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Lecture Notes For International Accounting, 5th Edition

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    Chapter 0 1 - The Crucial Role of Managerial Accounting i n a Dynamic Business Environmen t Managerial Accounting, 12/e 1-1 CHAPTER 1 THE C RUCIAL ROLE OF MANAGERIAL ACCOUNTING IN A DYNAMIC BUSINESS ENVIRONMENT Learning Objectives 1 - 1 . Define managerial accounting and describe its role in the management process. 1 - 2. Explain four fundamental management processes that help organi za tions attain their goals. 1 - 3. List and describe five objectives of managerial accounting activity. 1 - 4. Explain the major differences between managerial and finan cial accounting. 1 - 5. Describe the accounting and finance structure in an organization. 1 - 6. Describe the roles of an organization ' s chief financial officer (CFO) or controller, trea surer, and internal auditor. 1 - 7. Understand and explain the value chain concept. 1 - 8. Explain how investments in capacity affect managerial decision making. 1 - 9 . Understand and explain big data and data analytics and how they interact with managerial accounting. 1 - 10. Discuss the professional organizations and certifications in the field of managerial accounting. 1 - 11. Describe the ethical responsibilities and ethical standards that apply to managerial accounting.

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    1-2 Instructor's Manual Chapter Overview I. Managerial Accounting: A Business Partnership with Management A. What is managerial accounting? I I . Managing Resources, Activities, and People A . Management activities 1. Decision making 2. Planning 3. Directing operational activities 4. Controlling III . How Managerial Accounting Adds Value to the Organization A. Objectives of managerial accounting activity 1. Providing information for decision making and planning 2. Assist ing managers in directing and controlling operational activities 3. Motivat ing managers and other employees toward the organization’s goals 4. Measur ing the performance of activities, subunits, managers, and other employees within the organization 5. Assess ing the organization's competitive position , and working with other managers to ensure the organization's long - run competitiveness in its industry B. Balanced Scorecard 1. Financial Perspective 2. Customer Perspective 3. Internal Business Process Perspective 4. Learning and Growth Perspective IV . Managerial Accounting in Different Types of Organizations 1. P rofit - seeking or nonprofit enterprises need information 2. M anagerial accounting information is vital in all types of organizations 3. T he five basic purposes of managerial accounting activity are relevant in each of these organizations V. Managerial v ersus Financial Accounting 1. Focus of reports 2. External vs. internal users of information 3. Degree of regulation 4. Information focus VI . Where Do We Find Managerial Accountants in an Organization? A. Organization Chart 1. Line and staff positions 2. CFO or controller 3. Treasurer 4. Internal auditor B. Cross - Functional Deployment

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    Chapter 0 1 - The Crucial Role of Managerial Accounting i n a Dynamic Business Environmen t Managerial Accounting, 12/e 1-3 VII . The Operational Context of Managerial Accounting A. Managerial Accounting and the Value Chain B. Capacity and Capacity Costs C. Big Data, Data Analytics, and Managerial Accounting V III . Managerial Accounting as a Career A. Professional Organizations B. Professional Certification IX . Managerial Accounting and the Ethical Climate of Business A. Sarbanes - Oxley B. PCAOB C. IMA

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    1-4 Instructor's Manual Key Lecture Concepts I. Managerial Accounting: A Business Partnership with Management • Types of organizations include manufacturers, retailers, service providers, agribusinesses, and nonprofit firms. These organizations have goals such as growth, profit, quality, leadership, etc. • Organizations have information needs in the financial, production, personnel, environmental, and legal areas. Managerial accounting provides some of this information. Managerial accounting is the process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an organization's goals. • The role of managerial accountants has expanded in recent years. Managerial accountants are specialists in using the tools of managerial accounting to help the organization and its managers run the operation smoothly. Formerly in staff positions, managerial accountants now serve as internal business consultants, trusted advisors, and "business partners." II. Managing Resources, Activities, and People • Management functions performed within an organization can often be summarized as decision making, planning, the directing of operational activities, and controlling. ➢ Decision making — the process of choosing among available alternatives ➢ Planning — developing a detailed financial and operational description of anticipated operations ➢ Directing operational activities — running the organization on a day - to - day basis ➢ Controlling — ensuring that the organization operates in the intended manner to achieve its goals

