Management Accounting:

A Business Partner
Chapter 16

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights

Management Accounting:
Basic Framework
M
a n a g e m e n t a c c o u
a s s i g n i n g d e c i s i o n - m

A c c o u n t i n g s y s t e m s
w h o h a s a u t h o r i t y

A c c o u n t i n g i n f o r m a
p l a n n i n g a n d d e c i s

A c c o u n t i n g r e p o r t s p
m o n i t o r i n g , e v a l u a t i n g ,
16-2
Management Accounting
System Framework
Top Management

Budget
Budget Plans: Actual Results: Performance
Future Current Evaluation:
Evaluation: Past

Assign Support Evaluate

Decision
Decision Making Decision Making Decision
Decision Making
16-3
Demand for Accounting
Information

16-4
Accounting for
Manufacturing Operations

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

16-5
Direct Materials
Raw materials
& component
parts that Can be traced
become an directly and
integral part conveniently
of finished to products.
products.

If materials cannot be traced directly to products,

the materials are considered indirect and are part
of manufacturing overhead.
16-6
Direct Labor

Includes the payroll cost of direct workers.

Those employees
who work directly
on the goods being
manufactured.

The cost of employees who do not work

directly on the goods is considered indirect
labor and is part of manufacturing overhead.
16-7
Manufacturing Overhead
All manufacturing costs other than direct
materials and direct labor.

Includes:
 Indirect materials.
 Indirect labor.
 Machinery and equipment
costs.
 Cost of regulatory Does not include
compliance. selling or general
and administrative
expenses.
16-8
Flow of Physical Goods in
Production
Direct Direct
Materials Materials
Purchased Used

Finished
Goods

Direct Manufacturing
Labor Overhead Goods
Sold
MegaLoMart

16-9
Flow of Physical Goods in
Production
Manufacturing costs are often
combined as follows:

Direct Direct Manufacturing

Materials Labor Overhead

Prime Conversion
Cost Cost

16-10
 Product Costs versus Period
Costs
Product Costs Balance Sheet
(manufacturing
Current assets
costs)
and finished
as goods inventory
incurred When
goods
Income Statement are sold
Period Costs
(operating Revenue
expenses and COGS
income taxes) Gross margin
Period expenses
as Operating profit
incurred
16-11
Inventories of a
Manufacturing Business

Raw materials - inventory on

hand and available for use.

Work in
Finished process -
goods- partially
completed completed
goods awaiting goods.
sale.
16-12
 Flow of Costs Associated
With Production
Direct Materials Direct Work in Process
materials Inventory materials Inventory
purchased used
$$$ $$$ $$$ $$$

Direct labor &

Manufacturing Overhead

Cost of goods Finished Goods Cost of

manufactured Inventory Goods Sold
$$$ $$$ $$$

16-13
Direct Costs and Indirect
Costs
Direct costs Indirect costs
Costs that can be Costs cannot be
easily and easily and
conveniently conveniently
traced to a unit of traced to a unit of
product or other product or other
cost objective. cost object.
Examples: direct Example:
material and manufacturing
direct labor overhead

16-14
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.

16-15
Financial Statements of a
Manufacturing Company

Income Statement

Balance Sheet

16-16
End of Chapter 16

16-17