CHAPTER 14 MANAGERIAL ACCOUNTING
Introduction to managerial accounting; cost estimation methods
Economic and financial information
Managers and other internal actors
Helpful for:
- Planning
o Maximize long-term profit
o Increase market share
o Commit to environmental protection programs
- Directing
o Coordinate how sales and production divisions collaborate
o Provide incentives to motivate employees
o Hire new managers
- Controlling
o Track the performance of some divisions
o Determine whether key goals are being met
o Implement systems to evaluate teams
Financial Managerial
primary external internal
users
frequency quarterly, yearly as needed
purpose general specific
content business as a whole business units
aggregated detailed
GAAP standards considered useful
verification audited no independent audits
Companies account for indirect materials as part of manufacturing overhead.
Assignment of costs to cost categories: Merchandising/ manufacturing balance:
CHAPTER 15 JOB ORDER COSTING
,One key objective: estimate costs
COGS
Cost Of Goods Sold
COGM
Cost Of Goods Manufactured
COGP
Cost Of Goods Purchased
WIP
Work In Progress
TMC
Total Manufacturing Cost
COGS (merchandiser) = beginning inventory + COGP – ending inventory
COGS (manufacturer) = beginning inventory + COGM – ending inventory
COGM = beginning WIP inventory + total manufacturing costs – ending WIP inventory
TMC = direct materials + direct labour + manufacturing overhead
Manufacturer
Period costs are
>> not included in COGS
>> included as selling or administrative expenses.
Merchandiser
They also have inventories.
COGP but not COGM (no WIP inventories, raw materials).
, Same logic.
Service industries
No inventories.
But they do have direct and indirect costs, etc.
Same logic.
Various costing systems:
Process costing
o Large volumes / continuous
o Time period costs
Job ordering costing
o Costs per job or batch
o Completed job costs
TMC
WIP inventory
finished goods
inventory COGS
Predetermined overhead rate
(%) = estimated annual overhead costs / estimated annual operating activity
Expressed in terms of common activity or allocation base
>> direct labour costs
>> direct labour hours
>> machine hours
Completed a job?
Credit WIP inventory
Debit finished goods inventory
Sold inventory?
Credit finished goods inventory
Debit COGS
There are two major steps in the flow of costs: (1) accumulating the manufacturing costs
incurred, and (2) assigning the accumulated costs to the work done.
Purchase of raw materials on account
DR raw materials inventory
CR accounts payable
Record factory labor costs
DR factory labor
CR factory wages payable
CR employer payroll taxes payable
Record overhead costs
Introduction to managerial accounting; cost estimation methods
Economic and financial information
Managers and other internal actors
Helpful for:
- Planning
o Maximize long-term profit
o Increase market share
o Commit to environmental protection programs
- Directing
o Coordinate how sales and production divisions collaborate
o Provide incentives to motivate employees
o Hire new managers
- Controlling
o Track the performance of some divisions
o Determine whether key goals are being met
o Implement systems to evaluate teams
Financial Managerial
primary external internal
users
frequency quarterly, yearly as needed
purpose general specific
content business as a whole business units
aggregated detailed
GAAP standards considered useful
verification audited no independent audits
Companies account for indirect materials as part of manufacturing overhead.
Assignment of costs to cost categories: Merchandising/ manufacturing balance:
CHAPTER 15 JOB ORDER COSTING
,One key objective: estimate costs
COGS
Cost Of Goods Sold
COGM
Cost Of Goods Manufactured
COGP
Cost Of Goods Purchased
WIP
Work In Progress
TMC
Total Manufacturing Cost
COGS (merchandiser) = beginning inventory + COGP – ending inventory
COGS (manufacturer) = beginning inventory + COGM – ending inventory
COGM = beginning WIP inventory + total manufacturing costs – ending WIP inventory
TMC = direct materials + direct labour + manufacturing overhead
Manufacturer
Period costs are
>> not included in COGS
>> included as selling or administrative expenses.
Merchandiser
They also have inventories.
COGP but not COGM (no WIP inventories, raw materials).
, Same logic.
Service industries
No inventories.
But they do have direct and indirect costs, etc.
Same logic.
Various costing systems:
Process costing
o Large volumes / continuous
o Time period costs
Job ordering costing
o Costs per job or batch
o Completed job costs
TMC
WIP inventory
finished goods
inventory COGS
Predetermined overhead rate
(%) = estimated annual overhead costs / estimated annual operating activity
Expressed in terms of common activity or allocation base
>> direct labour costs
>> direct labour hours
>> machine hours
Completed a job?
Credit WIP inventory
Debit finished goods inventory
Sold inventory?
Credit finished goods inventory
Debit COGS
There are two major steps in the flow of costs: (1) accumulating the manufacturing costs
incurred, and (2) assigning the accumulated costs to the work done.
Purchase of raw materials on account
DR raw materials inventory
CR accounts payable
Record factory labor costs
DR factory labor
CR factory wages payable
CR employer payroll taxes payable
Record overhead costs
