Managerial Accounting For Managers

FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values
Managerial Accounting
Business Environment and The Need of Managerial Accounting

Assoc. Prof. Dr. Mohd Fuad Mohd Salleh
fuadsalleh@unisel.edu.my
21st. July 2012

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FACULTY OF BUSINESS
Ethics And Moral System

54% CEOs survey unethical business is a common practice. 55% of 2000 employees surveyed observed unethical conduct. Ethics
a system of moral principles: the ethics of a culture. the rules of conduct recognized in respect to a particular class of human actions or a particular group, culture, etc.: medical ethics moral principles, as of an individual: His ethics forbade betrayal of a confidence. a philosophy dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions.
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FACULTY OF BUSINESS
ETHICS
body of principles governing right and wrong may be merely to enable ex post facto, abstract judgements about good and evil OR might be instrumentalist with volitional or motivational power thereby influencing actors' behaviour
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FACULTY OF BUSINESS
WHY HAVE ETHICAL STANDARDS?

Ethical standards in business are essential for a smooth functioning advanced market economy.
Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer.
Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods and services at higher prices.
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FACULTY OF BUSINESS
3 important things to build strong ethical culture:

a. Concerned leaders who practice ethics as daily observation b. Supervisors who emphasize integrity when working with direct report c. Peers who encourage each other to act ethically.
FACULTY OF BUSINESS
Moral
(from Latin morlis) is a message conveyed or a lesson to be learned from a story or event. The moral may be left to the hearer, reader or viewer to determine for themselves, or may be explicitly encapsulated in a maxim.
Moral Values
the standards of good and evil, which govern an individuals behavior and choices. Individuals morals may derive from society and government, religion, or self.
FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values.
Unisels Vision
To be a renowned university that nurtures professionals and scholars with high moral and ethical values.
Unisels Mission
Unisel is committed to provide excellent and conducive learning environment to develop competent, upright and ethical professionals & scholars
FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values.
Unisels Core Values

Integrity Accountability Innovation Quality & Excellence Accessibility Collegiality
FACULTY OF BUSINESS
INSTITUTIONAL OBJECTIVE
Institutional objective of Universiti Selangor (Unisel) is to be a renowned university that nurtures professionals and scholars with high moral and ethical values
FACULTY OF BUSINESS
ACCOUNTANTS RESPONSIBILITY
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FACULTY OF BUSINESS
ACCOUNTANTS RESPONSIBILITY
1. Maintain integrity by presenting financial results accurately and objectively do the right thing to be aware of your own conduct to become familiar with policies and procedures to avoid misconduct. 2. Avoiding the potential for conflicts of interest (COI)
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FACULTY OF BUSINESS
STRATEGY
A strategy is a game plan that enables a company to attract customers by distinguishing itself from competitors.
The focal point of a companys strategy should be its target customers.
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FACULTY OF BUSINESS
CUSTOMER VALUE PROPOSITIONS

Customer Intimacy Strategy
Understand and respond to individual customer needs.
Operational Excellence Strategy
Deliver products and services faster, more conveniently, and at lower prices.
Product Leadership Strategy
Offer higher quality products.
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FACULTY OF BUSINESS
WORK OF MANAGEMENT
Planning
Directing and Motivating
Controlling
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FACULTY OF BUSINESS
PLANNING AND CONTROL CYCLE

Formulating longand short-term plans (Planning) Comparing actual to planned performance (Controlling)
Begin
Decision Making
Implementing plans (Directing and Motivating)
Measuring performance (Controlling)

