Management Accounting

1. Introduction to Management Accounting Prepared by : Amir Saif 1

2. Management Accountability Responsibility to stakeholders of the company Owners Creditors Suppliers Employees Customers Prepared by : Amir Saif 2

3. Objective 1 Distinguish between financial accounting and management accounting Prepared by : Amir Saif 3

4. Management Accounting and Financial Accounting Primary Users Financial External Investors, Creditors, Government authorities Management Internal Managers of the business Prepared by : Amir Saif 4

5. Management Accounting and Financial Accounting Purpose of Information Financial Help investors and creditors make investment and credit decisions Management Help managers plan and control business operations Prepared by : Amir Saif 5

6. Management Accounting and Financial Accounting Focus and Time Dimension of the Information Financial Relevance and reliability Focus on the past Management Relevance Focus on future Prepared by : Amir Saif 6

7. Management Accounting and Financial Accounting Type of Report Financial Financial statements Audited by Internal Auditor Management Internal reports restricted by cost-benefit analysis No audit from Internal Auditor Prepared by : Amir Saif 7

8. Management Accounting and Financial Accounting Scope of Information Financial Accounting Summary reports primarily on the company as a whole On quarterly or annual basis Management Accounting Detailed reports on parts of the company Often on daily or weekly basis Prepared by : Amir Saif 8

9. Management Accounting and Financial Accounting Behavioral Financial Concern about adequacy of disclosure Behavioral implications are secondary Management Concern about how reports will affect employee behavior Prepared by : Amir Saif 9

10. Objective 2 Identify trends in the business environment and the role of management accountability Prepared by : Amir Saif 10

11. Today’s Business Trends Shift toward a service economy Global competition Time-based competition Advanced information systems E-Commerce Just-in-Time management Total Quality Management Prepared by : Amir Saif 11

12. Objective 3 Classify costs and prepare an income statement for a service company Prepared by : Amir Saif 12

13. Service Company Simplest accounting All costs are period costs Operating income = Service revenue – operating expenses Prepared by : Amir Saif 13

14. Prepared by : Amir Saif 14 Saif Grooming Income Statement For the Month Ended July 31, 2007 Service revenue $15,000 Operating expenses: Wages $4,800 Grooming supplies 1,200 Building rent 1,000 Utilities 250 Depreciation, equipment 100 7,350 Operating income $7,650 Cost to groom one person = $7,350/600 Persons = $12.25

15. Objective 4 Classify costs and prepare an income statement for a Trading company Prepared by : Amir Saif 15

16. Trading Company Purchase inventory from suppliers and resell to customers Has both period costs and inventoriable product costs Prepared by : Amir Saif 16

17. Trading Company – Income Statement Sales - Cost of goods sold Gross profit - Operating expenses Operating income Prepared by : Amir Saif 17

18. Trading Company – Income Statement Cost of goods sold: Beginning inventory + Purchases + Freight-in Cost of goods available for sale - Ending inventory Cost of goods sold Prepared by : Amir Saif 18

19. Prepared by : Amir Saif 19 Amir’s Brush Company Income Statement For Year Ended December 31, 2009 Service revenue $125,000 Cost of goods sold: Inventory, January 1, 2009 $7,000 Purchases 63,000 Goods available for sale $70,000 Inventory, December 31, 2009 (5,000) Cost of goods sold 65,000 Gross profit $60,000 Selling and administrative expenses 45,000 Operating income $15,000

20. Prepared by : Amir Saif 20 Unit cost for one brush: Cost of goods sold $65,000 Selling and administrative expenses 45,000 Total cost $110,000 $110,000 / 5,800 brushes = $18.97

21. Objective 5 Classify costs and prepare an income statement for a manufacturing company Prepared by : Amir Saif 21

22. Manufacturing Companies Use labor, plant, and equipment to convert raw materials into finished products Materials inventory Work in process inventory Finished goods inventory Prepared by : Amir Saif 22

23. Product Costs Direct materials Direct labor Manufacturing overhead Prepared by : Amir Saif 23 Direct Costs Indirect Costs

24. Cost Object Anything for which managers want a separate measurement of cost Direct cost – can be directly traced to cost object Prepared by : Amir Saif 24

25. Manufacturing Overhead Indirect costs related to manufacturing operations Generally all manufacturing costs that are not direct costs Indirect materials Indirect labor Prepared by : Amir Saif 25

26. Manufacturing Companies – Income Statement Sales - Cost of goods sold Gross profit - Operating expenses Operating income Prepared by : Amir Saif 26

27. Manufacturing Company – Income Statement Cost of goods sold: Beginning finished goods inventory + Cost of goods manufactured Cost of goods available for sale - Ending finished goods inventory Cost of goods sold Prepared by : Amir Saif 27

28. Manufacturing Company – Income Statement Cost of goods manufactured: Beginning work in process inventory + Direct materials used + Direct labor + Manufacturing overhead Total manufacturing costs to account for - Ending work in process inventory Cost of goods manufactured Prepared by : Amir Saif 28

29. Manufacturing Company – Income Statement Direct materials used: Beginning materials inventory + Purchases of direct materials + Freight in Materials available for use - Ending materials inventory Direct materials used Prepared by : Amir Saif 29

30. Manufacturing CompaniesProduct & Period Costs Prepared by : Amir Saif 30 INCOME STATEMENT BALANCE SHEET Inventoriable Product Costs Sales when sales occur Materials Inventory Finished Goods Inventory - Cost of Goods Sold - Work in Process Inventory Operating Expenses Period Costs = Operating Income

31. Manufacturing CompaniesInventory Accounts Prepared by : Amir Saif 31 Materials Inventory Beginning inventory Materials used Purchases & freight Ending inventory

32. Manufacturing CompaniesInventory Accounts Prepared by : Amir Saif 32 Work in Process Inventory Beginning inventory Cost of goods manufactured Materials used Direct labor Manufacturing overhead Ending inventory

33. Manufacturing CompaniesInventory Accounts Prepared by : Amir Saif 33 Finished Goods Inventory Income Statement Beginning inventory Cost of goods sold Cost of goods manufactured Ending inventory

34. Prepared by : Amir Saif 34 TAZ Company Statement of Cost of Goods Manufactured For Year Ended December 31, 2008 Beginning work in process inventory $100,000 Direct materials used: Beginning materials inventory $50,000 Purchases of direct materials 155,000 Materials available for use $205,000 Ending materials inventory (25,000) 180,000 Direct labor 120,000 Manufacturing overhead (see schedule) 70,000 Total manufacturing costs to account for $470,000 Ending work in process inventory (65,000) Cost of goods manufactured $405,000

35. Prepared by : Amir Saif 35 Schedule of manufacturing overhead costs Depreciation, plant building and equipment $15,000 Insurance on plant 20,000 Repairs and maintenance, plant 5,000 Indirect labor 30,000 Total manufacturing overhead $70,000

36. 2. $405,000 / 3,000 lamps = $135 Prepared by : Amir Saif 36

37. Objective 6 Use reasonable standards to make ethical judgments Prepared by : Amir Saif 37

38. Ethical Standards Standards of Ethical Conduct for Management Accountants Competence Confidentiality Integrity Objectivity Prepared by : Amir Saif 38

39. Thank you for your time and Patience.www.amirsaiftaz.blogspot.comamirsaiftaz@gmail.com Prepared by : Amir Saif 39