Managerial Accounting

• •     Is concerned with information for the internal use of management rather than external reporting.
• •     Emphasizes the future rather than summarizing past activities.
• •     Emphasizes relevance and flexibility of data as opposed to precision and verifiability.
• •     Places more emphasis on non-monetary data and timeliness and less emphasis on precision.
• •     Emphasizes the segments of an organization rather than the organization as a whole.
• •     Is not governed by GAAP.
• •     Is not required by external regulatory bodies or by lenders. 

Managerial

Managerial

Financial

Managerial

Can be either

Managerial

A: inside company

B: future planning

B: objective and/or subjective

A: must be timely for decision making

B: relevence more important

A: whole or segments

B: none

B: any

A: no

A:information generated as needed

B: $ or other nonfinancial

• 1: Merchandising
• 2: Manufacturing
• 3: Service

Product costs, or Manufacturing Costs, are incurred to make a product, i.e., an asset called inventory. Manufacturing costs are grouped into three main categories: direct materials, direct labor, and manufacturing overhead. 

Non-manufacturing costs, also known as period costs (or as selling & administrative costs). In addition to manufacturing costs, an organization incurs many other costs. Typically, for financial reporting purposes most of these other costs are classified as selling (marketing) costs and administrative costs (or "S&A costs").

• 1. Direct Materials
• 2. Direct Labor
• 3. Manufacturing Overhead

consist of those raw material inputs that become an integral part of a finished product and can be easily traced (i.e., traced "directly") into it. Examples include aircraft engines on a Boeing 777, the Intel processing chip in a personal computer, and the blank videocassette in a pre-recorded Spiderman video.

consists of that portion of labor cost that can be easily traced (i.e., traced "directly") to a product. Direct labor consists of the costs of workers who work directly with the product as is it being made.

consists of all manufacturing costs other than direct materials and direct labor. These costs are Indirect Costs because they cannot be easily and conveniently traced to products. Examples include miscellaneous supplies such as thread used making jeans, supervisors, janitors, factory facility charges, etc. Product costs are recorded in the ASSET called inventory. These costs show up in Cost of Goods Sold Expense when the inventory is sold.

• Period Costs
• include the costs of making sales, taking customer orders, and delivering the product to customers.

• Period Costs
• include all executive, organizational, and clerical costs that are not classified as production or marketing costs.

• a. to help determine selling price
• b. for planning, to forecast future costs and budgets
• c. to control current operations and costs (was product cost above/below budget?)
• d. to determine “Inventory” balance on balance sheet & “Cost of Goods Sold” amount on income statement

To calculate cost per unit, the total of all product costs is divided by the total number of products made. Cost per unit times number of units sold = Cost of Good Sold. Cost per unit times number of units not sold = Ending Inventory (in dollars).

Direct product costs are material and laborcosts that can be conveniently and easily traced to a product.

Indirect product costs are all other product costs and are classified as overhead. A cost would be considered indirect for one of two reasons: either it is impractical or it is impossible to trace the cost to the cost object.

is a product cost that is part of manufacturing overhead. These are salaries and wages of people working in the plant, but not “hands-on” the product. Includes, e.g., janitors, engineers, and plant manager.

is also a product cost that is part of manufacturing overhead. This is material that goes into the product but the cost is difficult to trace to each item. Example: thread in making clothes is difficult to trace due to waste (large balls of thread can wad up and have to be thrown away. That cost has to be allocated to the product as well as the thread used in the product. Or it may be difficult to trace due to a small cost, like one screw or one squirt of glue. In these cases the total cost of the material has to be allocated to the product (take the total cost divide by number of products made, for example) rather than directly assigned to each product. Note that supplies like oil for the machinery or cleaningsupplies are not indirect materials because they are not in the product. They are an overhead cost called Factory Supplies

Overhead

A fixed cost does not change with changes in the volume of activity (within a range of activity known as an activity’s relevant range). For example, rent does not change whether the plant produces 10,000 or 12,000 units that month.

A variable cost changes in proportion to changes in the volume of activity. For example, direct materials to make 12,000 units would be proportionately more than to make 10,000 units of product. 

• 1. Raw Materials
• 2. Work-in-process
• 3. Finished Goods Inventory

• Beg Raw Material Inventory
• + Raw Material Purchases
• -  Raw Material trans to WIP
• = Ending Raw Material Inventory

• Beg WIP Inventory
• + Direct Materials(Raw)
• + Direct Labor
• + Manufacturing Overhead
• - Cost of Goods Manufactured
• = Ending WIP Inventory

• Beginning Finished Goods Inventory
• + Cost of Goods Manufactured
• = Cost of Goods Available fro sale
• - COGS
• = Ending Finished Goods Inventory

• Sales
• - COGS(Product Costs)
• = Gross Margin
• - Operating and Other Expenses(Perios Costs)
• =Net Income

• 1. 50
• 2. 60,000
• 3. Over
• 4. 5,000

Traditionally, firms allocate overhead based on (1) number of units made, (2) machine hours, (3) direct labor hours or (4) direct labor rate. A company may use “machine hours” for all of its products. Or it may choose to use “machine hours” for its products that are machine-intensive to make and “direct labor hours” for the products that require more hands-on work by the employees. The idea is to find what actually causes overhead to be incurred and use that as a basis.

POHR= Estimated Cost / Units or Hours

• 1. POHR= 180,000 / 30,000 = $6 per Direct Labor Hr.
• 2. POHR= 180,000 / (30,000 x $10) = $.60 per Direct Labor Cost

• 1. POHR= 1,450,000 / 65,000 = $22.31 per Machine Hour
• 2. Overhead Applied=14,000 x 22.31 = $321,340 Actual Overhead for January

large, unique, and/or special order products

when more than one unit of a custom product is made, or items made in a process are customized in some way for the customer

large amounts of similar products, where similar products are manufactured in a continuous flow.