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FACULTY OF BUSINESS
FINANCIAL AND MANAGERIAL ACCOUNTING

Financial Accounting
1. Users 2. Time focus 3. Verifiability versus relevance 4. Precision versus timeliness 5. Subject 6. GAAP 7. Requirement External persons who make financial decisions Historical perspective Emphasis on verifiability Emphasis on precision Primary focus is on the whole organization Must follow GAAP and prescribed formats Mandatory for external reports
Managers who plan for and control an organization Future emphasis Emphasis on relevance for planning and control Emphasis on timeliness Focuses on segments of an organization Need not follow GAAP or any prescribed format Not Mandatory
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FACULTY OF BUSINESS
CORPORATE GOVERNANCE
The system by which a company is directed and controlled. Board of Directors
Incentives and monitoring for
Top Management
To pursue objectives of
Stockholders
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FACULTY OF BUSINESS
CORPORATE GOVERNANCE
An effective corporate governance system should also protect the interests of the companys other stakeholders.
Employees
Customers
Creditors
Suppliers
And the communities in which the company operates.
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COST TERMS, CONCEPTS AND CLASSIFICATIONS
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FACULTY OF BUSINESS
COST CLASSIFICATIONS
(a) Manufacturing Cost (Product Cost)
1. Direct Cost
2.Indirect Cost
Direct Materials
Direct Labor
Manufacturing Overhead
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FACULTY OF BUSINESS
Direct costs
Indirect costs
Costs that can be easily and conveniently traced to a unit of product or other cost object. Examples: direct material and direct labor
Costs that cannot be easily and conveniently traced to a unit of product or other cost object. Example: manufacturing overhead
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FACULTY OF BUSINESS
COST TERMS
Direct Materials Direct Labor Manufacturing Overhead
The Product
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FACULTY OF BUSINESS
Direct Materials
Manufacturing Overhead
Direct Labor
Integral part of the product and that can be conveniently traced directly to it.
Labor costs that can be easily traced to individual units of product.
Manufacturing costs that cannot be traced directly to specific units produced.
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FACULTY OF BUSINESS
Manufacturing costs are often classified as follows:

Direct Material Direct Labor Manufacturing Overhead
Prime Cost
Conversion Cost
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FACULTY OF BUSINESS
COST CLASSIFICATIONS
(b) Non-manufacturing Cost (Period Cost)
Selling Costs
Administrative Costs
Costs necessary to get the order and deliver the product.
All executive, organizational, and clerical costs.
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FACULTY OF BUSINESS
PRODUCT COSTS VERSUS PERIOD COSTS

Accounting Treatment
Product costs include direct materials, direct labor, and manufacturing overhead.
Inventory Sale Cost of Good Sold
Period costs include all selling costs and administrative costs.

Expense
Balance Sheet
Income Statement
Income Statement
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FACULTY OF BUSINESS
Which of the following costs would be considered a period rather than a product cost in a manufacturing company?
A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions.
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FACULTY OF BUSINESS
Which of the following costs would be considered a period rather than a product cost in a manufacturing company?
A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions.
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FACULTY OF BUSINESS
MERCHANDISING AND MANUFACTURING ACTIVITIES

Merchandisers . . .

Manufacturers . . .

Buy finished goods. Sell finished goods.
Buy raw materials. Produce and sell finished goods.
Manufacturing Company of Malaysia Care4you
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FACULTY OF BUSINESS
BALANCE SHEET Merchandiser Current assets

Cash Receivables Prepaid Expenses Merchandise
Manufacturer
Current Assets
Cash Receivables Prepaid Expenses Inventories Raw Materials Work in Process Finished Goods
Inventory
FACULTY OF BUSINESS
BALANCE SHEET
Merchandiser Current assets
Cash
Receivables Prepaid Expenses
Partially complete Merchandise been added. products some material, Inventory labor, or overhead has
Manufacturer
Current Assets
Cash
Receivables Materials waiting to be Prepaid Expenses processed. Inventories Raw Materials Work in Process Finished Goods
Completed products awaiting sale.
FACULTY OF BUSINESS
THE INCOME STATEMENT

Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.
Merchandising Company
Cost of goods sold: Beg. merchandise inventory $ 14,200 + Purchases 234,150 Goods available for sale $ 248,350 - Ending merchandise inventory (12,100) = Cost of goods sold $ 236,250
Manufacturing Company
Cost of goods sold: Beg. finished goods inv. + Cost of goods manufactured Goods available for sale - Ending finished goods inventory = Cost of goods sold
$ 14,200 234,150 $248,350
(12,100) $236,250
FACULTY OF BUSINESS
BASIC EQUATION FOR INVENTORY ACCOUNTS

Withdrawals from inventory
Beginning balance
Additions to inventory
Ending balance
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FACULTY OF BUSINESS
MANUFACTURING COST FLOWS

Costs
Material Purchases Direct Labor Manufacturing Overhead
Balance Sheet Inventories

Raw Materials Work in Process
Income Statement Expenses
Finished Goods
Cost of Goods Sold

