Transparency Master 16(1)-1
FINANCIAL ACCOUNTING AND
MANAGERIAL ACCOUNTING
Financial Accounting
1. External Focus: Primarily reports results of
business operations to persons "outside" the
company
2. Reports historical data
3. Must follow
principles
generally
accepted
accounting
Managerial Accounting
1. Internal Focus: Reports information used by
management in overseeing daily operations of
company
2. Reports historical data and budgets or estimates
for the future
3. Reports more detailed information
4. Not restricted by generally accepted accounting
principles
5. Usefulness to management is guiding principle
Transparency Master 16(1)-2
WRITING EXERCISE
Why is it permissible to violate generally
accepted accounting principles when
preparing reports used strictly by company
management?
Transparency Master 16(1)-3
CERTIFICATE IN MANAGEMENT
ACCOUNTING (CMA)
Professional credential available to management
accountants with a bachelor's degree and 2
years of work experience in managerial accounting. An accountant with an associate’s degree
may take the CMA exam by earning a score of
50% or better on the Graduate Records Examination (GRE).
Must complete a 2-day examination covering the
following:
1. Economics, finance, and management
2. Financial accounting and reporting
3. Management reporting, analysis, and behavioral issues
4. Decision analysis and information systems
Must earn 30 hours of continuing professional
education credit every year to maintain certificate.
Transparency Master 16(1)-4
MANUFACTURING COSTS
Direct Materials—materials and component parts that become an integral part of the final product. These materials
can be traced directly to a finished unit of product.
Direct Labor—cost of wages paid to employees who work directly on the product.
Factory Overhead—all other costs incurred in making the
product. These costs include the following:
1. General manufacturing costs that cannot be traced directly to the product:
Utilities (heating, lighting)
Depreciation on machines
Property taxes
Insurance
2. Indirect Labor—wages/salaries paid to workers who are
necessary to keep the factory running, but do not work
directly on the product:
Maintenance workers
Janitorial staff
Factory personnel department
Plant manager and supervisors
3. Indirect Materials—materials used in the manufacturing
process that do not end up in the final product:
Materials used to test machines
Lubrication used on machines
NOTE: Direct materials and direct labor costs may be treated
as factory overhead costs if they are insignificant.
Transparency Master 16(1)-5
MANUFACTURING COSTS
Product Costs
Direct
Materials
Prime Costs
Direct
Labor
Factory
Overhead
Conversion Costs
Transparency Master 16(1)-6
COSTS INCURRED BY A MANUFACTURING
COMPANY
Product Costs
Direct
Materials
Direct
Labor
Factory
Overhead
Prime Costs Conversion Costs
Period Costs
Selling
Expenses
Administrative
Expenses
Transparency Master 16(1)-7
Statement of Cost of Goods Manufactured
Beginning work in process inventory
$XXX
Direct materials:
Beginning materials inventory
Purchases
Cost of materials available for use
Less ending materials inventory
$XXX
XXX
$XXX
XX
Cost of direct materials used
$XXX
Direct labor
XXX
Factory overhead:
Indirect labor
$XXX
Depreciation on factory equipment
XXX
Factory supplies and utility costs
XXX
Total factory overhead
Total manufacturing costs incurredd
Total manufacturing costs
Less ending work in process inventory
Cost of goods manufactured
XXX
XXX
$XXX
XX
$XXX
Transparency Master 16(1)-8
Income Statement
Sales
$XXX
Cost of goods sold:
Finished goods inventory, beginning
$XXX
Cost of goods manufactured
XXX
Cost of finished goods available for sale
XXX
Less finished goods inventory, ending
XXX
Cost of goods sold
XXX
Gross profit
$XXX
Operating expenses:
Selling expenses
Administrative expenses
Total operating expenses
Net income
$XXX
XXX
XXX
$XXX