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    Chapter 0 1 - The Crucial Role of Managerial Accounting i n a Dynamic Business Environmen t Managerial Accounting, 12/e 1-5 III. How Managerial Accounting Adds Value to the Organization Managerial accounting: • Provides managers with information (e.g., product costs, budgets, cash flows). The information includes financial and nonfinancial data to help managers with strategic planning and decision making. • Assists in directing and controlling (analyzing and comparing actual performance to budgeted plans; attention - directing to highlight successful or problem areas). • Motivates managers to achieve the organization's goals by communicating the plans, providing a measurement of how well the plan s were achieved, and prompting an explanation of deviations from plans. • Measures performance not only for the entire organization, as in financial accounting, but also for many subunits (divisions, departments, managers). • Assesses the organization's competitive position in the rapidly changing business environment. Looks at how well the firm is doing internally, in the eyes of its customers, from the standpoint of innovation and continuous improvement, and financially. ➢ The preceding factors are integrated in a model of performance evaluation known as the balanced scorecard. IV. Managerial Accounting in Different Types of Organizations. • P rofit - seeking or nonprofit enterprises need information . • M anagerial accounting information is vital in all types of organizations . Some organizations that have managerial accountants include: • Ford (manufacturing) • J.Crew (retail) • GoDaddy.com (Internet) • Amer ican Airlines (transportation)

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    1-6 Instructor's Manual • Marriott Hotels (tourism) • Gold man Sachs (financial services) • The Universityof Texas (education) • The American Red Cross (nonprofit) • M. D. Anderson Cancer Center (health care) • U.S. Department of Defense (government) • T he five basic purposes of managerial accounting activity are relevant in each of these organizations . V. Managerial versus Financial Accounting ➢ Financial accounting is intended for external users (investors, creditors, etc.); is heavily regulated by the FASB, SEC; is mandatory for publicly - traded companies; is historic in nature. ➢ Managerial accounting is intended for internal users (managers); is not heavily regulated; is not mandatory but rather is adopted based on costs/benefits; is future - oriented. VI. Where Do We Find Managerial Accountants in an Organization? • Line personnel are directly involved in carrying out the mission of the organization (e.g., assembly workers in a factory, doctors in a hospital, teachers in a school). • Staff personnel (accountants, lawyers, personnel directors, and other administrative positions) provide support for the organization's mission. ➢ An accountant in a CPA firm would be in a line position, because the organization's mission is providing accounting services. In contrast, an accountant at a university would be in a staff position. • The chief financial officer (CFO) or controller is the chief accountant responsible for the supervision of the accounting department, preparation of reports, and the interpretation of information to line managers.

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    Chapter 0 1 - The Crucial Role of Managerial Accounting i n a Dynamic Business Environmen t Managerial Accounting, 12/e 1-7 • The treasurer is responsible for raising capital, safeguarding assets, and managing investments, insurance coverage, and the credit policy of an organization. • The internal auditor reviews accounting procedures, reports, and performance on behalf of top management. • More and more, managerial accountants work throughout an entire enterprise and are deployed in cross - functional management teams, working with top executives and personnel from a variety of functional areas (e.g., marketing, production, engineering, and operations). VII. The Operational Context of Managerial Accounting • More attention is being paid to the value chain — the set of linked, value - creating activities, from conducting product research, to manufacturing, to providing customer service. ➢ A number of activities occur prior to the production of a good or service (i.e., upstream activities) and several occur after (so - called downstream activities). • To achieve an organization's goals, managers must understand the entire value chain as well as the related cost - causing factors (cost drivers). • Managing the cost relationships within a value chain to the firm's advantage is called strategic cost management . • A key objective of managerial accounting information is the management of an organization’s capacity and the costs of providing that capacity . ➢ Capacity is the upper limit on the amount of goods or services that an organization can produce in a specified period of time. There are various concepts of an organization’s capacity : ➢ Theoretical capacity refers to the upper limit on production of goods or services if everything works perfectly. ➢ Practical capacity allows for normal occurrences such as machine downtime and employee fatigue or illness. • Important questions for the managerial a ccounting system to address are: ➢ What is an organization’s practical capacity? ➢ What are the costs of the resources supplied to provide that capacity? ➢ How have those resources been used in creating value? ( And ,

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    1-8 Instructor's Manual therefore, what is the unused capacity and how is it managed?) ➢ Th e vast trove of data that is generated in an organization, together with the data it can acquire to supplement and provide context for its internal data, is often referred to as big data . While presenting organizations with the opportunity to improve their operations, big data also brings big challenges. V III . Managerial Accounting as a Career • The Institute of Management Accountants (IMA) administers the Certified Management Accountant (CMA) program. Students interested in internal accounting rather than employment in a public accounting firm may wish to pursue this designation. IX . Managerial Accounting and the Ethical Climate of Business ➢ There is a fairly long history of c orporate scandals that have involved mismanagement, alleged ethical lapses, and criminal behavior. Causes of these scandals were attributable to: ➢ Greedy corporate executives, managers who made over - reaching business deals , and a lack of oversight by boards of directors and audit committees. ➢ Substandard work by external auditors, a lack of sufficient probing by Wall Street analysts and the financial press, and pressure to meet market expectations. ➢ Various reforms have been implemented to remedy deficiencies in corporate governance and accounting. For example, after the notorious Enron scandal , in 2002 the Sarbanes - Oxley Act was passed. Its impact has been significant . I t both : ➢ Created the Public Company Accounting Oversight Board (PCAOB) to establish auditing standards and provide for an audit quality review process, and ➢ Limit ed the types of non - audit work that public accounting firms can perform for their audit clients. • Professional ethics require high standards of conduct from management accountants in the areas of competence, confidentiality, integrity, and