Selling and Administrative
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Selling and Administrative
Period Costs
FACULTY OF BUSINESS
Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used?
A. B. C. D.
$276,000 $272,000 $280,000 $ 2,000
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FACULTY OF BUSINESS
Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used? Beg. raw materials $ 32,000
A. B. C. D.
$276,000 $272,000 $280,000 $ 2,000
+ Raw materials purchased 276,000 = Raw materials available for use in production $ 308,000 Ending raw materials inventory 28,000 = Raw materials used in production $ 280,000
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FACULTY OF BUSINESS
Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month?
A. $ 20,000. B. $740,000. C. $780,000. D. $760,000.
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FACULTY OF BUSINESS
Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month?
A. $ 20,000. $130,000 + $760,000 = $890,000 B. $740,000. $890,000 - $150,000 = $740,000 C. $780,000. D. $760,000.
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FACULTY OF BUSINESS
Cost Classifications For Predicting Cost Behavior

How a cost will react to changes in the level of activity within the relevant range.
Total variable costs change when activity changes. Total fixed costs remain unchanged when activity changes.
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FACULTY OF BUSINESS
Cost Classifications For Predicting Cost Behavior

Behavior of Cost (within the relevant range)
Cost Variable In Total Total variable cost changes as activity level changes. Total fixed cost remains the same even when the activity level changes. Per Unit Variable cost per unit remains the same over wide ranges of activity. Average fixed cost per unit goes down as activity level goes up.
Fixed
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FACULTY OF BUSINESS
Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.)
A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers.
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FACULTY OF BUSINESS
Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.)
A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers.
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FACULTY OF BUSINESS
Cost Classifications For Decision Making
Every decision involves a choice between at least two alternatives. Only those costs and benefits that differ between alternatives are relevant in a decision. All other costs and benefits can and should be ignored.
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Differential Cost And Revenue

Costs and revenues that differ among alternatives.
Example: You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month.
Differential revenue is: $2,000 $1,500 = $500

Differential cost is: $300
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FACULTY OF BUSINESS
Opportunity Cost
The potential benefit that is given up when one alternative is selected over another. Example: If you were not attending college, you could be earning $15,000 per year. Your opportunity cost of attending college for one year is $15,000.
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FACULTY OF BUSINESS
Sunk Costs
Sunk costs have already been incurred and cannot be changed now or in the future. They should be ignored when making decisions. Example: You bought an automobile that cost $10,000 two years ago. The $10,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $10,000 cost.
Saga
FACULTY OF BUSINESS
Suppose you are trying to decide whether to drive or take the train to Ipoh to attend a concert. You have ample cash to do either, but you dont want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Ipoh? A. Yes, the cost of the train ticket is relevant. B. No, the cost of the train ticket is not relevant.
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FACULTY OF BUSINESS
Suppose you are trying to decide whether to drive or take the train to Ipoh to attend a concert. You have ample cash to do either, but you dont want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Ipoh? A. Yes, the cost of the train ticket is relevant. B. No, the cost of the train ticket is not relevant.
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FACULTY OF BUSINESS
Suppose you are trying to decide whether to drive or take the train to Ipoh to attend a concert. You have ample cash to do either, but you dont want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision? A. Yes, the licensing cost is relevant. B. No, the licensing cost is not relevant.
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FACULTY OF BUSINESS
Suppose you are trying to decide whether to drive or take the train to Ipoh to attend a concert. You have ample cash to do either, but you dont want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision? A. Yes, the licensing cost is relevant. B. No, the licensing cost is not relevant.
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FACULTY OF BUSINESS
Suppose that your car could be sold now for $5,000. Is this a sunk cost? A. Yes, it is a sunk cost. B. No, it is not a sunk cost.
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FACULTY OF BUSINESS
Suppose that your car could be sold now for $5,000. Is this a sunk cost? A. Yes, it is a sunk cost. B. No, it is not a sunk cost.
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FACULTY OF BUSINESS
Summary Of The Types Of Cost Classifications

Financial reporting Predicting cost behavior Assigning costs to cost objects Decision making
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FACULTY OF BUSINESS
Idle Time
Machine Breakdowns Material Shortages
Power Failures
The labor costs incurred during idle time are ordinarily treated as manufacturing overhead.
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FACULTY OF BUSINESS
OVERTIME
The overtime premiums for all factory workers are usually considered to be part of manufacturing overhead.
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FACULTY OF BUSINESS
Labor Fringe Benefits

Fringe benefits include employer paid costs for insurance programs, retirement plans, supplemental unemployment programs, Social Security, Medicare, workers compensation and unemployment taxes.
Some companies include all of these costs in manufacturing overhead.
Other companies treat fringe benefit expenses of direct laborers as additional direct labor costs.
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FACULTY OF BUSINESS
Quality Of Conformance
When the overwhelming majority of products produced conform to design specifications and are free from defects.
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FACULTY OF BUSINESS
Prevention And Appraisal Costs

