Lecture Notes For International Accounting, 5th Edition

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Chapter01-TheCrucialRole of ManagerialAccounting in a Dynamic Business EnvironmentManagerial Accounting, 12/e1-1CHAPTER 1THE CRUCIALROLE OF MANAGERIALACCOUNTING IN A DYNAMIC BUSINESS ENVIRONMENTLearning Objectives1-1.Define managerial accounting and describe its role in the management process.1-2.Explain fourfundamental management processes that help organizations attaintheir goals.1-3.List and describe five objectives of managerial accounting activity.1-4.Explain the major differences between managerial and financial 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,treasurer,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 withmanagerial accounting.1-10.Discuss the professional organizations and certifications in the field ofmanagerial accounting.1-11.Describe the ethical responsibilities and ethical standards that apply tomanagerial accounting.

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1-2Instructor's ManualChapter OverviewI.Managerial Accounting: A Business Partnership with ManagementA.What is managerialaccounting?II.Managing Resources, Activities, and PeopleA.Management activities1.Decision making2.Planning3.Directing operational activities4.ControllingIII.How Managerial Accounting Adds Value to the OrganizationA.Objectives of managerialaccounting activity1.Providinginformation for decision making and planning2.Assistingmanagersin directing and controllingoperational activities3.Motivatingmanagers andotheremployeestoward the organization’sgoals4.Measuringtheperformanceofactivities,subunits,managers,andother employees within the organization5.Assessingtheorganization's competitive position, and working withother managers to ensure the organization's long-run competitivenessin its industryB.Balanced Scorecard1.Financial Perspective2.Customer Perspective3.Internal Business Process Perspective4.Learning and Growth PerspectiveIV.ManagerialAccounting in Different Types of Organizations1.Profit-seeking or nonprofit enterprisesneedinformation2.Managerial accounting information is vital in all typesof organizations3.The five basic purposes of managerial accounting activityare relevantin each of these organizationsV.Managerialversus Financial Accounting1.Focus of reports2.External vs. internal users of information3.Degree of regulation4.Information focusVI.Where Do We Find Managerial Accountants in an Organization?A.Organization Chart1.Line and staff positions2.CFO or controller3.Treasurer4.Internal auditorB.Cross-Functional Deployment

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Chapter01-TheCrucialRole of ManagerialAccounting in a Dynamic Business EnvironmentManagerial Accounting, 12/e1-3VII.The Operational Context of Managerial AccountingA.Managerial Accounting and the Value ChainB.Capacity and Capacity CostsC.Big Data, Data Analytics, and Managerial AccountingVIII.Managerial Accounting as a CareerA.Professional OrganizationsB.Professional CertificationIX.Managerial Accounting and the Ethical Climate of BusinessA.Sarbanes-OxleyB.PCAOBC.IMA

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1-4Instructor's ManualKey Lecture ConceptsI.Managerial Accounting: A BusinessPartnership with Management•Types of organizations include manufacturers, retailers, service providers,agribusinesses, and nonprofit firms. These organizations have goalssuchasgrowth, profit, quality, leadership, etc.•Organizations have information needs in the financial, production,personnel, environmental, and legal areas. Managerial accountingprovides some of this information.Managerial accountingis the processof identifying, measuring, analyzing, interpreting, and communicatinginformation in pursuit of an organization's goals.•The role of managerial accountants has expanded in recent years.Managerial accountantsare specialists in using the tools of managerialaccounting to help the organization and its managers run the operationsmoothly. Formerly in staff positions, managerial accountants now serveas internal business consultants, trusted advisors, and "business partners."II.Managing Resources, Activities, and People•Management functions performed within an organization can often besummarized as decision making, planning, the directing of operationalactivities, and controlling.➢Decision making—theprocess of choosing among availablealternatives➢Planning—developinga detailed financial and operationaldescription of anticipated operations➢Directing operational activities—runningthe organization on aday-to-day basis➢Controlling—ensuringthat the organization operates in theintended manner to achieve its goals

