Table of Contents
CHAPTER 15 - INTRODUCTION TO MANAGERIAL ACCOUNTING...........................2
MANAGEMENT ACCOUNTING = A SYSTEM THAT PROVIDES INFORMATION TO MANAGEMENT FOR BUSINESS
DECISION-MAKING............................................................................................................... 2
DIFFERENCES BETWEEN FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING............................2
THE MANAGEMENT PROCESSES.............................................................................................. 2
COST CLASSIFICATION.......................................................................................................... 2
MANUFACTURING COSTS....................................................................................................... 2
Direct and indirect costs............................................................................................. 4
Product and period costs............................................................................................4
Prime and conversion costs........................................................................................ 4
COST OF GOODS SOLD / INCOME STATEMENT............................................................................4
BALANCE SHEETS................................................................................................................ 4
EXAMPLE INCOME STATEMENT:............................................................................................... 5
CHAPTER 19 - COST-VOLUME-PROFIT ANALYSIS..............................................6
COST BEHAVIOR................................................................................................................. 6
High-low method, mixed cost.....................................................................................6
COST-VOLUME-PROFIT ANALYSIS............................................................................................. 6
Contribution margin and operating income................................................................6
Break-even point........................................................................................................ 7
SALES MIX......................................................................................................................... 7
THE WEIGHTED AVERAGE CONTRIBUTION MARGIN......................................................................7
OPERATING LEVERAGE......................................................................................................... 7
MARGIN OF SAFETY............................................................................................................. 8
CHAPTER 21 – BUDGETING..............................................................................9
HUMAN BEHAVIOR AND BUDGETING........................................................................................9
BUDGETING SYSTEMS........................................................................................................... 9
MASTER BUDGET................................................................................................................ 9
OPERATING BUDGET.......................................................................................................... 10
Sales budget............................................................................................................ 10
Production budget.................................................................................................... 10
Direct materials purchases budget...........................................................................10
Direct labor budget.................................................................................................. 11
Factory overhead budget......................................................................................... 11
Selling and administrative budget............................................................................11
FINANCIAL BUDGET............................................................................................................ 12
Cash budget............................................................................................................. 12
FORMULAS:................................................................................................. 13
CHAPTER 15.................................................................................................................... 13
CHAPTER 20.................................................................................................................... 13
High-low:.................................................................................................................. 13
Contribution margin:................................................................................................ 13
Break-even:.............................................................................................................. 13
Operating leverage:................................................................................................. 13
Margin of safety:...................................................................................................... 13
CHAPTER 21.................................................................................................................... 13
, Chapter 15 - Introduction to managerial
accounting
Management accounting = a system that provides information to
management for business decision-making.
Differences between financial accounting and management
accounting
Financial accounting Management accounting
Users: external users and Management
management
Nature of information: objective Can be subjective; can be focused on past
and verifiable; focused on past but also future
performance
Prepared according to GAAP Format and rules based on management
needs
Prepared at fixed periods Periodical or incidental
Focusses on company as a whole Focusses on whole company or relevant
segments or aspects of the business
The management processes
The management process has four steps:
1. Planning = management uses planning to develop the company’s
objectives (goals) and translating these objectives into courses of action.
Planning may be classified as follows:
- Strategic planning = long-term action to achieve business goals. 5 to
10 years.
- Operational planning = short-term planning. Also, tactical planning.
2. Directing = the process by which managers, given their assigned level of
responsibilities, run day-to-day operations.
3. Controlling = in concerned with monitoring employees’ activities,
keeping the organization on track towards meeting its goals, and making
corrections as necessary.
4. Improving/continuous process improvement = is the philosophy of
continually improving employees, business processes, and products.
Decision-making = a crucial part of planning, directing, controlling, and
improving management.
Cost classification
Manufacturing costs
1. Direct material costs = cost of direct materials that are used in the
finished product. traceable
2. Direct labor costs = wages of factory workers who are directly involved
in turning materials into a finished product.
3. Factory overhead costs = all the costs of producing a product except
for direct materials and direct labor.
