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© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin 16-1 MANAGEMENT ACCOUNTING: A BUSINESS PARTNER Chapte r 16
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© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-1
MANAGEMENT ACCOUNTING: A BUSINESS PARTNER
Chapter
16
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-2
Accounting system s help to identifyw ho has authority over assets.
Accounting inform ation supportsplanning and decision-making.
Accounting reports provide a means ofm onitoring, evaluating, and rew arding performance.
M anag em en t accou ntin g andass ig n ing dec isio n-m ak ing auth ority.
Management Accounting:Basic Framework
Management Accounting:Basic Framework
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-3
Management AccountingSystems Framework
Management AccountingSystems Framework
Budget: Future Plans
Budget: Future Plans
Actual Results:Current
Actual Results:Current
PerformanceEvaluation: Past
PerformanceEvaluation: Past
Top ManagementTop Management
AssignDecision-Making
AssignDecision-Making
SupportDecision-Making
SupportDecision-Making
EvaluateDecision-Making
EvaluateDecision-Making
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16-4
Comparing Financial Accounting and Management Accounting
Comparing Financial Accounting and Management Accounting
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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
Accounting forManufacturing Operations
Accounting forManufacturing Operations
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-6
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.
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-7
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.
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.
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
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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
Does not include selling or general and
administrative expenses.
Does not include selling or general and
administrative expenses.
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-9
Direct Materials
Purchased
Direct Materials
Purchased
Direct Materials
Used
Direct Materials
Used
Direct Labor
Direct Labor
Manufacturing Overhead
Manufacturing Overhead
Finished Goods
Finished Goods
Goods Sold
Goods Sold
MegaLoMart
Flow of PhysicalGoods in Production
Flow of PhysicalGoods in Production
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-10
DirectMaterials
DirectMaterials
DirectLaborDirectLabor
PrimeCost
ConversionCost
Manufacturing costs are oftencombined as follows:
Manufacturing costs are oftencombined as follows:
Manufacturing Overhead
Manufacturing Overhead
Accounting forManufacturing Operations
Accounting forManufacturing Operations
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
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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
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-12
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 aManufacturing Business
Inventories of aManufacturing Business
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
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Direct materials
purchased
Materials Inventory
$$$ $$$
Flow of Costs AssociatedWith Production
Flow of Costs AssociatedWith Production
Direct materials
used
Work in Process Inventory
$$$ $$$
Direct labor &Manufacturing Overhead
Cost of goods manufactured
Finished Goods Inventory
$$$ $$$
Cost of Goods Sold
$$$
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
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Pure-Ice Inc. had $52,000 of inventory in direct materials inventory on January 1,
2005. During the year, Pure-Ice purchased $586,000 of additional direct
materials. At December 31, 2005, $78,000 of the direct materials were still on hand.
How much direct material was placed into production during 2005?
Pure-Ice Inc. had $52,000 of inventory in direct materials inventory on January 1,
2005. During the year, Pure-Ice purchased $586,000 of additional direct
materials. At December 31, 2005, $78,000 of the direct materials were still on hand.
How much direct material was placed into production during 2005?
Flow of Costs AssociatedWith Production
Flow of Costs AssociatedWith Production
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-15
?
Flow of Costs AssociatedWith Production
Flow of Costs AssociatedWith Production
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-16
!
Flow of Costs AssociatedWith Production
Flow of Costs AssociatedWith Production
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-17
In addition to the direct materials, Pure-Ice incurred $306,000 of direct labor cost during 2005. Manufacturing overhead for
2005 was $724,000.Pure-Ice started 2005 with $132,000 in work in process. During 2005, units
costing $1,480,000 were transferred to finished goods inventory.
What is the ending balance in work in process at December 31, 2005?
In addition to the direct materials, Pure-Ice incurred $306,000 of direct labor cost during 2005. Manufacturing overhead for
2005 was $724,000.Pure-Ice started 2005 with $132,000 in work in process. During 2005, units
costing $1,480,000 were transferred to finished goods inventory.
What is the ending balance in work in process at December 31, 2005?
Flow of Costs AssociatedWith Production
Flow of Costs AssociatedWith Production
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-18
Flow of Costs AssociatedWith Production
Flow of Costs AssociatedWith Production
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-19
!
Flow of Costs AssociatedWith Production
Flow of Costs AssociatedWith Production
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-20
A schedule of the cost of finished goods manufactured is
prepared to provide managers with an
overview of manufacturing
activities during a period.
A schedule of the cost of finished goods manufactured is
prepared to provide managers with an
overview of manufacturing
activities during a period.
Determining the Cost of Finished Goods Manufactured
Determining the Cost of Finished Goods Manufactured
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
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© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-22
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.
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
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The income statement is
prepared using
established financial
accounting procedures.
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
16-24
End of Chapter 16End of Chapter 16
