ACCT2200
Principles of Accounting II
Managerial Accounting
COURSE OVERVIEW
 Required Textbook
 Whitecotton, Libby, and Phillips. Managerial
Accounting, 5th Edition (McGraw-Hill).
▪ Assessment
Participation
6%
Assignments
9%
Midterm 1 (Chap 1-4; 19:00-20:30, Feb 29)
20%
Midterm 2 (Chap 5-7; 19:00-20:30, Mar 26)
15%
Final (Chap 1-11)
50%
Total:
100%
▪ Participation: active in-class participation
▪ If you miss a midterm exam due to extenuating
circumstances, the weight of that midterm exam will be reassigned to the final exam.
▪ Exam arrangement is subject to changes;
▪ Communications
▪ Use Piazza as the primary communication
platform (https://piazza.com/school-search or
directly through Canvas)
▪ A student can post anonymously/publicly
to all
▪ (not required) providing high-quality answers
to other students’ questions will be awarded
bonus marks for participation.
▪ Tell me about yourself
▪ Which major are you pursuing?
A. Accounting
B. Finance
C. Other SBM majors rather than accounting
and finance
D. Non-SBM majors
▪ Tell me about yourself
▪ What is your financial accounting background?
A. I have taken ACCT 2010 or its equivalent.
B. I have not taken ACCT 2010, but I learned some
financial accounting in high school.
C. I have not taken ACCT 2010, but I am taking a
financial accounting course this term.
D. I have zero exposure to financial accounting.
CHAPTER 1
CHAPTER 1
Introduction to Managerial Accounting
Financial Accounting:
External users
Ray Dalio, founder of the hedge
fund Bridgewater Associates.
Image Credits: Bridgewater Associates
Managerial Accounting:
Internal users
Steve Jobs, founder of Apple
Image Credits: AP
Financial Accounting:
Follow accounting standards
US GAAP (Generally
Accepted Accounting
Principles)
Managerial Accounting:
Internal reports
Financial Accounting:
Objective, reliable,
historical
Managerial Accounting:
Subjective, future-oriented
Financial Accounting:
Periodic reports
Managerial Accounting:
Prepared as needed
Zara’s growth
story
Tesla’s financials reports
(from Yahoo Finance)
Financial Accounting:
Report the whole company
Starbucks, the parent company
Managerial Accounting:
Report at the decision
level
Starbucks at HKUST
COMPARISON OF FINANCIAL AND MANAGERIAL
ACCOUNTING
Which of the following best describes the function of managerial
accounting within an organization?
A)It places more emphasis on precision of data than financial accounting does.
B)It focuses on the organization as a whole, rather than on the organization's
segments.
C)It has its primary emphasis on the future.
D)It is required by regulatory bodies such as the Securities and Futures
Commission.
Implement
Plan
Control
Plan: set goals (i.e., budget)
Implement: put the plan into action
Control: compare the actual and planned results; take
corrective actions if necessary (i.e., variance analysis)
Which activities can be classified as planning,
implementing, or controlling?
1-16
▪ Manufacturers
TYPES OF ORGANIZATIONS
▪ Merchandisers
▪ wholesalers
▪ retailers
▪ Service companies
Which of the following businesses is a retailer?
A. Coke cola
B. Fusion supermarket located in HKUST
C. HKUST’s clinic
D. HKUST’s Canteen 2
1-18
Which of the following statement is true about Apple ?
A.
B.
C.
D.
it’s a manufacturer.
It’s a service firm.
It’s a retailer.
It’s a wholesaler.
1-19
How does Apple officially describe its business?
https://www.sec.gov/ix?doc=/Archives/edgar/data/3
20193/000032019322000108/aapl-20220924.htm
1-20
Define and give examples of different
types of costs
 Direct or Indirect
 Manufacturing or Nonmanufacturing
 Product or Period
 Variable or Fixed
 Relevant or Irrelevant
Direct Costs
Indirect Costs
 Costs that can be
 Costs that cannot be
easily and
conveniently traced
to a unit of product
or other cost
object.
easily and
conveniently traced
to a unit of product
or other cost object.
Name and Tell
Look around. Find one object in your
room. Name one direct cost and one
indirect cost of making it and
delivering it to the end customer
(you).
DIRECT MATERIALS
▪ Direct materials are major material inputs that can
be directly and conveniently traced to the product.
DIRECT LABOR
Direct labor is the cost of labor that can be directly
and conveniently traced to the product.