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Chapter01-TheCrucialRole of ManagerialAccounting in a Dynamic Business EnvironmentManagerial Accounting, 12/e1-5III.How Managerial Accounting AddsValue to the OrganizationManagerial accounting:•Provides managers with information (e.g., product costs, budgets, cashflows). The information includes financial and nonfinancial data to helpmanagers with strategic planning and decision making.•Assists in directing and controlling (analyzing and comparing actualperformance to budgeted plans;attention-directingto highlightsuccessful or problem areas).•Motivates managers to achieve the organization's goals by communicatingthe plans, providing a measurement of how well the planswereachieved,and prompting an explanation of deviations from plans.•Measures performance not only for the entire organization, as in financialaccounting, but also for many subunits (divisions, departments,managers).•Assesses the organization's competitive position in the rapidly changingbusiness environment. Looks at how well the firm is doing internally, inthe eyes of its customers, from the standpoint of innovation andcontinuous improvement, andfinancially.➢The preceding factors are integrated in a model of performanceevaluation known as thebalanced scorecard.IV.Managerial Accounting in Different Types of Organizations.•Profit-seeking or nonprofit enterprisesneed information.•Managerial accounting information is vital in all typesof organizations.Some organizations that have managerial accountants include:•Ford(manufacturing)•J.Crew (retail)•GoDaddy.com (Internet)•American Airlines (transportation)

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1-6Instructor's Manual•Marriott Hotels(tourism)•Goldman Sachs (financial services)•The Universityof Texas (education)•TheAmerican Red Cross (nonprofit)•M. D. Anderson CancerCenter (health care)•U.S. Department of Defense (government)•The five basic purposes of managerial accounting activityare relevant ineach of these organizations.V.ManagerialversusFinancial Accounting➢Financial accountingis intended for external users (investors,creditors, etc.);is heavily regulated by the FASB, SEC; is mandatoryforpublicly-traded companies; is historic in nature.➢Managerial accountingis intended for internal users (managers); isnot heavily regulated; is not mandatory but rather is adopted basedon costs/benefits; is future-oriented.VI.WhereDo We FindManagerial Accountants in an Organization?•Linepersonnel are directly involved in carrying out the mission of theorganization (e.g., assembly workers in a factory, doctors in a hospital,teachers in a school).•Staffpersonnel (accountants, lawyers, personnel directors, and otheradministrative positions) provide support for the organization's mission.➢An accountant in a CPA firm would be in a line position, becausethe organization's mission is providing accounting services. Incontrast, an accountant at a university would be in a staff position.•Thechief financial officer (CFO)orcontrolleris the chief accountantresponsible for the supervision of the accounting department, preparationof reports, and the interpretation of information to line managers.

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Chapter01-TheCrucialRole of ManagerialAccounting in a Dynamic Business EnvironmentManagerial Accounting, 12/e1-7•Thetreasureris responsible for raising capital, safeguarding assets,andmanaging investments, insurance coverage, and the credit policy of anorganization.•Theinternal auditorreviews accounting procedures, reports, andperformance on behalf of top management.•More and more, managerial accountants work throughout an entireenterprise and are deployed in cross-functional management teams,working with top executives andpersonnel from a variety of functionalareas (e.g., marketing, production, engineering, and operations).VII.The Operational Context of Managerial Accounting•More attention is being paid to thevalue chain—theset of linked, value-creating activities, from conducting product research, to manufacturing, toproviding customer service.➢A number of activities occur prior to the production of a good orservice (i.e., upstream activities) and several occur after (so-calleddownstream activities).•To achieve an organization's goals, managers must understand the entirevalue chain as well as the related cost-causing factors(cost drivers).•Managing the cost relationships within a value chain to the firm'sadvantage is calledstrategic cost management.•A key objective of managerial accounting information is the managementof an organization’s capacity and the costs of providing that capacity.➢Capacityis the upper limit on the amount of goods or services thatan organization can produce in a specifiedperiod of time. There arevarious concepts of an organization’s capacity:➢Theoretical capacityrefers to the upper limit on productionof goods or services if everything works perfectly.➢Practical capacityallows for normal occurrences such asmachine downtime and employee fatigue or illness.•Important questions for the managerial accounting system to address are:➢What is an organization’spractical capacity?➢What are the costs of theresources suppliedto provide that capacity?➢How have thoseresourcesbeenusedin creating value?(And,

