Class 02 Managerial Accounting chapter 2.pptx

Managerial accounting, also known as management accounting, is a branch of accounting that deals with the identification, measurement, analysis, interpretation, and communication of financial information to internal users, primarily managers, to aid in their decision-making process.

Unlike financial accounting, which is primarily concerned with reporting financial information to external stakeholders such as investors, creditors, and regulators, managerial accounting is focused on providing information to managers within an organization. This information is used for planning, controlling, and decision-making purposes to help achieve the organization's objectives.

One of the key functions of managerial accounting is cost accounting, which involves the allocation and analysis of costs associated with producing goods or providing services. Cost accounting techniques, such as job costing, process costing, and activity-based costing, help managers understand the cost structure of their products or services and make informed decisions regarding pricing, production, and resource allocation.

Managerial accountants also play a crucial role in budgeting and forecasting. They work closely with managers to develop budgets for various aspects of the organization, such as sales, production, and capital expenditures. By comparing actual performance against budgeted targets and analyzing variances, managerial accountants help identify areas of concern and opportunities for improvement.

Another important aspect of managerial accounting is performance evaluation. Managers rely on financial and non-financial performance measures to assess the effectiveness of their decisions and the performance of their departments or divisions. Key performance indicators (KPIs) such as return on investment (ROI), profitability ratios, and customer satisfaction scores provide valuable insights into the organization's overall performance and help managers identify areas that require attention.

In addition to providing quantitative information, managerial accountants also analyze qualitative factors that may impact decision-making, such as market trends, competitive pressures, and regulatory changes. They use tools such as cost-volume-profit (CVP) analysis, sensitivity analysis, and scenario planning to evaluate the potential outcomes of different courses of action and mitigate risks.

Overall, managerial accounting plays a vital role in helping managers navigate the complexities of modern business environments by providing timely, relevant, and reliable information to support decision-making and drive organizational success.

1. Managerial Accounting

2. Managerial Accounting Managerial accounting plays a critical role in running a business because, it provides economic, financial information and valuable information for managers and other internal users about the business to help managers make educated decisions . The process of gathering information involves Analyzing costs to understand how they behave and how they will respond to different activities. Planning and budgeting for the future. Evaluating and controlling operations by comparing plans and budgets to actual results .

3. Differences between financial and managerial accounting The differences between managerial accounting and financial accounting . Each field of accounting deals with the economic events of a business. Like, determining the unit cost of manufacturing a product is part of managerial accounting . Reporting the total cost of goods manufactured and sold is part of financial accounting . The managerial and financial accounting require that a company’s economic events be quantified and communicated to interested parties.

4. Characteristics of Managerial accounting

5. Differences between financial and managerial accounting                 Feature   Financial Accounting   Managerial Accounting                   Primary Users   External users: stockholders,   Internal users: officers and     of Reports   creditors, and regulators.   managers.                   Types and Frequency   Financial statements.   Internal reports.     of Reports   Quarterly and annually.   As frequently as needed.                   Purpose of Reports   General-purpose.   Special-purpose for             specific decisions.                   Content of Reports   Pertains to business as a whole.   Pertains to subunits of the business.         Highly aggregated (condensed).   Very detailed.         Limited to double-entry   Extends beyond double-entry         accounting and cost data.   accounting to any relevant data.         Generally accepted   Evaluated based on relevance to         accounting principles.   decisions.                   Verification Process   Audited by CPA.   No independent audits.                               Certified Public Accountant, is a professional certification of a candidate that may be obtained after meeting certain educational and job criteria and passing an assessment.

6. Management Functions Planning requires managers to look ahead and to establish objectives. These objectives are often diverse/ different: maximizing short-term profits and market share, maintaining a commitment to environmental protection, and contributing to social programs. Directing involves coordinating a company’s diverse activities and human resources to produce a smooth-running operation. This function relates to implementing planned objectives and providing necessary incentives to motivate employees.

7. Manufacturing Costs Manufacturing consists of activities and processes that convert raw materials into finished goods. Contrast this type of operation with merchandising, which sells products in the form in which they are purchased. Manufacturing costs incurred to produce a product.

8. Manufacturing Costs are classified as under

9. Direct Material

10. Direct Labor

11. Manufacturing overhead

12. Product cost and Period cost Each of the manufacturing cost components direct materials , direct labor , and manufacturing overhead are product costs. Product costs are costs that are a necessary and integral part of producing the finished product. Companies record product costs , when incurred, as an asset called inventory. These costs do not become expenses until the company sells the finished goods inventory . At that point, the company records the expense as cost of goods sold.

13. Product cost and Period cost Period costs are costs that are matched with the revenue of a specific time period rather than included as part of the cost of a salable product. These are nonmanufacturing costs. Period costs include selling such as advertising , and administrative expenses. Like Rent, utilities, In order to determine net income , companies deduct these costs from revenues in the period in which they are incurred .

14. Illustration of Cost Concepts Suppose you started your own snowboard factory, Terrain Park Boards. Think that’s impossible? Burton Snowboards was started by Jake Burton Carpenter, when he was only 23 years old. Jake initially experimented with 100 different prototype designs before settling on a final design. Then Jake, along with two relatives and a friend, started making 50 boards per day. Unfortunately, while they made a lot of boards in their first year, they were only able to sell 300 of them. To get by during those early years , Jake taught tennis and tended bar to pay the bills . Here are some of the costs that your snowboard factory, Terrian Park Boards, would incur. The materials cost of each snowboard (wood cores, fiberglass , resins, metal screw holes , metal edges , and ink) is $ 30.. The labor costs (for example, to trim and shape each board using jig saws and band saws ) are $ 40. Depreciation on the factory building and equipment (for example, presses, grinding machines , and lacquer machines) used to make the snowboards is $25,000 per year. Property taxes on the factory building (where the snowboards are made) are $6,000 per year . Advertising costs (mostly online and catalogue) are $60,000 per year. Sales commissions related to snowboard sales are $20 per snowboard. Salaries for factory maintenance employees are $45,000 per year. The salary of the plant manager is $70,000. The cost of shipping is $8 per snowboard.

15. Illustration of cost concepts Total manufacturing costs are the sum of the product costs, direct materials, direct labor , and manufacturing overhead incurred in the current period. If Terrain Park Boards produces 10,000 snowboards the first year. What would be the total manufacturing costs? Determine the per unit cost?

16. Simple Quiz for student A bicycle company has these costs: tires, salaries of employees who put tires on the wheels, factory building depreciation, advertising expenditures, factory machine lubricants, spokes, salary of factory manager, salary of accountant, handlebars, and salaries of factory maintenance employees. To classify each cost as direct materials, direct labor, overhead, or a period cost.

17. Direct materials : Tires, spokes, and handlebars. Direct labor : Salaries of employees who put tires on the wheels. Manufacturing overhead : Factory building depreciation, factory machine lubricants , salary of factory manager, and salaries of factory maintenance employees. Period costs : Advertising expenditures and salary of accountant.

18. Selection cost of goods sold in income statements by Merchandiser and Manufacturer Merchandisers compute cost of goods sold by adding the beginning inventory to the cost of goods purchased and subtracting the ending inventory . + - = Manufacturers compute cost of goods sold by adding the beginning finished goods inventory to the cost of goods manufactured and subtracting the ending finished goods inventory . + + - = Beginning of Inventory Ending Inventory Cost of Goods Purchased Cost of Goods Sold Beginning Finished Goods Inventory Cost of Goods Sold Ending Finished Goods Inventory Cost of Goods Manufactured