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ACCESS Test Bank for Fundamental Managerial Accounting Concepts 10thEdition Edmonds
Chapter 01 - Management Accounting and Corporate Governance
Teaching Notes for Chapter 1
Managerial accounting requires teaching methods different from those used in financial
accounting. In the introductory financial accounting course, instructors teach students
about accounting standards. A primary goal in teaching managerial accounting is to
develop students’ conditional assessment skills (critical-thinking skills). For example, in
a later chapter, students are frequently confused by the fact that, in different situations, a
given cost can be classified as fixed or variable, direct or indirect, relevant or not relevant.
The salary cost of store managers may be fixed with respect to the number of customers
that enter their stores. However, managers’ salary cost is variable relative to the number
of stores a company operates. A manager’s salary cost is directly traceable to a particular
store but not traceable to a sale occurring in the store. Students must learn to assess the
conditions that determine cost classification. Chapter 1 offers the first opportunity to
develop the students’ conditional assessment skills. Here, students learn that depreciation
can be classified as an asset or an expense, depending on certain conditions. If a
depreciable asset is used to produce inventory, the depreciation cost will first be classified
as an asset (inventory) and later as an expense (cost of goods sold). If the depreciable asset
is used to support selling and administrative activities, depreciation will be reported
directly on the income statement as depreciation expense.
Students typically enter managerial accounting with rigid ideas about expense
recognition. In financial accounting they learned that depreciation and employee
compensation costs are expensed directly on the income statement. The idea that
depreciation related to manufacturing equipment and wages of production workers will
pass through an inventory account before being expensed as cost of goods sold is contrary
to their existing knowledge base. Expanding that knowledge base requires a significant
commitment of teaching time. Your students are developing their analytical skills. They
are learning how to assess the conditions that influence cost classification. This type of
learning requires more time than merely memorizing definitions. If you sometimes feel
that progress is too slow, remember that you are building a foundation upon which
subsequent learning will rest. There is no more important teaching task than helping
students form a sound conceptual framework. We recommend using approximately three
hours of class time for Chapter 1.
1-1
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mynursytest.store he prior written consent of McGraw Hill LLC.
,ACCESS Test Bank for Fundamental Managerial Accounting Concepts 10th
Edition Edmonds
Chapter 01 - Management Accounting and Corporate Governance
Detailed Outline of a Lesson Plan for Chapter 1
A comprehensive lesson plan for the first day of class begins in the Introduction to this manual. Please
read it before implementing steps II–VIII of the following lesson plan.
I. Distinguish between managerial and financial accounting. The best way to
differentiate between managerial and financial accounting is to highlight
differences where they occur in the subject matter throughout the course. For
example, when using estimated data in a decision-making context, point out that
managerial accounting is future-oriented rather than historically based. A long
monologue about the differences between financial and managerial accounting
will only bore your students. In a brief introduction to this topic, you might discuss
the information needs for internal users (managers) to plan, direct, and control.
The information needed by a manager depends on his/her position in the
organization and the particular decision facing the manager. If you want to spend
more time on the topic, Exercise 1-1A from the end-of-chapter materials in the
text might be an appropriate in-class activity at this point.
II. Use Demonstration Problem 1-1 as a problem-based learning exercise. (See the
introduction to this manual for details about problem-based learning.)
III. After giving the students a few minutes to digest the problem and formulate
solutions, engage them in some form of collaborative learning experience.
IV. Introduce the concept of product costing by providing the solution to
requirement a of Demonstration Problem 1-1.
V. Continuing Demonstration Problem 1-1, determine the cost per unit and the
sales price using a cost-plus pricing strategy.
VI. Show how product costs are expensed through cost of goods sold.
VII. Introduce the cost category of selling, general, and administrative costs
(SG&A costs).
