Managerial Accounting

BUAC2203
Ms.Latifa AL-Badi
Faculty of Business
S2 / 2022-23
 week 1 : Introduction to Managerial Accounting and
Job order costing

Important instructions:
1.Please read the learning objectives.
2.Go through the slides in a sequential manner.
3.The slides will further be discussed Face to Face .
4.After going through the slides watch the video clip provided.
5.If you face any problem, please do not hesitate to contact me.
 :WEEK 1
Introduction to Managerial Accounting and
Job order costing
Course Learning Objectives

On successful completion of this week, you will be able to:

• Explain the difference between product costs and period costs.

 Managerial Accounting Basics

Provides economic and financial information for managers and

other internal users.
Comparing Managerial and Financial Accounting
Similarities and differences:
• Each field deals with economic events of a business
• Both require that economic events be quantified and communicated to
interested parties

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
Comparing Managerial and Financial
Feature Financial Accounting Managerial Accounting
Primary Users External users: stockholders, Internal users: officers and
of Reports . creditors, and regulators . managers
Types and Financial statements. Internal reports.
Frequency .Quarterly and annually .As frequently as needed
of Reports
Purpose of Reports .General-purpose Special-purpose for
.specific decisions
Content of Reports Pertains to business as a Pertains to subunits of the
whole. business.
Highly aggregated Very detailed.
(condensed). Extends beyond double-entry
Limited to double-entry accounting to any relevant
accounting and cost data. data.
Generally accepted Evaluated based on relevance to
. accounting principles . decisions
Verification Process .Audited by CPA .No independent audits
WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Management Functions

Planning Directing Controlling

• Maximize short-term • Coordinate diverse activities • Keeping activities

profit and market share and human resources on track
• Commit to environmental • Implement planned • Determine whether
protection and social objectives goals are met
programs • Provide incentives to • Decide changes
• Add value to the business motivate employees needed to get back
• Hire and train employees on track
• Produce a smooth-running • May use an
operation informal or formal
system of
evaluations

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Managerial Costs

Activities and processes that convert raw materials into finished

goods.

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Managerial Costs

Direct Materials
Raw Materials
• Basic materials and parts used in manufacturing process
• Raw materials that can be physically and directly associated with finished are
direct materials

Indirect Materials have one of two characteristics

1. Not physically part of finished product
2. Are impractical to trace to finished product because their association with
finished product is too small in terms of cost

Considered part of manufacturing overhead

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Managerial Costs

Direct Labor
Work of factory employees that
can be physically and directly associated with converting raw
materials into finished goods.
Indirect Labor
• Work of factory employees that has no association with finished
product or
• which is impractical to trace costs to goods produced.

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Managerial Costs

Manufacturing Overhead
• Costs indirectly associated with manufacturing the finished
product T I T L E H E R E

• All manufacturing costs

T I T except
L E O F direct
Y O U R materials and direct labor
WORK
• Also called factory overhead,
indirect manufacturing costs, Text text text text text text text text text text text

or burden
.text text text text text text text text

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Product Versus Period Costs

Product Costs

Components: Direct materials

Direct labor
Manufacturing overhead

• Costs that are an integral part of producing product

• Recorded in “inventory” account
• Not an expense (COGS) until goods are sold

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Product Versus Period Costs

Period Costs
• Charged to expense as incurred.
• Non-manufacturing costs.
• Includes all selling and administrative expense.

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Product Versus Period Costs
All Costs

Product Costs Period Costs

Nonmanufacturing Costs
Manufacturing Costs

Direct Materials
Selling Expenses

Direct Labor

Administrative Expenses
Manufacturing Overhead
Indirect materials •
Indirect labor •
Other indirect costs •

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 DO IT! Managerial Cost Concepts
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.

Direct Materials Direct Labor Overhead

• Factory depreciation
• Tires • Salaries of • Factory lubricants
• Spokes employees who • Factory manager
• Handlebars put tires on the salary
wheels • Factory maintenance
employees salary

Advertising expenditures and salary of

accountant are period costs.

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
Manufacturing Costs in Financial Statements

Income Statement
Under a periodic inventory system, the income statements of a
merchandiser and a manufacturer differ in the cost of goods sold
section.

“COGS”

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Income Statement

Merchandiser

Cost of
Beginning Ending
+ Goods - Inventory =
Inventory Purchased

Cost of
Goods Sold
Manufacturer

Beginning Ending
Finished Cost of Goods Finished
Goods + Manufactured
- Goods
Inventory =
Inventory

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Cost of Goods Manufactured

Total Manufacturing Costs – sum of direct material costs, direct labor costs,
and manufacturing overhead in the current year.
Total Work in Process – (1) cost of beginning work in process and (2) total
manufacturing costs for the current period.

Beginning Total
Total Cost of
Work in Process + Manufacturing =
Work in Process
Inventory Costs
Ending
Total Cost of Cost of Goods
- Work in Process =
Work in Process Manufactured
Inventory

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
 Current Designs
Cost of Goods Manufactured Schedule
For the Year Ended December 31, 2020
Work in process, January 1 18,400 $
Direct materials
Raw materials inventory, January 1 16,700 $
Raw materials purchases 152,500
Total raw materials available for use 169,200
Less: Raw materials inventory, December 31 22,800
Direct materials used $146,400
Direct labor 175,600
Manufacturing overhead
Indirect labor 14,300
Factory repairs 12,600
Factory utilities 10,100
Factory depreciation 9,440
Factory insurance 8,360
Total manufacturing overhead 54,800
Total manufacturing costs 376,800
Total cost of work in process 395,200
Less: Work in process, December 31 25,200
Cost of goods manufactured $370,000
WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
Example 2

Oman Manufacturing Company has the following data: direct labor OMR 630,000, direct
materials used OMR 421,000, total manufacturing overhead OMR 206,000, and beginning
work in process OMR 42,000.

Instructions
1) Compute total manufacturing costs.
2) Total cost of work in process.
Answer

(1) Direct labor OMR 630,000

Direct materials used 421,000
Total manufacturing overhead 206,000
Total manufacturing costs OMR 1,257,000

(2) Beginning work in process OMR 42,000

Total manufacturing costs 1,257,000
Total cost of work in process OMR 1,299,000
 

WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed).
published by Wiley ISBN- 978-1-119-39038-1
: References

1.WEYGANDT, J. KIMMEL, P. KIESO, D. (2018). Managerial Accounting: Tools for

Business Decision Making (8th ed). published by Wiley ISBN- 978-1-119-39038-1.
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