ACG2071 Chapter 1 (Principles of Managerial Accounting)

Managerial accounting focuses on providing information for internal decision makers.

Financial accounting focuses on providing information for external decision makers.

A company’s organizational chart helps show the relationship between departments and divisions and the managers who are responsible for each section.

The BOD is appointed by the stockholders and they are responsible for developing strategic goals of the corporation. The BOD also elects the president(CEO).

ex) An image of an example Organizational Chart is shown, to show that the BOD is ON TOP

Line positions are directly involved in providing goods or services to customers.

Staff Positions support Line Positions .

ex)
CFO

Controller

Treasurer

Payroll Processor

Strategic Planning: Based on developing long-term goals spanning from 3 - 10 yrs

Operation Planning: Based on short-term goals of the day-to-day operations.

Directing involves running the day-to-day operations of a business.

Controlling is the process of monitoring day-to-day operations and keeping the company on track

Certified Managerial Accountant

Certified Global Management Accountant

Financial IS required to follow GAAP

Managerial IS NOT required to follow GAAP

FINANCIAL ACCOUNTING

Service companies sell their time, skills, and knowledge

Merchandising companies resell products they buy from suppliers.

Manufacturing companies use labor, equipment, supplies, and facilities to convert raw materials into finished products.

Direct Cost: A cost that can be easily and cost-effectively traced to a cost object. (A cost object is any item, activity or entity, such as a product, service, department, that a company wants to separately measure its accumulated costs)

ex)
Raw Materials


Indirect Costs: Costs that cannot be easily or cost-effectively traced directly to a cost object

ex)
utilities
administrative staff
jainitors

1. Raw Material Inventory (RM): Materials used to make the product

2. Work-In-Progress Inventory (WIP): Includes goods in the manufacturing process but are not yet complete.

3. Finished Goods Inventory (FG): Includes complete goods that have not yet been sold

1. Direct Materials (DM): Cost of raw materials. (Is a Direct Cost.)

2. Direct Labor (DL): The cost of wages and salaries of employees who convert the raw materials into the finished product. (Is a Direct Cost)

3. Manufacturing Overhead (MOH): It includes all manufacturing costs other than direct materials and direct labor. These costs are INDIRECT and cannot be easily traced to the cost of a specific product.

Indirect Materials: An example would be the glue used to make tablets. Cost tracing the drops of glue for making each tablet is not worth it.

Indirect Labor: Examples include the cost of the janitor. Can't trace that to the product. (Assembly line workers would be an example of a direct labor)

Prime Costs: Combine the direct material costs and the direct labour costs

Conversion Costs: Combine the direct labour costs with manufacturing overhead. This is the cost to "convert" the direct materials into the finished product.

Product Costs (Manufacturing Costs): Is the cost of purchasing or making a product.

- Product costs are recorded as assets until sold, in which they would then be recorded as an expense called "Cost of Goods Sold"

Period Costs (Non-Manufacturing Costs): Includes the costs of mainly selling & administration and also includes other costs such as taxes and interest.

It is a Product Cost, meaning it is a Manufacturing Overhead expense

*Service Company has no inventory, to be clear

*This shows the differences in expenses between the three types of companies.**

*Merchandising Company and Manufacturing company both have two different ways of calculating COGS

Its an account used by a manufacturing company to indicate the total cost of producing finished goods during an accounting period.

1)You have the Raw Materials you just purchased or the Raw Materials you had in your inventory. (Direct means that it can be easily and cost-effectively traced directly to a cost object (ex. so each product uses 1kg of steel), while indirect means it CANNOT be easily and cost-effectively traced to a cost object (ex. drops of glue used to make each ipad).

2)You use Direct Materials (raw materials that are ALSO direct costs), Direct Labor (labor that are ALSO direct costs) and Manufacturing overhead(all other manufacturing costs that are indirect, which would include the drops of glue used since its indirect), to turn the raw materials into "Work-in progress Inventory" which is goods in the manufacturing process but not yet complete

3) Then that turns into Finished Goods Inventory which are goods that are ready to be sold, but aren't yet.

4) Then, when those goods are sold, then you record the Costs of Goods Sold.

It is MANUFACTURING OVERHEAD

(It is NOT Direct Material since it is NOT a Direct Cost)

Step 1: Add the Direct Materials they had + the ones they bought. Then subtract that from their ending direct materials and now you got the amount of Direct Materials Used

Step 2:

-You already know the Direct Materials Used from Step 1
-You just look for how much the company spent on direct labor, and manufacturing overhead. Then you add it up all together

Step 3:

-Total Manufacturing Costs Incurred during the Year is from Step 2

*Cost of goods manufactured was just calculated last Slide

*You just at the beginning Finished Goods Inventory to it, and then subtract the ending Finished Goods Inventory and get COGS.

Software system that can integrate all of the companies functions, departments, and data in a single system

Stored goods take up space and require costs

Just-In-Time Management is a cost management system in which a company produces the product just-in-time to satisfy needs.

Total Quality Management (TQM): A philosophy of continuous improvement of products and process.

Value Chain: Includes all activities that had value a company's product and services. (Upstream value added activities: occur before production including stuff like design. Downstream value added activities: occur after production including stuff like marketing)

Evaluating a company's performance based on its economic (profit), social (people), and environmental impact.