This lesson provides an overview of managerial accounting and introduces the idea that managerial accounting affects virtually everyone within an organization. It shows how decision makers use managerial accounting information to better manage their organizations. Different types of organizations account for their production costs in different ways. This lesson explores manufacturing costs and shows how the accounting system records and reports the flow of costs in organizations. It provides a comparison of alternative production methods, such as job, process, and operations costing, as well as a comparison of the cost flows using the different production methods. It explains how cost methods are adapted to just-in-time production methods and how job costing is applied to service organizations. Finally, this lesson explores activity-based costing and management (ABCM), activity based management (ABM), allocation of indirect costs to products, and how ABM affects managerial decisions. It explains the concept of value chain and how it relates to ABM. This lesson also compares product costing using activity-based costing (ABC), to traditional cost allocation methods. Examples show the impact of the new production environment on activity bases and how ABM and ABC can be used to eliminate non-value added costs.
Lesson Learning Objectives
By the conclusion of this Lesson you should be able to:
- Distinguish between managerial and financial accounting.
- Explain how managers can use accounting information to implement strategies.
- Compare and contrast income statements prepared for managerial use and those
- Prepared for external reporting.
- Explain the need for recording costs by department and assigning costs to products
- Compare and contrast normal costing and actual costing.
- Differentiate between traditional cost allocation methods and activity-based costing.
Study Chapters 1 through 3 of the text.
The following assignments should be completed and submitted to the course faculty via the learning platform for evaluation and grading. Whenever possible, submit your responses to all assignment questions in one WORD document.
Short Answer Questions
- Explain the two major uses of managerial accounting information.
- What is meant by Total Quality Management (TQM)? What performance measures are
- Likely to be included under TQM?
- What do managerial accountants mean when they speak of cost behavior? Why is it
- important in managerial decision making?
- Compare and contrast job costing and process costing systems.
- What is the basic cost flow equation?
- “Activity-based costing is great for manufacturing plants, but it doesn’t really address the
- Needs of the service sector.” Do you agree? Explain.
- If set 1 of ABC is to identify activities that consume resources, what is step 2?
- Of the four categories of costs in the hierarchy, which one would you expect to have
- Unused resources? Why?
- The vice-president of marketing wonders how products can cost less under one cost
- System than under another: “Aren’t costs cut and dried?” How would you respond?
- Explain the differences in accounting for the flow of costs using traditional accounting, where accountants charge costs first to inventory accounts, and using JIT.
Professional Development Questions
- In chapter 1 of the text (page 28), answer the case study question #26 a. and b.
- (Wheelworks, Inc.; value chain and strategic cost analysis)
- In chapter 2 of the text (page 61), answer the case study question #29 a, b and c.
(Crafty Ideas; job costs in a service organization)