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Management Accounting by siratiq

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									Introduction to Management Accounting

Atiq ur Rahman

The Functions of Management
Planning Acting Controlling

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Distinguish between financial accounting and management accounting.

Primary Users
Financial Investors Creditors Government authorities (FBR, SECP, etc.) Management Internal managers of the business

Purpose of Information
Financial • Help investors, creditors, and others make investment, credit, and other decisions Management • Help managers plan and control business operations

Focus and Time Dimension
Financial • Reliability, objectivity, and focus on the past Management • Relevance

Type of Report
Financial • Financial statements restricted by GAAP Management • Internal reports not restricted by GAAP; determined by cost-benefit analysis

Verification
Financial • Annual independent audit by CPAs Management • No independent audit

Scope of Information
Financial Management • Summary • Detailed reports reports primarily on parts of the on the company company as a whole

Behavioral Implications
Financial • Concern about adequacy of disclosure Management • Concern about how reports will affect employees behavior

Service, Merchandising, and Manufacturing Companies
Service • Provides intangible services, rather than tangible products Merchandising • resells products previously bought from suppliers

Service, Merchandising, and Manufacturing Companies
Manufacturing Company: • uses labor, plant, and equipment to convert raw materials into finished products • Materials inventory • Work in process inventory • Finished goods inventory

Distinguish direct costs from indirect costs.

Cost Objects, Direct Costs, and Indirect Costs
• Cost objects are anything for which a separate measurement of costs is desired. • Cost drivers are any factors that affect cost.

Cost Objects, Direct Costs, and Indirect Costs
• What are examples of cost objects? – individual products – alternative marketing strategies – geographic segments of the business – departments

Cost Objects, Direct Costs, and Indirect Costs
• What are direct costs? • Direct costs are those costs that can be specifically traced to the cost object. • What are indirect costs? • Indirect costs are costs that cannot be specifically traced to the cost object.

Inventoriable Product Costs
Direct Materials Direct Labor Indirect Indirect Labor Materials
Other

Manufacturing Overhead

Inventoriable Product Costs
Direct Materials Direct Labor

Prime Costs = Direct Materials + Direct Labor

Inventoriable Product Costs
Direct Labor Indirect Labor Indirect Materials
Other

Conversion Costs = Direct Labor + Manufacturing Overhead

Financial Statements for Service Companies
• There is no inventory and thus no inventoriable costs. • The income statement does not include cost of goods sold.
Revenues – Expenses = Operating income

Financial Statements for Merchandising Companies
BALANCE SHEET
Inventoriable Costs

INCOME STATEMENT Sales Revenue
when sales occur deduct

Purchases of Inventory plus Freight-In

Inventory

Cost of Goods Sold

equals Gross Margin deduct

Operating Period Costs Expenses equals Operating Income

Financial Statements for Manufacturing Companies
BALANCE SHEET
Inventoriable Costs

INCOME STATEMENT Sales Revenue

Materials Inventory

Finished Goods Inventory

when sales occur

deduct

Cost of Goods Sold

equals Gross Margin deduct

Work in Process Inventory

Operating Period Costs Expenses equals Operating Income

The End


								
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