Chapter 18: Managerial Accounting Concepts and Principles
THE MANAGEMENT PROCESS
Strategic planning v. operational planning
long term (5-10 years) v. day-to-day operations
the process by which managers run day-to-day operations CONTROLLING:
monitoring operating results and comparing actual results with the expected
using feedback to support continuous process improvement (the process of
continually improving employees, business processes and products) DECISION MAKING:
management must continually decide among alternative actions
Costs and Terminology
***The operations of a business can be classified as: service, merchandising or manufacturing***
Manufactured products begin with raw materials that are converted into finished products.
If equipment is purchased by exchanging assets other than cash, the current market value of the assets given up is the cost of the equipment purchased.
Cost object: may be a product, a sales territory, a department or an activity such as research and development.
Direct costs: Can be traced to a cost object (the wood needed to build a guitar)
Indirect costs: cannot be identified with or traced to a cost object (salaries of production
How to determine direct from indirect costs:
identify the cost object;
determine if the cost can be identified with and traced to the cost object; 3.
Traceable? Direct cost;
Not traceable? Indirect cost
Manufacturing Costs includes: direct materials cost; direct labor cost and factory overhead cost.
Direct materials, direct labor and factory overhead may be grouped together for analysis and reporting. Two common groupings: 1.
Prime costs: consist of direct materials and direct labor costs 2.
Conversion costs: consist of direct labor and factory overhead costs (the costs of converting the materials into a finished product)
For financial reporting, costs...
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