VIII. Use Problem 1-19A as an in-class reinforcement exercise.
IX. Copy and distribute Demonstration Problem 1-2. Demonstration Problem 1-2
expands the classification concepts introduced in Demonstration Problem 1-1 to
include accounting for the depreciation of manufacturing equipment. Explain that
depreciation on manufacturing facilities and equipment is a product cost. Point out
that the entry to record depreciation on manufacturing equipment represents an
asset exchange transaction. The book value of manufacturing equipment
decreases, and the balance in the Inventory account increases. Students are so
accustomed to the idea that depreciation is an expense, they are not likely to grasp
the product cost concept until they work a problem. After your explanation, assign
1-2
© McGraw Hill LLC. All rights reserved. No re
mynursytest.store he prior written consent of McGraw Hill LLC.
,ACCESS Test Bank for Fundamental Managerial Accounting Concepts 10th
Edition Edmonds
Chapter 01 - Management Accounting and Corporate Governance
Demonstration Problem 1-2 to students and have them attempt to work the
problem. Students should be able to work the problem with minimal help. Walk
around the room; if you find that students are having trouble, help as needed.
If you desire further reinforcement of product versus SG&A cost classifications,
see Problem 1-20A or 1-20B. Students may need help getting started with these
problems.
X. Discuss the importance of product and period costing in financial statements.
Students are interested in how product costing affects real-world decision making.
After showing them how the classification of costs as product versus selling,
general, and administrative can affect the amounts reported in a company’s
balance sheet and income statement, we discuss how the amounts reported in the
financial statements can affect business decisions. Specifically, we discuss the
implications for acquiring capital or debt, the potential effect on executive
compensation, and the impact on income taxes. To address these issues, we
suggest you use Problem 1-21A as a demonstration problem. Then, you may wish
to use Problem 1-21B as a homework problem.
XI. Discuss managerial versus financial treatment of upstream, midstream, and
downstream costs in manufacturing companies. This can eliminate the need for
separate reports for internal and external financial reporting. Managers may fail to
use upstream or downstream costs when calculating sales price or product
profitability. Use Demonstration Problem 1-3 to introduce this concept.
XII. The chapter provides a brief introduction to total quality management
(TQM), activity-based management (ABM), and value chain analysis. Each of
these topics is covered in more depth in later chapters of the text. If you are running
short of time, you may minimize the time you allocate to these subjects. If you
wish to cover these topics, we suggest that you use a problem from the A Set of
the end-of-chapter materials, like Problem 1-29A on value chain analysis, in the
text as a demonstration problem. Then you may wish to use Problem 1-29B as a
homework problem.
1-3
© McGraw Hill LLC. All rights reserved. No re
mynursytest.store he prior written consent of McGraw Hill LLC.
, ACCESS Test Bank for Fundamental Managerial Accounting Concepts 10th
Edition Edmonds
Chapter 01 - Management Accounting and Corporate Governance
Demonstration Problems for Chapter 1
Demonstration Problem 1-1 Identifying Product Costs
Eiffel Manufacturing Company makes small replicas of major landmarks that it sells to
souvenir shops. The company was started on January 1, Year 1, when it acquired $60,000
cash from the issue of common stock. During Year 1, the company purchased and used
raw materials that cost $16,000 cash. It paid wages of $22,000 cash to the workers who
made the replicas. Finally, manufacturing overhead costs, including rental fees paid for
facilities and equipment, amounted to $12,000 cash. The company started and completed
the production of 1,000 replicas during Year 1.
Required
a. Determine the amount of expense Eiffel incurred in Year 1, assuming none of the
replicas were sold in Year 1.
b. Record the accounting events associated with making the 1,000 replicas in a financial
statements model like the one shown below. The event pertaining to the issue of
common stock is recorded in the model as an example.
Assets = Stk. Equity
C. Ret.
+ = Stk. + Earn. Rev. – Exp. = Net Inc.
Events Cash Inv.
1 60,000 + = 60,000 + – =
c. Determine the cost per unit of the 1,000 replicas. Determine the sales price per unit,
assuming the products are sold for cost plus 40% of cost.
d. Record the sale of 800 replicas.
e. Record the payment of a $4,000 sales commission to the salesperson who sold the
replicas.
1-4
© McGraw Hill LLC. All rights reserved. No re
mynursytest.store he prior written consent of McGraw Hill LLC.
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