Principles Of Accounting II Assignment V

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Course Learning Outcomes for Unit V Upon completion of this unit, students should be able to:

1. Prepare corporate financial statements. 1.1 Recognize how to complete the income statement and balance sheet for a manufacturer.

5. Discuss managerial accounting concepts.

5.1 Compare financial and managerial accounting. 5.2 Articulate current managerial accounting trends.

6. Differentiate cost behavior and cost systems.

6.1 Summarize job order costing. 6.2 Summarize process costing.

Course/Unit Learning Outcomes

Learning Activity

1.1 Unit Lesson Chapter 19, pp. 19-1 to 19-18 Unit V Case Study

5.1

Unit Lesson Chapter 19, pp. 19-1 to 19-18 Video: Financial vs Managerial Accounting Unit V Case Study

5.2

Unit Lesson Chapter 19, pp. 19-1 to 19-18 Video: Financial vs Managerial Accounting Unit V Case Study

6.1

Unit Lesson Chapter 20, pp. 20-1 to 20-22 Chapter 21, pp. 21-1 to 21-23 Unit V Case Study

6.2

Unit Lesson Chapter 20, pp. 20-1 to 20-22 Chapter 21, pp. 21-1 to 21-23 Unit V Case Study

Required Unit Resources Chapter 19: Managerial Accounting, pp. 19-1 to 19-18 Chapter 20: Job Order Costing, pp. 20-1 to 20-22 Chapter 21: Process Costing, pp. 21-1 to 21-23

UNIT V STUDY GUIDE

Management: Cost Systems

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In order to access the following resource, click the link below. For the video resource below, a transcript and closed captioning are available upon accessing the video. Accounting Stuff. (2019, March 25). Financial vs managerial accounting [Video]. Cielo24.

https://c24.page/z7yzks65vd9zwj6zuc5c5pqgqm

Unit Lesson

Introduction

This unit will discuss management accounting, including management concepts, cost behavior, and cost systems. You will differentiate the financial statement content and presentation of this content between manufacturers from merchandisers. There are a number of different definitions for managerial accounting, but for this unit, you will use the definition from the textbook that defines managerial accounting. Management accountants work inside the firm. Their titles vary widely; however, the title of management accountant is rarely used. More likely, management accountants may be a part of an internal consulting staff (in a very large organization) or be the assistant to a functional executive (with a title of vice president, director, or other senior professional). The principal consideration is the use of managerial accounting tools and techniques, which is introduced in Chapter 19 of your textbook. Consider the following questions as you proceed through this lesson.

 As the chief operating officer (COO), what do you expect from internal consulting staff (no matter what their title may be)?

 Would you be interested in pursuing a position as a management consultant?

Managerial Accounting and Financial Accounting It may surprise you to learn that accounting has two major disciplines. These disciplines can be summarized or distinguished as outlined below.

 Financial accountants look at results and reports (looking through the rear view mirror).

 Managerial accountants work across many disciplines in the firm, assisting management with financial and non-financial issues (looking through the front windshield).

The image below illustrates these differences, which can also be found on page 19-4 of the textbook. What does this mean to you? Why is this important to know? What are some examples that you could provide that illustrate the difference between the two?

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Managerial Cost Concepts

In the past, managerial accounting went by the label cost accounting. While cost analysis is a primary responsibility of managerial accountants in many organizations, it is only part of the job. Managerial accounting used to be associated only with manufacturing companies. However, today, managerial accountants are recognized and valued in many different organizations, including service, government, and nonprofits.

Manufacturing Costs While it is understood that not everyone works in a manufacturing environment, it is important that you are able to visualize a product being built, either along some assembly line or in a small or private team operation. The components of a product’s cost are listed below.

 Direct materials (DM) are materials that will directly go into our products (and services).

 Direct labor (DL) is work that goes directly into the production process.

 Manufacturing overhead (MOH) accounts for all manufacturing costs that are not directly associated with the product or service. This is a big category and can include factory building and equipment depreciation, computer technologies shared across disciplines, maintenance of factory facilities, etc. Indirect costs have grown over time as technologies are used more.

There are many ways to categorize costs. The chapter readings for this unit (i.e., Chapters 19, 20, and 21) illustrate the division between product costs and period costs. Product costs are all about the three components (DM, DL, and MOH). Period costs are about non-manufacturing costs, such as advertising, administrative, and executive costs. Focusing on the three product manufacturing cost components, an average estimate may be DM at 50%, DL at 15% and MOH at 35%. Consider a product that you are familiar with; what do you estimate the allocations would be?

