase parts and raw materials, make a product, and sell it. You may want to ask your students to list examples of service, merchandising, and manufacturing companies.
TMs 16(1)-4 and 16(1)-5 provide information to assist you in reviewing the major categories of manufacturing costs: direct materials, direct labor, and factory overhead. After explaining these categories, check your students’ understanding by asking them to complete the writing exercise below.