Management Accounting: A Business Partner

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MANAGEMENT ACCOUNTING A BUSINESS PARTNER
Chapter16
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Management AccountingBasic Framework
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Management AccountingSystems Framework
Top Management
Budget Future Plans
Actual ResultsCurrent
PerformanceEvaluation Past
AssignDecision-Making
SupportDecision-Making
EvaluateDecision-Making
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Comparing Financial Accounting and Management
Accounting
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Accounting forManufacturing Operations

• The cost to produce a unit of product includes
• Direct material
• Direct labor
• Manufacturing overhead

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Direct Materials
Raw materials component parts that become an
integral part of finished products.
Can be traced directly and conveniently to
products.
If materials cannot be traced directly to
products, the materials are considered indirect
and are part of manufacturing overhead.
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Direct Labor
Includes the payroll cost of direct workers.
The cost of employees who do not work directly on
the goods is considered indirect labor and is
part of manufacturing overhead.
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Manufacturing Overhead
All manufacturing costs other than direct
materials and direct labor.

• Includes
• Indirect materials.
• Indirect labor.
• Machinery and equipment costs.
• Cost of regulatory compliance.

Does not include selling or general and
administrative expenses.
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Flow of PhysicalGoods in Production
Direct Materials Purchased
Direct Materials Used
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Accounting forManufacturing Operations
Manufacturing costs are oftencombined as follows
DirectMaterials
DirectLabor
Manufacturing Overhead
PrimeCost
ConversionCost
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Product Costs Versus Period Costs
Balance Sheet
Product Costs (manufacturing costs)
Current assets and inventory
as incurred
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Inventories of aManufacturing Business
Raw materials - inventory on hand and available
for use.
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Flow of Costs AssociatedWith Production
Direct materials purchased
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Flow of Costs AssociatedWith Production
Pure-Ice Inc. had 52,000 of inventory in direct
materials inventory on January 1, 2005. During
the year, Pure-Ice purchased 586,000 of
additional direct materials. At December 31,
2005, 78,000 of the direct materials were still
on hand. How much direct material was placed into
production during 2005?
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Flow of Costs AssociatedWith Production
?
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Flow of Costs AssociatedWith Production
!
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Flow of Costs AssociatedWith Production
In addition to the direct materials, Pure-Ice
incurred 306,000 of direct labor cost during
2005. Manufacturing overhead for 2005 was
724,000. Pure-Ice started 2005 with 132,000 in
work in process. During 2005, units costing
1,480,000 were transferred to finished goods
inventory. What is the ending balance in work in
process at December 31, 2005?
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Flow of Costs AssociatedWith Production
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Flow of Costs AssociatedWith Production
!
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Determining the Cost of Finished Goods
Manufactured
A schedule of the cost of finished goods
manufactured is prepared to provide managers
with an overview of manufacturing activities
during a period.
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The cost of goods completed during the period is
used to compute COGS for the period.
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The income statement is prepared using
established financial accounting procedures.
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End of Chapter 16