For example:
- Indirect labor
- Heating and lighting the factory
CHAPTER 15 - INTRODUCTION TO MANAGERIAL ACCOUNTING...........................2
MANAGEMENT ACCOUNTING = A SYSTEM THAT PROVIDES INFORMATION TO MANAGEMENT FOR BUSINESS
DECISION-MAKING............................................................................................................... 2
DIFFERENCES BETWEEN FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING............................2
THE MANAGEMENT PROCESSES.............................................................................................. 2
COST CLASSIFICATION.......................................................................................................... 2
MANUFACTURING COSTS....................................................................................................... 2
Direct and indirect costs............................................................................................. 4
Product and period costs............................................................................................4
Prime and conversion costs........................................................................................ 4
COST OF GOODS SOLD / INCOME STATEMENT............................................................................4
BALANCE SHEETS................................................................................................................ 4
EXAMPLE INCOME STATEMENT:............................................................................................... 5
CHAPTER 19 - COST-VOLUME-PROFIT ANALYSIS..............................................6
COST BEHAVIOR................................................................................................................. 6
High-low method, mixed cost.....................................................................................6
COST-VOLUME-PROFIT ANALYSIS............................................................................................. 6
Contribution margin and operating income................................................................6
Break-even point........................................................................................................ 7
SALES MIX......................................................................................................................... 7
THE WEIGHTED AVERAGE CONTRIBUTION MARGIN......................................................................7
OPERATING LEVERAGE......................................................................................................... 7
MARGIN OF SAFETY............................................................................................................. 8
CHAPTER 21 – BUDGETING..............................................................................9
HUMAN BEHAVIOR AND BUDGETING........................................................................................9
BUDGETING SYSTEMS........................................................................................................... 9
MASTER BUDGET................................................................................................................ 9
OPERATING BUDGET.......................................................................................................... 10
Sales budget............................................................................................................ 10
Production budget.................................................................................................... 10
Direct materials purchases budget...........................................................................10
Direct labor budget.................................................................................................. 11
Factory overhead budget......................................................................................... 11
Selling and administrative budget............................................................................11
FINANCIAL BUDGET............................................................................................................ 12
Cash budget............................................................................................................. 12
FORMULAS:................................................................................................. 13
CHAPTER 15.................................................................................................................... 13
CHAPTER 20.................................................................................................................... 13
High-low:.................................................................................................................. 13
Contribution margin:................................................................................................ 13
Break-even:.............................................................................................................. 13
Operating leverage:................................................................................................. 13
Margin of safety:...................................................................................................... 13
CHAPTER 21.................................................................................................................... 13
, Chapter 15 - Introduction to managerial
accounting
Management accounting = a system that provides information to
management for business decision-making.
Differences between financial accounting and management
accounting
Financial accounting Management accounting
Users: external users and Management
management
Nature of information: objective Can be subjective; can be focused on past
and verifiable; focused on past but also future
performance
Prepared according to GAAP Format and rules based on management
needs
Prepared at fixed periods Periodical or incidental
Focusses on company as a whole Focusses on whole company or relevant
segments or aspects of the business
The management processes
The management process has four steps:
1. Planning = management uses planning to develop the company’s
objectives (goals) and translating these objectives into courses of action.
Planning may be classified as follows:
- Strategic planning = long-term action to achieve business goals. 5 to
10 years.
- Operational planning = short-term planning. Also, tactical planning.
2. Directing = the process by which managers, given their assigned level of
responsibilities, run day-to-day operations.
3. Controlling = in concerned with monitoring employees’ activities,
keeping the organization on track towards meeting its goals, and making
corrections as necessary.
4. Improving/continuous process improvement = is the philosophy of
continually improving employees, business processes, and products.
Decision-making = a crucial part of planning, directing, controlling, and
improving management.
Cost classification
Manufacturing costs
1. Direct material costs = cost of direct materials that are used in the
finished product. traceable
2. Direct labor costs = wages of factory workers who are directly involved
in turning materials into a finished product.
3. Factory overhead costs = all the costs of producing a product except
for direct materials and direct labor.
For example:
- Indirect labor
- Heating and lighting the factory