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    Chapter 0 1 - The Crucial Role of Managerial Accounting i n a Dynamic Business Environmen t Managerial Accounting, 12/e 1-9 credibility. Teaching Tip: If you plan to highlight ethics throughout the course, you may want to spend extra time in class discussing the Focus on Ethics box at the end of this chapter. The box summarizes the standards of conduct just noted by the use of various detailed examples. Teaching Overview The main objective of the first two class meeting s is to help students understand the overall context in which managerial account ing satisfies the information needs of an enterprise. I urge students to think not only about the discipline in its current form but also how it should evolve to meet the changing needs of organiza tions. Therefore, the first two class es include not only the usual discussion of the syllabus but also the role of the management accountant in an organization, the differences between finan cial accounting and managerial accounting, managerial account ing as a tool for managers, and emerging trends in the field. It is especially important to stress the cost - benefit theme, as cost - benefit analysis will surface throughout the course and text. Students have very insightful thoughts on the emerging trends in business today. Therefore, I try to generate some discus sion of their ideas early on. (I also want to communicate the need for student participation — not always an easy task if the group is large.) After some discussion, I like to conclude the second class by having the students suggest some accounting informa tion needs that they feel mana gers have in the current business environment. Their sugges tions usually include: how much does my product or service cost? How much inventory should I have on hand? At what point does my business break even? How do I put together a budget? How do I project cash flows? As class ends, I tell students that these are the very issues we will be working on during the semester and that one of our first tasks will be to answer the basic ques tion, " H ow can we calculate the cost to produce a product or service? " In summary, by the end of the second class, students should have a basic understand ing of managerial accounting ' s purpose and appreciat e the need to study the discipline.

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    1-10 Instructor's Manual Links to the Text Homework Grid – CHAPTER 1 Item No. Learning Objectives Completion Time (min.) Special Features* Exercises: 1 - 25 1, 2, 3 25 1 - 26 3, 4 2 0 1 - 27 1, 3, 5 30 C 1 - 28 7 , 9 C, G Problems: 1 - 29 5, 6, 8 , 9 25 W 1 - 30 3 45 W 1 - 31 6, 7, 10 , 11 25 E, W 1 - 32 4, 6, 9, 10 40 E, W Cases: 1 - 33 1, 3, 6, 10 , 11 40 E, W * W = written response E = Ethical issue G = Group work I = International C = Internet use

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    C hapter 0 2 - Basic Cost Management Concepts Managerial Accounting, 12/e 2-1 CHAPTER 2 BASIC COST MANAGEMENT CONCEPTS Learning Objectives 2 - 1 . Explain what is meant by the word cost . 2 - 2 . Distinguish among product costs, period costs, and expenses. 2 - 3 . Describe the role of costs in published financial statements. 2 - 4 . List and describe four types of manufacturing processes. 2 - 5 . Give examples of three types of manufacturing costs. 2 - 6 . Prepare a schedule of cost of goods manufactured, a schedule of cost of goods sold, and an income statement for a manufacturer. 2 - 7 . Understand the importance of identifying an organization’s cost drivers. 2 - 8 . Describe the behavior of variable and fixed costs, in total and on a per - unit basis. 2 - 9 . Distinguish among direct, indirect, controllable, and uncontrollable costs. 2 - 10 . Define and give examples of an opportunity cost, an out - of - pocket cost, a sunk cost, a differential cost, a marginal cost, and an average cost.