Prevention Costs
Support activities whose purpose is to reduce the number of defects
Appraisal Costs
Incurred to identify defective products before the products are shipped

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FACULTY OF BUSINESS
Internal And External Failure Costs

Internal Failure Costs
Incurred as a result of identifying defects before they are shipped
External Failure Costs
Incurred as a result of defective products being delivered to customers

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FACULTY OF BUSINESS
Examples Of Quality Costs

Prevention Costs
Quality training Quality circles Statistical process control activities
Appraisal Costs
Testing & inspecting incoming materials Final product testing Depreciation of testing equipment
Internal Failure Costs

Scrap Spoilage Rework
External Failure Costs

Cost of field servicing & handling complaints Warranty repairs Lost sales
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FACULTY OF BUSINESS
Distribution Of Quality Costs

When quality of conformance is low, total quality cost is high and consists mostly of internal and external failure. Total quality costs drop rapidly as the quality of conformance increases.
Companies reduce their total quality costs by focusing their efforts on prevention and appraisal because the cost savings from reduced defects usually overwhelm the costs of additional prevention and appraisal.
Total quality costs are minimized when the quality of conformance is slightly less than 100%.
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FACULTY OF BUSINESS
Uses of Quality Cost Information

Help managers see the financial significance of defects.
Help managers identify the relative importance of the quality problems.
Help managers see whether their quality costs are poorly distributed.
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FACULTY OF BUSINESS
Limitations of Quality Cost Information

Simply measuring quality cost problems does not solve quality problems.
Results usually lag behind quality improvement programs. The most important quality cost, lost sales, is often omitted from quality cost reports.
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FACULTY OF BUSINESS
Thats all for today.
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FACULTY OF BUSINESS

Nurturing professionals with high moral and ethical values

Business Environment and The Need of Managerial Accounting

21st. July 2012

Ethics And Moral System

WHY HAVE ETHICAL STANDARDS?

Ethics And Moral System

3 important things to build strong ethical culture:

Ethics And Moral System

Unisels Core Values

CUSTOMER VALUE PROPOSITIONS

Operational Excellence Strategy

Product Leadership Strategy

Offer higher quality products.

Directing and Motivating

PLANNING AND CONTROL CYCLE

Implementing plans (Directing and Motivating)

Measuring performance (Controlling)

FINANCIAL AND MANAGERIAL ACCOUNTING

And the communities in which the company operates.

Labor costs that can be easily traced to individual units of product.

Manufacturing costs that cannot be traced directly to specific units produced.

Manufacturing costs are often classified as follows:

Costs necessary to get the order and deliver the product.

All executive, organizational, and clerical costs.

PRODUCT COSTS VERSUS PERIOD COSTS

Period costs include all selling costs and administrative costs.

MERCHANDISING AND MANUFACTURING ACTIVITIES

Buy finished goods. Sell finished goods.

Buy raw materials. Produce and sell finished goods.

Manufacturing Company of Malaysia Care4you

BALANCE SHEET Merchandiser Current assets

THE INCOME STATEMENT

$ 14,200 234,150 $248,350

BASIC EQUATION FOR INVENTORY ACCOUNTS

MANUFACTURING COST FLOWS

Balance Sheet Inventories

Income Statement Expenses

Cost of Goods Sold

Selling and Administrative

$276,000 $272,000 $280,000 $ 2,000

$276,000 $272,000 $280,000 $ 2,000

Cost Classifications For Predicting Cost Behavior

Cost Classifications For Predicting Cost Behavior

Cost Classifications For Decision Making

Differential Cost And Revenue

Differential revenue is: $2,000 $1,500 = $500

Summary Of The Types Of Cost Classifications

Labor Fringe Benefits

Some companies include all of these costs in manufacturing overhead.

Prevention And Appraisal Costs

Incurred to identify defective products before the products are shipped

Internal And External Failure Costs

External Failure Costs

Incurred as a result of defective products being delivered to customers

Examples Of Quality Costs

Internal Failure Costs

External Failure Costs

Distribution Of Quality Costs

Uses of Quality Cost Information

Help managers identify the relative importance of the quality problems.

Limitations of Quality Cost Information

Thats all for today.