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Chapter 2

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215 views24 pages

Chapter 2

Uploaded by

gerry hormati
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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STUDENT EDITION

MANAGEMENT
PowerPoint Presentation by ACCOUNTING
Gail B. Wright
Professor Emeritus of Accounting 8TH EDITION
Bryant University
BY
© Copyright 2007 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under license.
HANSEN & MOWEN

2 BASIC MANAGEMENT ACCOUNTING CONCEPTS


1
LEARNING OBJECTIVES
1. Describe the cost assignment process.
2. Define tangible, intangible products, &
explain why there are different product cost
definitions.
3. Prepare income statements for
manufacturing & service organizations.
4. Outline differences between functional-
based and activity-based management
accounting systems. 2
LO 1

COST: Definition

“Cost is the cash or cash-


equivalent value sacrificed for
goods and services that is
expected to bring a current or
future benefit to the
organization.”1

1Hansen & Mowen, 2007, p. 35.


3
LO 1

OPPORTUNITY COST: Definition

“Opportunity cost is the benefit


given up or sacrificed when one
alternative is chosen over
another.”2

2Hansen & Mowen, 2007, p. 35.


4
LO 1

COST OBJECT: Definition

“A cost object is any item such


as product, customer, project,
activity & so on, to which costs
are measured and assigned.”3

3Hansen & Mowen, 2007, p. 35.


5
LO 1

Is there such a thing as TRUE


COST?

NO. “It is better to be


approximately correct than
precisely inaccurate.”

6
LO 1

COST ASSIGNMENT

Cause & effect relationship when


assigning costs to cost objects
Direct costs are easily traceable
Indirect costs not so easily traceable

7
LO 1

Can you name 3 ways of


assigning product costs?

1. Direct tracing
2. Driver tracing
3. Indirect costs

8
LO 2

Tangible products are goods


produced by converting raw
materials.
Example: televisions, hamburgers

Services are intangible


products. Example: dental or
medical care.

9
LO 2

DIFFERENCES

Services differ from products on 4


dimensions
Intangibility
Perishability
Inseparability
Heterogeneity

10
LO 2

COST ANALYSIS & INTERNAL


VALUE CHAIN
Different costs for different purposes
Strategic profitability analysis
Uses all costs & revenues associated with product
Short run (tactical) profitability analysis
Uses production, marketing, distributing & servicing,
especially for special orders
External financial reporting
Uses only production costs

11
LO 2

INTERNAL VALUE CHAIN


STRATEGIC PROFITABILITY ANALYSIS

EXHIBIT 2-3
12
LO 2

INTERNAL VALUE CHAIN


TACTICAL PROFITABILITY ANALYSIS

EXHIBIT 2-3
13
LO 2

INTERNAL VALUE CHAIN


EXTERNAL FINANCIAL REPORTING

EXHIBIT 2-3
14
LO 2

PRODUCT COSTS

Production costs include


Direct materials
Traceable to goods, services produced
Direct labor
Traceable to goods, services produced
Overhead
All other production costs

15
LO 3

What is “cost of goods


manufactured?”

“Cost of goods manufactured”


is the total of production costs
(direct materials & labor &
overhead) for the period.

16
LO 3

INCOME STATEMENT:
Manufacturing Firm

EXHIBIT 2-5
17
LO 3

How does the income


statement for a service
company differ from that of a
manufacturing company?

A service company doesn’t


have the manufacturing costs
associated with producing a
product.

18
LO 4

Can you name 2 ways to


design a management
accounting system?

Functional based accounting


(FBM) & activity based
accounting (ABM) are 2 ways to
design a management accounting
system.

19
LO 4

How does an FBM system


differ from an ABM system?

FBM & ABM systems differ in


the ways they assign costs and
how they assign responsibility
for efficient operations.

20
LO 4

MANAGEMENT ACCOUNTING
SYSTEMS (FBM)
Functional-based management system (FBM)
Cost view
Only uses drivers related to the production function to
assign costs
Direct materials, direct labor, machine hours
Operational efficiency view
Holds managers of each function (e.g., engineering)
responsible for controlling costs to derive operating
efficiency

21
LO 4

MANAGEMENT ACCOUNTING
SYSTEMS (ABM)
Activity-based management system (ABM)
Cost view
Driver analysis, activity analysis, performance
evaluation
A tracing-intensive system
Operational efficiency view
Focuses on managing activities and improving values
for operational efficiency

22
LO 4

COMPARING FBM & ABM

EXHIBIT 2-10
23
CHAPTER 2

THE END

24

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