Chapter
19
Managerial
Accounting
Chapter
19-1
Accounting Principles, Ninth Edition
Study Objectives
1.
Explain the distinguishing features of managerial
accounting.
2.
Identify the three broad functions of management.
3.
Define the three classes of manufacturing costs.
4.
Distinguish between product and period costs.
5.
Explain the difference between a merchandising and a
manufacturing income statement.
6.
Indicate how cost of goods manufactured is determined.
7.
Explain the difference between a merchandising and a
manufacturing balance sheet.
8.
Identify trends in managerial accounting.
Chapter
19-2
Managerial Accounting Basics
Definition of Managerial Accounting
A field of accounting that provides economic and
financial information for managers and other
internal users.
Also called Management Accounting
Chapter
19-3
Managerial Accounting Basics
Managerial Accounting Activities
Explain manufacturing and nonmanufacturing costs and
how they are reported. (Chapter 19)
Compute cost of providing a service or manufacturing
a product. (Chapters 20 and 21)
Determine behavior of costs and expenses as activity
changes. (Chapter 22)
Chapter
19-4
Managerial Accounting Basics
Managerial Accounting Activities (continued)
Assist management in profit planning and formalizing
these plans in the form of budgets. (Chapter 23)
Help to control costs by comparing actual results with
planned objectives and standard costs. (Chapters 24 and 25)
Accumulate and present data for making decisions.
(Chapter 26)
Chapter
19-5
Managerial Accounting Basics
Distinguishing Features
Applies to all types of business Service, Merchandising, and Manufacturing
Applies to all forms of businesses –
Proprietorships, Partnerships, and Corporations
Applies to not-for-profit and profit oriented
companies
Chapter
19-6
Managerial Accounting Basics
Distinguishing Features: Continued
More responsible for strategic cost management
Teams with people from production, marketing,
engineering, etc.
Aid in making critical decisions
Chapter
19-7
Comparing Managerial and Financial Accounting
Similarities
Both deal with economic events of a business –
Thus, interests overlap
Both require that economic events be
quantified and communicated to
interested parties –
Determining unit cost is part of
managerial accounting,
Reporting cost of goods manufactured
is a part of financial accounting
Chapter
19-8
SO 1 Explain the distinguishing features of managerial accounting.
Comparing Managerial and Financial Accounting
Differences
Chapter
19-9
Illustration 19-1
SO 1 Explain the distinguishing features of managerial accounting.
Comparing Managerial and Financial Accounting
Review Question
Managerial accounting:
a.
Pertains to the entity as a whole and is highly
aggregated.
b. Places emphasis on special-purpose information.
c.
Is limited to cost data.
d. Is governed by generally accepted accounting
principles.
Chapter
19-10
SO 1 Explain the distinguishing features of managerial accounting.
Management Functions
Management Functions
Management’s activities and responsibilities can be
classified into the following three broad functions:
Planning
Chapter
19-11
Directing
Controlling
SO 2 Identify the 3 broad functions of management.
Management Functions
Planning
Look ahead and establish objectives such as –
Maximize short-term profit
Commit to environmental protection
Key Objective: Add value to the business
Value measured by trading price of stock
and by potential selling price of the company
Chapter
19-12
SO 2 Identify the 3 broad functions of management.
Management Functions
Directing
Coordinate diverse activities and human resources
Implement planned objectives
Provide incentives to motivate employees
Hire and train employees including
executives, managers, and supervisors
Produce smooth-running operation
Chapter
19-13
SO 2 Identify the 3 broad functions of management.
Management Functions
Controlling
Keep activities on track
Determine whether goals are met
Decide changes needed to get back on track
May use an informal or formal system of evaluations
Good decision making is the outcome of good judgment
in planning, directing, and controlling.
Chapter
19-14
SO 2 Identify the 3 broad functions of management.
Management Functions
Review Question
The management of an organization performs several
broad functions. They are:
a.
Planning, directing, and selling.
b. Directing, manufacturing, and controlling.
c.
Planning, manufacturing, and controlling.
d. Planning, directing, and controlling.
Chapter
19-15
SO 2 Identify the 3 broad functions of management.
Good Ethics – Good Business
Business Ethics
Business scandals caused massive investment
losses and employee layoffs.
Corporate fraud has increased 13% in last 5 years.
Employee fraud – 60% of all fraud
Intentional misstatement of financial reports
Aka financial reporting fraud
Most costly to companies
Chapter
19-16
SO 2 Identify the 3 broad functions of management.
Good Ethics – Good Business
Creating Proper Incentives
Systems to monitor and evaluate employees
may produce incentives for unethical actions.
Employees may feel that they must succeed no
matter what.
Ineffective and unrealistic controls may result
in declining product quality.
Chapter
19-17
SO 2 Identify the 3 broad functions of management.
Good Ethics – Good Business
Code of Ethical Standards
Sarbanes-Oxley Act of 2002
Clarifies management’s responsibilities.
Certifications by CEO and CFO fairness of financial statements and
adequacy of internal control
Selection criteria for Board of Directors and Audit
Committee
Substantially increased penalties for misconduct
IMA Statement of Ethical Professional Practices
Chapter
19-18
SO 2 Identify the 3 broad functions of management.