Chapter 14: Managerial Accounting
Objective 1: Identify the features of managerial accounting and the functions of
management.
Managerial accounting provides economic and financial information for _________________
__________________________________________.
Objective 2: Describe the classes of manufacturing costs and the differences between
product and period costs.
Manufacturing consists of activities and processes that convert raw materials into finished
goods.
There are 3 types of manufacturing (product) costs:
1) Direct Materials - ___________________ that can be physically and directly associated with
the finished product during the manufacturing process.
2) Direct Labor - _____________________________________________ that can be
physically and directly associated with converting raw materials into finished goods.
3) Manufacturing Overhead - Costs that are ______________________________________
the finished product. Includes all manufacturing costs except direct materials and direct labor.
Also called factory overhead, indirect manufacturing costs, or burden.
Indirect Materials (Considered Manufacturing Overhead)
________________________________________________________________ to the
finished product because their physical association with the finished product is too small
in terms of cost. Considered part of manufacturing overhead.
Indirect Labor (Considered Manufacturing Overhead)
Work of factory employees that has no physical association with the finished product or
for which it is impractical to trace costs to the goods produced.
Product Versus Period Costs:
P ro d u c t C o s ts P e rio d C o s ts
D ire c t m a te ria ls
C h a rg e d to e x p e n s e a s in c u rre d .
C o m p o n e n ts : D ire c t la b o r
M a n u fa c tu r in g o v e rh e a d N o n -m a n u fa c tu rin g c o s ts .
C o s ts th a t a re a n in te g ra l p a rt o f p ro d u c in g th e In c lu d e s a ll s e llin g a n d a d m in is tra tiv e e x p e n s e s .
p ro d u c t.
R e c o rd e d in “in v e n to ry ” a c c o u n t.
N o t a n e x p e n s e (C O G S ) u n til th e g o o d s a re s o ld .
Illustration: Suppose you started your own snowboard factory, Terrain Park Boards. Here are
some of the costs that your snowboard factory would incur. Assign the following costs:
If Terrain Park Boards produces 10,000 snowboards the first year, what would be the total
manufacturing costs?
Practice Exercise:
A bicycle company has these costs: tires, salaries of employees who put tires on the wheels,
factory depreciation, advertising expenditures, lubricants, spokes, salary of factory manager,
salary of accountant, handlebars, and salaries of factory maintenance employees. Classify each
cost as direct materials, direct labor, overhead, or a period cost.
D ir e c t M a te r ia ls D ir e c t L a b o r O verh ead
T ire s . S a la rie s o f F a c to ry d e p re c ia tio n .
S pokes. e m p lo y e e s w h o p u t L u b ric a n ts
tire s o n th e w h e e ls .
H a n d le b a rs . F a c to ry m a n a g e r
s a la ry.
A d v e rtis in g e x p e n d itu re s a n d s a la ry F a c to ry m a in te n a n c e
o f a c c o u n ta n t a re p e r io d c o s ts . e m p lo y e e s s a la ry.
Objective 3: Demonstrate how to compute cost of goods manufactured and prepare
financial statements for a manufacturer.
Income Statement - Under a periodic inventory system, the income statements of a
merchandiser and a manufacturer differ in the cost of goods sold section (AKA "COGS").
.
Example comparison:
For a manufacturing company, the Cost of Goods Manufactured is calculated as follows:
Total Manufacturing Costs – ___________________________________________________
____________________________________________________________________________
Total Work in Process – ___________________________________________________
____________________________________________________________________________
At the end of a period, manufacturing companies may prepare the Cost of Goods Manufactured
Schedule to show the activity in the Work in Process account. Example:
Balance Sheet
The balance sheet for a merchandising company shows____________________
________________________________________.
Inventory accounts for a manufacturer show the following:
Example comparison:
Current assets sections of merchandising and manufacturing balance sheets
Practice Exercise:
The following information is available for Keystone Company.
blank blank March 1 March 31
Raw materials inventory blank $12,000 $10,000
Work in process inventory blank 2,500 4,000
Materials purchased in March $90,000 blank blank
Direct labor in March 75,000 blank blank
Manufacturing overhead in March 220,000 blank blank
Prepare the cost of goods manufactured schedule for the month
of March 2020.