Robotics Other than the 2008 financial crisis, there has been no skyrocketing unemployment rates for skilled workers. Wages for skilled workers have continued to increase over the last decades. They have stagnated for unskilled production labor in both manufacturing and non-manufacturing environments. The continuing digital disruption will substantially change future occupations and employment opportunities in the next decade. Robotic manufacturing has been growing since the 1980s, initially in response to the

(Weygandt et al., 2018)

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Japanese manufacturing threat and then as consumer demands for quality and low cost continued to grow. Of course, robots can do much more than assist manufacturing processes. For example, medicine will be a natural venue for robotic assistance in surgery, in general hospital work, and in rehabilitation. For the most part, these costs are a part of the manufacturing overhead. If you were trying to estimate the change in the three components since the 1980s, you would state that DM would have some increase (by percentage), but the larger percentage increase would be for MOH, and DL would decrease (as a percent of the total). Today, the headlines are all about artificial intelligence (AI). AI is projected to have a large impact on many current occupations.

Manufacturing Costs and Financial Reporting Manufacturers must report the same statements as merchandisers. The specific income statement and balance sheet composition are exhibited in the illustrations below, which can also be found on pages 19-11 and 19-13 in the textbook. Rather than using the cost of goods sold (COGS) calculation for a merchandiser, you construct the cost of goods manufactured as expenses in the income statement and utilize a more detailed inventory calculation (finished goods, work in process, and raw materials) in the balance sheet presentation for manufacturers. Review the example below, which shows income statement differences between merchandising and manufacturing companies.

Now, review the example below, which shows the balance sheet differences between merchandising and manufacturing companies.

As with any discipline, change is always taking place. Managerial accounting is no different. The textbook mentions several tools in use by manufactures and by service companies. Advertising, accounting, consulting, and legal firms, just to name a few, produce products for their customers and must manage cost structures. Read and review all of the course units as applicable to both manufacturers and servicers.

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A few of these current trends are outlined below.

 Value chain: This refers to the combination of activities (business processes) that the organization

uses to produce its product or service. Over recent years, new techniques have been applied to workflow management to reduce waste, inventory, and time. Companies, both large and small, have been able to benefit.

 Balanced scorecard: This tracks the use of financial and non-financial performance measures across

all levels of an organization (customized to a job description). The result may be a much more focused, productive firm that includes everyone.

 Business ethics: While examples of bad behavior can be found, legislation and more transparency in

reporting have greatly reduced accounting and management behavior issues.

 Corporate social responsibility: Business is not all about profitability. Corporations have a terrible public image. However, under the U.S. version of capitalism, the firm must know their chosen market (retail or commercial, customers or prospects) and react to their needs, or they will suffer marketplace failure. Stakeholders are not just investors. They include the community in which the firm resides, employees, suppliers, customers, and government.

You have now learned about another major accounting discipline that involves many more people than those that produce the external financial statements.

Job Order Costing There are three costing systems in use (job order, process, and activity-based costing), but only two are allowed in the preparation of a firm’s financial statements (job order and process). Job order costing is the subject of Chapter 20 and will be covered next. So, what is a job? Jobs are relatively easy for us to visualize. A good example is residential construction. Think of a new house being built next-door to you. Every day, a variety of contractors and professionals show up, each with specialized tools and supplies (foundation preparation, concrete delivery, lumber, carpenters, plumbing supplies and plumbers, electrical supplies and electricians, and so forth). As construction continues, day by day, costs are accumulated. In the end, you will have a total cost that the general contractor or builder will use when calculating the gross profit. You have likely seen construction projects of varying sizes from minor renovations and repairs to large-scale commercial buildings. A job can be a single product, like a house, or it can be a batch, such as a car assembly line. Here is an example. If the manufacturer builds 100 sedans of varying colors, which are, otherwise, the same, then the accumulated costs for the 100 sedans is considered a batch (i.e., it is one job). As accountants, you note or record the cost items as they occur. Consider the following three categories in costing.

 Raw materials: As materials are delivered, they are added to the raw materials inventory. As used, they are taken out of inventory and added to the cost of the manufacturer.

 Factory labor: Similarly, as labor is applied to the manufacturing process, it is assigned to the job and accumulated until the product is completed.

