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Financial Management and Tax Summary (IBM)
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It's a summary of the 2nd and 3rd part of the course. 2nd part: Managerial Accounting 3rd part: Tax
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Management AccountingChapter 19: Managerial Accounting
LO1: Identify the features of managerial accounting and the functions of
management.
Managerial accounting: provides economic and financial information for managers and
other internal users.
Comparing Managerial and Financial Accounting
Management Functions
1
,Organizational Structure
LO2: Describe the classes of manufacturing costs and the differences between
product and period costs.
Managers should ask questions such as the following:
1. What costs are involved in making a product or providing a service?
2. If we decrease production volume, will costs decrease?
3. What impact will automation have on total costs?
4. How can we best control costs?
2
,Manufacturing Costs
Manufacturing consists of activities and processes that convert raw materials into finished
goods.
DIRECT MATERIALS
Raw Materials
Basic materials and parts used in manufacturing process.
Direct Materials
Raw materials that can be physically and directly associated with the finished product during
the manufacturing process.
INDIRECT MATERIALS
1. Not physically part of the finished product or
2. they are an impractical to trace to the finished product because their physical
association with the finished product is too small in terms of cost.
Considered part of manufacturing overhead.
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 physical association with the finished product or for
which it is impractical to trace costs to the goods produced.
MANUFACTURING OVERHEAD
◆ Costs that are indirectly associated with manufacturing the finished product.
◆ Includes all manufacturing costs except direct materials and direct labor.
◆ Also called factory overhead, indirect manufacturing costs, or burden.
3
, Product Versus Period Costs
Product Costs
◆ Components:
◆ Costs that are an integral part of producing the product.
◆ Recorded in “inventory” account.
◆ Not an expense (COGS) until the goods are sold.
Period Costs
◆ Charged to expense as incurred.
◆ Non-manufacturing costs.
◆ Includes all selling and administrative expenses.
Illustration: Suppose you started your own snowboard factory, KRT Boards. Here are some
of the costs that your snowboard factory would incur. Assign the following costs:
4
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