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    2-2 Instructor's Manual Chapter Overview I What Do We Mean by a Cost ? A. Costs at the most basic level B. Product costs, period costs, and expenses II. Costs on Financial Statements A. Income statement 1. Operating Expenses 2. Gross Profit and Operating Income 3. Costs of manufactured inventory B. Balance sheet 1. Raw - materials inventory 2. Work - in - process inventory 3. Finished - goods inventory III. Manufacturing Operations and Manufacturing Costs A. Job shop, batch, assembly line, continuous flow B. Assembly manufacturing C. Manufacturing c osts 1. Direct material 2. Direct labor 3. Manufacturing overhead i. Indirect material ii. Indirect labor iii. Other manufacturing costs a) Service d epartments b) Support d epartments c) Overtime p remium d) Idle time 4. Total m anufacturing c osts, c onversion cost s , prime cost s IV. Manufacturing Cost Flows A. Cost of goods manufactured B. Cost of g oods s old V. Non - Manufacturing Production Costs A. Service f irms B. Non - profit organizations VI. Basic Cost Management Concepts : Different Costs for Different Purposes A. Cost d rivers

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    C hapter 0 2 - Basic Cost Management Concepts Managerial Accounting, 12/e 2-3 B. Variable and f ixed c osts 1. Variable costs 2. Fixed c osts 3. Graphical p erspectives 4. Management Accounting Practice: Health Care Industry i. Affordable Care Act C. Cost m anagement and a ccountability 1. Cost m anagement s ystems 2. Direct and indirect costs 3. Controllable and u ncontrollable costs D. Economic c ost c oncepts 1. Opportunity costs 2. Out - of - pocket costs 3. Sunk costs 4. Differential and incremental costs 5. Marginal and a verage Costs E. Costs and b enefits of i nformation VII. Costs in the Service Industry A. Product and period costs B. Variable and fixed costs C. Direct and i ndirect D. Controllable and uncontrollable costs D. Opportunity, out - of - pocket , and sunk costs E. Differential, marginal , and average costs Key Lecture Concept s I . What Do We Mean by a Cost? • A cost is the sacrifice made to achieve a particular purpose. • There are different costs for different purposes, with costs that are appropriate for one use being totally inappropriate for others (e.g., a cost that is used to determine inventory valuation may be irrelevant in deciding whether or not to manufacture that same product). • An expense is defined as the cost incurred when an asset is used up or sold for the purpose of generating revenue. The terms " product cost " and " period cost " are used to describe the timing with which expenses are recognized. ➢ Product costs are the costs of goods manufactured or the cost of

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    2-4 Instructor's Manual goods purchased for resale. These costs are inventoried until the goods are sold. ➢ Period costs are all other non - product costs in an organization (e.g., selling and administrative). Such costs are not inventoried but are expensed as time passes. II . Costs on Financial Statements • Product costs are shown as cost of goods sold on the income statement when goods are sold. Income statements of service enterprises lack a cost - of - goods - sold section and instead reveal a firm ' s operating expenses. • Product costs , housed on the balance sheet until sale, are found in three inventory accounts: ➢ Raw materials — materials that await production ➢ Work in process — partially completed production ➢ Finished goods — completed production that awaits sale • Gross profit (sometimes called gross margin ) is the portion of revenues left after deducting just the costs that have been classified as cost of sales (cost of goods/products sold), without considering any other costs of operating the company. • Operating income ( sometimes called operating profit ) goes one step further to report the profit remaining from revenues after deducting both cost of sales and all period costs of operations III. Manufacturing Operations and Manufacturing Costs • There are various types of production processes; for example: ➢ Job shop — low production volume, little standardization; one - of - a - kind products ➢ Batch — multiple products; low volume ➢ Assembly line — a few major products; higher volume ➢ Continuous flow — high volume; highly standardized commodity

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    C hapter 0 2 - Basic Cost Management Concepts Managerial Accounting, 12/e 2-5 products • Direct materials — materials easily traced to a finished product (e.g., the seat on a bicycle ) • Direct labor — the wages of anyone who works directly on the product (e.g., the assembly - line wages of the bicycle manufacturer) • Manufacturing overhead — all other manufacturing costs such as : ➢ I ndirect materials — materials and supplies other than those classified as direct materials . ➢ I ndirect labor — personnel who do not work directly on the product (e.g., manufacturing supervisors ), and ➢ O ther manufacturing costs not easily traceable to a finished good (insurance, property taxes, depreciation, utilities , and service/support department costs ). Overtime premiums and the cost of idle time are also accounted for as overhead. ➢ Idle time — time that is not spent productively by an employee due to such events as equipment breakdowns or new setups of production runs. • Conversion cost (the cost to convert direct materials into finished product): direct labor + manufacturing overhead • Prime cost: direct material + direct labor IV. Manufacturing Cost Flows • Manufacturing costs (direct materials, direct labor, and manufacturing overhead) are " put in process " and attached to work - in - process inventory. The goods are completed (finished goods), and the costs are then passed along to cost of goods sold upon sale. • Cost of goods manufactured: Direct materials used + direct labor + manufacturing overhead + beginning work - in - process inventory - ending work - in - process inventory ➢ This amount is transferred from work - in - process inventory to finished - goods inventory when goods are completed.

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