 “Touch labor”
MANUFACTURING OVERHEAD
 All costs other than direct materials and direct labor that
must be incurred to manufacture a product.
 Indirect labour
 Indirect materials
 Amortization on factory buildings, insurance, taxes, maintenance on
factory facilities
Which of the following is an indirect cost of
manufacturing a table made of wood and glass for a
firm that manufactures furniture?
A. The cost of the wood in the table.
B.The cost of the labor used to assemble the table.
C.The cost of the glass in the table.
D. The cost of rent on the factory where the table is
manufactured.
MANUFACTURING VERSUS
NONMANUFACTURING COSTS
Manufacturing Costs
Direct
Labor
Direct
Materials
Prime
Cost
Manufacturing
Overhead
Conversion
Cost
Elon Musk’s idiot index of manufacturing cost
𝐈𝐝𝐢𝐨𝒕 𝒊𝒏𝒅𝒆𝒙 =
𝑪𝒐𝒔𝒕 𝒐𝒇 𝒂 𝒇𝒊𝒏𝒊𝒔𝒉𝒆𝒅 𝒑𝒓𝒐𝒅𝒖𝒄𝒕
𝑪𝒐𝒔𝒕 𝒐𝒇 𝒓𝒂𝒘 𝒎𝒂𝒕𝒆𝒓𝒊𝒂𝒍𝒔
Direct materials=20
Direct labor=30
Indirect materials=10
Indirect labor=10
Other MOH=40
Total manufacturing cost?
Idiot index?
1-29
Manufacturing Cost Flows
Manufacturer
Current Assets
 Cash
 Receivables
 Prepaid Expenses
 Inventories
• Raw Materials
• Work in Process
• Finished Goods
Manufacturing Cost Flows
Manufacturer
Current Assets
 Cash
Materials purchased from
 Receivables
suppliers
but not yet used in
production
 Prepaid
Expenses
 Inventories
Partially complete
products
• Raw Materials
• Work in Process
• Finished Goods
Products completed
but not sold.
Manufacturing Cost Flows
Inventory Equation
+
Beginning
balance
+
Additions
to inventory
=
Ending
balance
+
Withdrawals
from
inventory
Manufacturing Cost Flows
Inventory Equation in the T-account
Inventory
Debit
Credit
(a)Beginning balance
(b)Additions
(c)Withdrawals
(d)Ending balance
(a)+(b)-(c) =(d)
(a)+(b)=(c) +(d)
Manufacturing Cost Flows
Inventory Equation
If your inventory balance at the beginning of the
month was $1,000, you bought $100 during the
month, and sold $200 during the month, what would
be the balance at the end of the month?
A. $1,000.
B. $ 900.
C. $1,200.
D. $ 200.
Manufacturing Cost Flows
Raw Materials
+
=
–
=
Beginning raw
materials inventory
Raw materials
purchased
Raw materials
available for use
in production
Ending raw materials
inventory
Raw materials used
in production
Manufacturing
Costs
Work
In Process
Direct materials
As raw materials are put into the
production, they are
called direct materials.
Manufacturing Cost Flows
Raw Materials
+
=
–
=
Beginning raw
materials inventory
Raw materials
purchased
Raw materials
available for use
in production
Ending raw materials
inventory
Raw materials used
in production
Manufacturing
Costs
Direct materials
+ Direct labour
+ MOH
= Total manufacturing
costs
Work
In Process
Conversion
costs incurred
to convert the
direct material
into a finished
product.
Manufacturing Cost Flows
Raw Materials
+
=
–
=
Beginning raw
materials inventory
Raw materials
purchased
Raw materials
available for use
in production
Ending raw materials
inventory
Raw materials used
in production
Manufacturing
Costs
Direct materials
+ Direct labour
+ MOH
= Total manufacturing
costs
Work
In Process
Beginning work in
process inventory
+ Total manufacturing
costs
= Total work in
process for the
period
All manufacturing costs during the
period are added to the beginning
balance of WIP inventory.
Manufacturing Cost Flows
Raw Materials
Beginning raw
materials inventory
+ Raw materials
purchased
= Raw materials
available for use
in production
– Ending raw materials
Once inventory
the goods are
= Raw materials used
manufacturing
costs
in production
Manufacturing
Costs
Work
In Process
Direct materials
+ Direct labour
+ Mfg. overhead
= Total manufacturing
costs
Beginning work in
process inventory
Total manufacturing
costs
Total work in
process for the
period
Ending work in
process inventory
Cost of goods
manufactured
completed, total
during the period
(COGM) are transferred to finished
goods inventory.