 Overhead: Now, we come to what we dread—non-productive costs. Of course, these are not actually

non-productive; they are just indirect costs that cannot be directly assigned to one job. Examples are building depreciation, equipment maintenance, and shared computer resources. These are legitimate manufacturing costs, and they constitute overhead. Based on prior experience, the firm will estimate its overhead for the coming period. We call that the predetermined overhead rate (PDOH). The rate is often based on direct labor hours or machine (equipment) hours. At the end of a period, we know our actual overhead costs and can correct any over or under applied overhead.

Consider the cost of an Apple iPhone or any other smartphone. What are the costs of the components used to assemble the phone? What is the cost of assembly? How does this compare to the cost of the final product paid by consumers? You may be surprised by the cost of materials, labor, and overhead as contrasted to retail product pricing.

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Process Costing The second costing system accepted for financial reporting is process costing. Process costing is used by a relatively small number of firms and industries, but they are very large (e.g., energy, food). What do these industries have in common? They produce very large numbers of identical products. The products cannot be distinguished individually (e.g., a gallon of gasoline, M&Ms candies). Although these industries are very large employers, most consumers are unaware of the complexity involved in managing the production of a necessary product. The case study for process costing is optional. It is recommended for anyone currently employed or who is considering future employment in one of these industries. As individuals and family units, consider your daily use of products from Coca-Cola, Kellogg, Exxon, Texaco, Intel, and AMD. These companies produce what most consider as being necessities of modern life. While different in scale, the cost components are the same as in job order costing.

Conclusion From experience, and as you have read, the costs involved in large-scale process manufacturing is very significant. Although the cost components (materials, labor, and overhead) are the same as in job order costing, you are required to compute equivalent units to know how much is actually produced during a period. For those who may consider an accounting career, consider the following professions: Certified Public Accountant (CPA), which you can find information about at the website Association of International Certified Professional Accountants, and Certified Management Accountant (CMA), which you can learn more about at the website Institute of Management Accountants. Can you now answer the questions posed at the beginning of this lesson? Go back, and check!

Reference Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Accounting principles (13th ed.). Wiley.

https://online.vitalsource.com/#/books/9781119411017

Suggested Unit Resources In order to access the following resources, click the links below. The following article provides a supplemental explanation of manufacturing cost statements and its components. Examples and calculations are provided for clarification and practice. Celender, M. (n.d.). The manufacturing cost statement and its components. Accounting Basics for Students.

http://www.accounting-basics-for-students.com/manufacturing-cost-statement.html For the video resources below, transcripts and closed captioning are available upon accessing the videos. View the video below to learn the importance of job order cost accounting and how this differs from other types of cost accounting systems. Bacalso, R. (2016, January 30). Lesson 1 - What is job order cost accounting? [Video]. Cielo24.

https://c24.page/zphjd7j5kd5j9cfev8yufpvp9j

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The following video discusses the five steps to process costing and includes examples on how to complete this process. ProfAlldredge. (2015, January 12). Process costing: 5 steps to process costing [Video]. Cielo24.

https://c24.page/rbqu5yxz5bz8sdx83sqrncpcc6

Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. This is an opportunity for you to express your thoughts about the material you are studying by writing about it. Conceptual thinking is a great way to study because it gives you a chance to process what you have learned, and it increases your ability to remember it. In order to practice what you have learned, please attempt the exercises and problems below, which can be found in your textbook. Chapter 19:

 Brief Exercises (BE19.2), page 19-27

 Brief Exercises (BE19.6), page 19-28

 Exercises (E19.5), page 19-31

 Exercises (E19.8), page 19-31

 Problems: Set A (P19.3A), page 19-36 Chapter 20:

 Brief Exercises (BE20.2), page 20-30

 Brief Exercises (BE20.6), page 20-30

 Exercises (E20.1), page 20-31

 Exercises (E20.7), page 20-33

 Problems: Set A (P20.2A), pages 20-36 to 20-37 Chapter 21:

 Brief Exercises (BE21.2), page 21-31

 Brief Exercises (BE21.5), page 21-31

 Brief Exercises (BE21.8), page 21-32

 Exercises (E21.3), page 21-33

 Problems: Set A (P21.1A), page 21-38 If you have any questions or do not understand a concept, contact your professor for clarification. Completing these practice exercises and problems will give you practice, which will be helpful as you complete the assignment for this unit.