Finance T2
Chapter 15 Managerial accounting and Cost Concepts
The purpose of managerial accounting is to enable managers and people throughout an organization
to:
- Make informed decisions
- Be more effective at their jobs
- Improve the organization’s performance
Areas of Comparison Managerial Accounting Financial Accounting
Primary users Managers, employees, Owners/stockholders, lenders,
supply-chain partners customers, governmental agencies
Report format Flexible, driven by user’s needs Based on generally accepted
accounting principles
Purpose of report Provide information for planning, Provide information on past
control, performance performance
measurement and decision
making
Nature of information Objective and verifiable for Objective and verifiable; publicly
decision making; more subjective available
for planning; confidential and
private
Units of measure Monetary at historical or current Monetary at historical or current
market or projected values; market or values
physical measures of time or
number of objects
Frequency of reports Prepared as needed, may or may Prepared on a periodic basis
not be on a periodic basis
- Direct material costs: cost that can be measured when making specific units of the product
(cost of sugar for a candy bar)
- Direct labor costs: costs of the hands-on labor needed to make a product or service (cost of
labor used in making the candy bar)
- Overhead costs: indirect material costs (salt+ flavoring) + indirect labor costs (move materials
to the production area)
• Prime cost: direct materials + direct labor
• Conversion cost: direct labor + overhead (processing direct materials into finished
products)
- Value- adding: the cost of an activity that increases market value of a product/serive
, Statement of cost of goods
Direct materials used:
Beginning materials inventory xxx
Direct materials purchases xxx
Cost of direct materials available for use xxx
Less ending materials inventory (xxx)
Step 1:
Cost of direct materials used xxx
Direct labor xxx
Overhead xxx
Step 2:
Total manufacturing costs xxx
Add beginning WIP inventory xxx
Total cost of WIP during the year xxx
Less ending WIP inventory (xxx)
Step 3:
Cost of goods manufactured xxx
Income statement
Sales xxx
Cost of goods sold:
Beginning FG inventory xxx
Cost of goods manufactured xxx
Cost of goods available for sale xxx
Less ending FG inventory xxx
Cost of goods sold xxx
Gross margin (sales- CGS) xxx
Less selling + administrative expense (xxx)
Operating income xxx
1. Direct materials available for use= beginning materials inventory + direct materials
purchased
DM used = DM available for use – ending materials inventory
2. Total manufacturing cost= DM + DL + OV
3. Cost of goods manufactured= beginning WIP inventory +total manufacturing costs – ending
WIP inventory
Chapter 15 Managerial accounting and Cost Concepts
The purpose of managerial accounting is to enable managers and people throughout an organization
to:
- Make informed decisions
- Be more effective at their jobs
- Improve the organization’s performance
Areas of Comparison Managerial Accounting Financial Accounting
Primary users Managers, employees, Owners/stockholders, lenders,
supply-chain partners customers, governmental agencies
Report format Flexible, driven by user’s needs Based on generally accepted
accounting principles
Purpose of report Provide information for planning, Provide information on past
control, performance performance
measurement and decision
making
Nature of information Objective and verifiable for Objective and verifiable; publicly
decision making; more subjective available
for planning; confidential and
private
Units of measure Monetary at historical or current Monetary at historical or current
market or projected values; market or values
physical measures of time or
number of objects
Frequency of reports Prepared as needed, may or may Prepared on a periodic basis
not be on a periodic basis
- Direct material costs: cost that can be measured when making specific units of the product
(cost of sugar for a candy bar)
- Direct labor costs: costs of the hands-on labor needed to make a product or service (cost of
labor used in making the candy bar)
- Overhead costs: indirect material costs (salt+ flavoring) + indirect labor costs (move materials
to the production area)
• Prime cost: direct materials + direct labor
• Conversion cost: direct labor + overhead (processing direct materials into finished
products)
- Value- adding: the cost of an activity that increases market value of a product/serive
, Statement of cost of goods
Direct materials used:
Beginning materials inventory xxx
Direct materials purchases xxx
Cost of direct materials available for use xxx
Less ending materials inventory (xxx)
Step 1:
Cost of direct materials used xxx
Direct labor xxx
Overhead xxx
Step 2:
Total manufacturing costs xxx
Add beginning WIP inventory xxx
Total cost of WIP during the year xxx
Less ending WIP inventory (xxx)
Step 3:
Cost of goods manufactured xxx
Income statement
Sales xxx
Cost of goods sold:
Beginning FG inventory xxx
Cost of goods manufactured xxx
Cost of goods available for sale xxx
Less ending FG inventory xxx
Cost of goods sold xxx
Gross margin (sales- CGS) xxx
Less selling + administrative expense (xxx)
Operating income xxx
1. Direct materials available for use= beginning materials inventory + direct materials
purchased
DM used = DM available for use – ending materials inventory
2. Total manufacturing cost= DM + DL + OV
3. Cost of goods manufactured= beginning WIP inventory +total manufacturing costs – ending
WIP inventory
