CHAPTER 15
LEARNING OBJECTIVES
1. IDENTIFY THE FEATURES OF MANAGERIAL
ACCOUNTING AND THE FUNCTIONS OF
MANAGEMENT.
CHAPTER REVIEW
Managerial Accounting Basics
Comparing Managerial and Financial Accounting
2. There are both similarities and differences between managerial and financial accounting.
a. Both fields of accounting deal with the economic events of a business and require that the
results of that company’s economic events be quantified and communicated to interested
Management Functions
4. Managers perform three broad functions within an organization:
Organizational Structure
5. In order to assist in carrying out management functions, most companies prepare organization
charts to show the interrelationships of activities and the delegation of authority and responsibility
with the company.
Manufacturing Costs
6. (L.O. 2) Manufacturing consists of activities and processes that convert raw materials into
finished goods.
8. Direct materials are raw materials that can be physically and directly associated with the finished
product during the manufacturing process. Indirect materials are materials that (a) do not
physically become a part of the finished product or (b) cannot be traced because their physical
association with the finished product is too small in terms of cost. Indirect materials are accounted
for as part of manufacturing overhead.
Product Versus Period Costs
Manufacturing Income Statement
Determining Cost of Goods Manufactured
14. (L.O. 3) The determination of the cost of goods manufactured consists of the following:
17. Because a number of accounts are involved, the determination of cost of goods manufactured is
presented in a Cost of Goods Manufactured Schedule. The cost of goods manufactured schedule
shows each of the cost factors above. The format for the schedule is:
Manufacturing Balance Sheet
18. The balance sheet for a manufacturing company may have three inventory accounts: finished
goods inventory, work in process inventory, and raw materials inventory.
Product Costing for Service Industries
21. Since service companies do not produce inventory, they use a subset of the accounts used by
Focus on the Value Chain
22. (L.O. 4) The business environment and regulations are always changing, managerial accounting
must continue to innovate in order to provide managers with the information they need. The
value chain refers to all business processes associated with providing a product or service.
Business Ethics
25. All employees are expected to act ethically in their business activities and an increasing number
of organizations provide their employees with a code of business ethics.
LECTURE OUTLINE
A. Managerial Accounting Basics.
B. Comparing Managerial and Financial Accounting.
1. The distinguishing features of managerial accounting are:
C. Management Functions.
1. Manager’s activities and responsibilities can be classified into three
broad functions:
MANAGEMENT INSIGHT
Louis Vuitton is a French manufacturer of high-end handbags, wallets, and
suitcases. Luxury-goods manufacturers used to consider stock-outs to be a good
thing, but Louis Vuitton recently changed its attitude.
What are some of the steps that Louis Vuitton has taken in order to ensure that
production meets demand?
D. Organizational Structure.
1. Most companies prepare organization charts to show the interrelation-
ships of activities and the delegation of authority and responsibility within
the company.
E. Manufacturing Costs.
Manufacturing costs are classified as (1) direct materials, (2) direct labor, or
(3) manufacturing overhead.
1. Direct materials are raw materials that can be physically and directly
associated with the finished product during the manufacturing process.
a. Indirect materials:
2. Direct labor is the work of factory employees that can be physically and
directly associated with converting raw materials into finished goods.
MANAGEMENT INSIGHT
Prior to 2010, U. S. manufacturing employment decreased every year for 60
years. However, during 2010, manufacturing jobs in the U.S. increased by 1.2%.
What are some of the reasons attributed to this increase in manufacturing jobs?
F. Product Versus Period Costs.
1. Product costs are costs that are a necessary and integral part of producing
the finished product.
G. Manufacturing Costs in Financial Statements.
1. The principal differences in a manufacturer’s financial statements occur
in the cost of goods sold section in the income statement and the current
assets section in the balance sheet.
4. The balance sheet for a manufacturing company may have three inven–
tory accounts:
SERVICE COMPANY INSIGHT
Allegiant Airlines must know something because while other airlines are losing
money, it is generating profits. As a low-budget airline, it focuses on controlling
costs. It flies out of small towns, so wages are low and competition is nonexistent.
If a route isn’t filling up, it quits flying it as often or cancels it altogether.
What are some of the line items that would appear in the cost of service
schedule of an airline?
H. Managerial Accounting Today.
1. Managerial accounting has experienced many changes in recent years
including a shift toward addressing the needs of service companies and
improving practices to better meet the needs of managers.
4. Many companies have installed total quality management (TQM)
systems to reduce defects in finished products. These systems require
timely data on defective products, rework costs, and the cost of honoring
warranty contracts.
8. The balanced scorecard is now used by many companies in order to attain
a more comprehensive view of the company’s operations. The balanced
9. Many companies have begun to evaluate not just corporate profitability but
also corporate social responsibility. Corporate social responsibility considers
I. Business Ethics.
1. Companies use complex systems to control and evaluate managers’
actions. Unfortunately these systems and controls unwittingly create
incentives for managers to sometimes take unethical actions.