Pre Class 1
Pre Class 1
Pre Class 1
Managerial accounting provides economic and financial information for managers and
other internal users. A key objective of management is to add value to the business
under its control.
Managers’ activities and responsibilities can be classified into three broad functions:
1. Planning: requires managers to look ahead and to establish objectives. These
objectives are often diverse: maximizing short-term profits and market share,
maintaining a commitment to environmental protection, and contributing to social
programs.
2. Directing: involves coordinating a company’s diverse activities and human resources
to produce a smooth-running operation. This function relates to implementing planned
objectives and providing necessary incentives to motivate employees.
3. Controlling: is the process of keeping the company’s activities on track. In
controlling operations, managers determine whether planned goals are met. When there
are deviations from targeted objectives, managers decide what changes are needed to
get back on track.
Stockholders own the corporation, but they manage it indirectly through a board of
directors they elect. The board formulates the operating policies for the company or
organization. The board also selects officers, such as a president and one or more vice
presidents, to execute policy and to perform daily management functions.
The chief executive officer (CEO) has overall responsibility for managing the business.
As the organization chart shows, the CEO delegates responsibilities to other officers.
Responsibilities within the company are frequently classified as either line or staff
positions. Employees with line positions are directly involved in the company’s primary
revenue-generating operating activities. Examples of line positions include the vice
president of operations, vice president of marketing, plant managers, supervisors, and
production personnel. Employees with staff positions are involved in activities that
support the efforts of the line employees.
The chief financial officer (CFO) is responsible for all the accounting and finance issues
the company faces. The CFO is supported by the controller and the treasurer. The
controller’s responsibilities include (1) maintaining the accounting records, (2) ensuring
an adequate system of internal control, and (3) preparing financial statements, tax
returns, and internal reports. The treasurer has custody of the corporation’s funds and is
responsible for maintaining the company’s cash position.
Manufacturing consists of activities and processes that convert raw materials into
finished goods. Contrast this type of operation with merchandising, which sells products
in the form in which they are purchased. Manufacturing costs incurred to produce a
product are classified as direct materials, direct labor, and manufacturing overhead.
Direct Materials: To obtain the materials that will be converted into the finished
product, the manufacturer purchases raw materials. Raw materials are the basic
materials and parts used in the manufacturing process. Raw materials that can be
physically and directly associated with the finished product during the manufacturing
process are direct materials. Some raw materials cannot be easily associated with the
finished product. These are called indirect materials.
Direct Labor: The work of factory employees that can be physically and directly
associated with converting raw materials into finished goods is direct labor. Indirect
labor refers to the work of employees that has no physical association with the finished
product or for which it is impractical to trace costs to the goods produced. Like indirect
materials, companies classify indirect labor as manufacturing overhead.
Manufacturing overhead: Consists of costs that are indirectly associated with the
manufacture of the finished product. Overhead costs also include manufacturing costs
that cannot be classified as direct materials or direct labor. Manufacturing overhead
includes indirect materials, indirect labor, depreciation on factory buildings and
machines, and insurance, taxes, and maintenance on factory facilities.
7.What are product and period costs and describe the differences between the two.
Each of the manufacturing cost components—direct materials, direct labor, and
manufacturing overhead—are product costs. As the term suggests, product costs are
costs that are a necessary and integral part of producing the finished product. Period
costs are costs that are matched with the revenue of a specific time period rather than
included as part of the cost of a salable product. These are nonmanufacturing costs.
Period costs include selling and administrative expenses. In order to determine net
income, companies deduct these costs from revenues in the period in which they are
incurred.
Income Statement:
3. Management Functions:
The primary functions of Management include:
Planning: Setting goals and determining the best way to achieve them.
Organizing: Arranging tasks, people, and other resources to accomplish the work.
Leading: Motivating, directing, and influencing people to work hard to achieve the
organization's goals.
Controlling: Monitoring performance, comparing it with goals, and taking corrective
action as needed.
5. Manufacturing Costs:
Manufacturing costs refer to the costs incurred in the production of goods and include
three main components:
Direct Materials: The raw materials that can be directly traced to the finished product.
Direct Labor: The wages and salaries for employees directly involved in producing the
goods.
Manufacturing Overhead: All other manufacturing costs that cannot be directly traced to
specific units produced, including indirect materials, indirect labor, maintenance, and
utilities related to manufacturing.
Total manufacturing costs include direct materials, direct labor, and manufacturing
overhead.