+
=
–
=
Manufacturing Cost Flows
Work
In Process
+
=
–
=
Beginning work in
process inventory
Manufacturing costs
for the period
Total work in process
for the period
Ending work in
process inventory
Cost of goods
manufactured
Finished Goods
Beginning finished
goods inventory
+ Cost of goods
manufactured
= Cost of goods
available for sale
- Ending finished
goods inventory
Cost of goods
sold
MANUFACTURING VERSUS
NONMANUFACTURING COSTS
Nonmanufacturing Costs
Marketing or
Selling Costs
General and
Administrative
Costs
Costs necessary to get
the order and deliver
the product
All executive,
organizational, and
clerical costs
PERIOD COSTS VERSUS PRODUCT COSTS
Product Costs: costs that are assigned to the product
as it is being manufactured.
 “Inventoriable costs” → accumulate in inventory
 Matching principle
Period Costs: nonmanufacturing costs.
 Expensed in the period incurred.
 Matching principle not involved.
PRODUCT VERSUS PERIOD COSTS
Beginning balance of raw materials inventory was
$30,000. $270,000 of raw material was purchased
during the quarter. There were $28,000 raw materials
remaining at the end of the month. What is the cost of
raw materials used?
A.$276,000
B.$272,000
C.$280,000
D.$
2,000
Direct materials used in production totaled
$200,000. During the month, direct labor was
$395,000 and manufacturing overhead was
$180,000. What were total manufacturing costs?
A.
B.
C.
D.
$568,000
$775,000
$415,000
$798,000
The beginning balance of work in process inventory was
$225,000. The total manufacturing costs incurred for the
month were $875,000. A count of work in process inventory
at the end of the month revealed that $150,000 of partially
finished goods remaining. What was the cost of goods
manufactured during the month?
A.
B.
C.
D.
$1,160,000
$ 950,000
$ 765,000
Cannot be determined.
Variable costs change, in total, in direct proportion to changes in
activity level.
VARIABLE VERSUS FIXED COSTS
Fixed costs
VARIABLE VERSUS FIXED COSTS
Two mobile plans:
(1) Monthly plan: $ 64 per month
(2) Daily plan: $ 4 per day, assuming 30 days in a month
“Monthly Plan”:
Cost per day for 20 days? 16 days?
64/16=$4.00
“Daily Plan”:
Cost per day for 20 days? 16 days?
$64you be indifferent?
When would
$4*16=$64
Out-of-pocket costs involve an actual
outlay of cash.
An opportunity cost is the foregone
benefit (or lost opportunity) of the path
not taken.
• Company A produces furniture, including
tables. It generates $400,000 revenues per
year from table sales and the cost of
manufacturing tables is $350,000 per year.
Alternatively, it can rent the factory space
for $100,000 per year. What is the
opportunity cost of producing tables?
• A relevant cost has the potential to influence a
RELEVANT VERSUS IRRELEVANT COSTS
decision.
• Otherwise irrelevant cost
• For a cost to be relevant, it must:
1. Differ between the decision alternatives.
• incremental or differential costs.
2. Be incurred in the future rather than the past.
• sunk costs(historical and cannot be recovered)
Summary of Types of Cost Classification
➢ Assigning costs to cost objects
•
(Direct costs vs. Indirect costs)
➢ Financial Reporting
•
•
Direct materials, direct labor, manufacturing
overhead
Period costs versus product costs
➢ Cost behavior
•
Variable costs versus fixed costs
➢ Decision making
•
•
Out-of-pocket costs versus opportunity costs
Relevant costs
Case study: truth about working at a law firm
Imagine that you strive to become a lawyer.
Most law firms bill their clients by the hour. Survey
shows that in the U.S., the “target” billable hours
typically range between 1,700 and 2,300.
Case study: truth about working at a law firm
Class of 2019 Salary:
https://law.yale.edu/student-life/career-development/employment-data/class-2019-employment
(1) What’s your hourly wage if you work the target billable hours(1,832) at a
firm(use the business salary)?
(2) What’s your hourly wage if you work the target billable hours (1,832) for the
government?
Case study: truth about working at a law firm
Class of 2019 Salary:
https://law.yale.edu/student-life/career-development/employment-data/class-2019-employment
(3) Suppose you are a business manager who would like to hire lawyers.You expect
your employees to work the target 1,832 billable hours (2,420 total working hours)
and will pay them the business wage. How much of the wage expense is indirect
labor cost? How much of the wage expense is direct labor cost?