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1
Introduction to
Managerial Accounting
and Cost Concepts
Managerial Accounting and
Financial Accounting
Planning
Directing and
Motivating
Controlling
Measuring
Performance
(Controlling)
Irwin/McGraw-Hill 4 The McGraw-Hill Companies, Inc., 2002
Differences Between Financial and
Managerial Accounting
Financial Managerial
Accounting Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization
2. Time focus Historical perspective Future emphasis
3. Verifiability Emphasis on Emphasis on relevance
versus relevance verifiability for planning and control
4. Precision versus Emphasis on Emphasis on
timeliness precision timeliness
5. Subject Primary focus is on Focuses on segments
the whole organization of an organization
6. Requirements Must follow GAAP Need not follow GAAP
and prescribed formats or any prescribed format
Irwin/McGraw-Hill 5 The McGraw-Hill Companies, Inc., 2002
Comparing Merchandising and
Manufacturing Activities
Merchandisers . . . Manufacturers . . .
Buy finished goods. Buy raw materials.
Sell finished goods. Produce and sell
finished goods.
MegaLoMart
The Product
Prime Conversion
Cost Cost
Sale
Merchandiser Manufacturer
Current assets Current Assets
Cash Cash
Receivables Receivables
Prepaid expenses Prepaid Expenses
Merchandise inventory Inventories
Raw Materials
Work in Process
Finished Goods
Merchandiser Manufacturer
Current assets Current Assets
Cash Cash
Receivables Receivables
Materials waiting to
Prepaid expenses Prepaid
be processed.
Expenses
Merchandise inventory
Partially complete Inventories
products some Raw Materials
material, labor, or Work in Process
overhead has been Finished Goods
added.
Completed products
awaiting sale.
Irwin/McGraw-Hill 19 The McGraw-Hill Companies, Inc., 2002
The Income Statement
Cost of goods sold for manufacturers differs only
slightly from cost of goods sold for merchandisers.
Beginning
Additions Available
balance + $$$ = $$$$$
$$
_ Withdrawals Ending
Available
$$$$$ $$$ = balance
$$
Beginning raw
materials inventory
Beginning inventory
is the inventory
carried over from
the prior period.
Minutes Talked
Irwin/McGraw-Hill 43 The McGraw-Hill Companies, Inc., 2002
Variable Cost Per Unit
Telephone Charge
Per Minute
Minutes Talked
Irwin/McGraw-Hill 44 The McGraw-Hill Companies, Inc., 2002
Total Fixed Cost
Your monthly basic telephone bill probably
does not change when you make more local
calls.
Telephone Bill
Monthly Basic
Variable Total variable cost changes Variable cost per unit remains
as activity level changes. the same over wide ranges
of activity.
Fixed Total fixed cost remains Fixed cost per unit goes
the same even when the down as activity level goes up.
activity level changes.