Managerial Accounting Week 1 Lecture

6 Key Differences between Financial and Managerial Accounting 1. Financial Accounting Past Results Managerial Accounting Future Planning* 2. Financial Accounting Verifiability & Objectivity Managerial Accounting Relevance 3. Financial Accounting Accuracy & precision Managerial Accounting Use of estimates 4. Financial Accounting Focused on the whole organization Managerial Accounting Focused on segments of an organization 5. Financial Accounting Presented information to external users Managerial Accounting Presented information to internal users* 6. Financial Accounting Does not need to comply with GAAP Managerial Accounting Needs to comply with GAAP*

02/27/12

KEY IMP ONES TO REMEMBER *

Manufacturing Costs (product costs) A. Direct Materials: The raw material that become part of the finished product and can be easily traced to the final product. B. Direct Labor: Those labor costs that can be easily traced to individual units of a final product. C. Manufacturing Overhead: All the other manufacturing costs except for direct materials and direct labor. a. Indirect Materials: Materials that are used in the manufacturing process, but cannot be directly traced to a final project. b. Indirect Labor: Labor that are used in the manufacturing process, but cannot be directly traced to a final project c. Other Operating Costs: Factory depreciation, heating, lighting, taxes, electricity

Non-Manufacturing Costs (period costs) A. Selling Costs: Costs incurred secure orders and deliver the goods to the customer B. Administrative Costs: Costs associated with the general management of the organization

Managerial Accounting Week 1 Lecture

02/27/12

Beginning Inventory + Additions to inventory - Withdrawals from Inventory = Ending Inventory Raw Materials 10000 Purchases 50000 30000 Direct Labor Manufac. overhead Work in Progress 1000 30000 50000 Finished Goods 5000 41000 20000 (COGS)

(Beg)

41000

30000

10000 50000 COGM

26000

PROBLEM 2 18 (Class exercises) Beginning Inventory + Additions to inventory - Withdrawals from Inventory = Ending Inventory Raw Materials 9000 Work in Progress 17000 290000 (COGM) Finished Goods 20000 290000 27000 (COGS) 40000

125000 6000

128000

(materials) (direct labor) (manufac. OH)

128000 70000 105000 30000

Manufacturing Cost 128000 70000 105000 303000

Cost Behavior: refers to how a cost changes based on the level of activity 1. Fixed Costs: a cost that remains constant in total regardless of the level of activity 2. Variable Costs: a cost that varies in total in direct proportion to the level of activity 3. Mixed Costs: a cost that is comprised of both fixed and variable costs Ex: Total Cost = $25 + $0.30x

Managerial Accounting Week 1 Lecture

02/27/12

High - Low Method High Cost - Low Cost High Activity - Low Activity

8111 3608 -

1712 = 3422

6399 = 3422

$ 1.87 per unit cost

High Level of Activity Total Variable Cost Total Fixed Cost Low Level of Activity Total Variable Cost Total fixed cost =

3608 units * $1.87/unit = $6746 8111 - 6746 = $1364

186 units * $1.87 = $348 1712 - 348 = $1364

Formula Total cost = $1364 + 1.87x (x being the occupancy days)

Haaki Shop Inc. Income Statement (traditional format) For the Quarter Ended May 31, 2010 Sales Cost of Goods Sold Gross Profit Operating Expenses Selling Expenses Administrative Expenses Net Operating Income 800000 300000 500000

250000 160000

410000 90000

Managerial Accounting Week 1 Lecture

Merchandise Inventory 80000 320000 100000

02/27/12

300000

800000 Sales 400 Unit Price 2000 Units

Total Selling Expenses Fixed Variable (2000units* 50/unit)

150000 100000 250000

Total Administrative Expenses Fixed 120000 Variable 40000 (2000units*20) 160000

Haaki Shop Inc. Income Statement (contribution format) For the Quarter Ended May 31, 2010 Sales Variable Expenses Costs of Goods Sold Selling Expenses Admin. Expenses Total Variable Costs Profit Margin Fixed Expenses Selling Expenses Admin. Expenses Total Fixed Expenses Net Operating Income 800000

300000 100000 40000 440000 360000

150000 120000 270000 99000