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1-8Instructor's Manualtherefore, what is the unused capacity and how is it managed?)➢Thevast trove of data that is generated in an organization, together withthe data it can acquire to supplement and provide context for its internaldata, is often referred to asbig data. While presenting organizations withthe opportunity to improve their operations, big data also brings bigchallenges.VIII.Managerial Accounting as a Career•The Institute of Management Accountants (IMA) administers theCertified Management Accountant (CMA)program. Students interestedin internalaccounting rather than employment in a public accounting firmmay wish to pursue this designation.IX.Managerial Accountingand theEthicalClimateof Business➢There is a fairly long history of corporate scandalsthathave involvedmismanagement, alleged ethical lapses, and criminal behavior. Causes ofthese scandals were attributable to:➢Greedy corporate executives, managers who made over-reachingbusiness deals,and a lack of oversight by boards of directors andaudit committees.➢Substandardwork by external auditors, a lack of sufficient probingby Wall Street analysts and the financial press, andpressure tomeet market expectations.➢Various reforms havebeenimplemented toremedy deficiencies incorporate governance and accounting. For example,after thenotoriousEnron scandal, in 2002the Sarbanes-Oxley Actwas passed. Its impact hasbeen significant. Itboth:➢Created the Public Company Accounting Oversight Board(PCAOB) to establish auditing standards and provide for an auditquality review process, and➢Limitedthe types of non-audit work that public accounting firmscan perform for their audit clients.•Professional ethics require high standards of conduct frommanagementaccountants in the areas of competence, confidentiality, integrity, and

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Chapter01-TheCrucialRole of ManagerialAccounting in a Dynamic Business EnvironmentManagerial Accounting, 12/e1-9credibility.Teaching Tip:If you plan to highlight ethics throughout the course, you may wantto spend extra time in class discussing theFocus on Ethicsboxat the end of thischapter. The box summarizes the standards of conduct just noted by the use ofvarious detailed examples.Teaching OverviewThe main objective of the firsttwoclass meetingsis to help students understand theoverall context in which managerial accounting satisfies the information needs of anenterprise.I urge students to think not only about the discipline in its current form butalso how it should evolve to meet the changing needs of organizations. Therefore, thefirsttwoclassesinclude not only the usual discussion of the syllabus but also the role ofthe management accountant in an organization, the differences between financialaccounting and managerial accounting, managerial accounting as a tool for managers,and emerging trends in the field. It is especially important to stress the cost-benefittheme, 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 discussion of their ideas early on. (I also want tocommunicate the need for student participation—not always an easy task if the group islarge.) After some discussion, I like to conclude thesecond classby having the studentssuggest some accounting information needs that they feel managers have in the currentbusiness environment. Their suggestions usually include: how much does my productor service cost? How much inventory should I have on hand? At what point does mybusiness breakeven? How do I put together a budget? How do I project cash flows? Asclass ends, I tell students that these are the very issues we will be working on during thesemester and that one of our first tasks will be to answer the basic question,"How canwe calculate the cost to produce a product or service?"In summary,bythe end of thesecondclass, students should have a basic understanding of managerial accounting'spurposeand appreciatetheneed tostudy the discipline.

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1-10Instructor's ManualLinks to the TextHomework Grid–CHAPTER 1Item No.LearningObjectivesCompletionTime (min.)SpecialFeatures*Exercises:1-251, 2, 3251-263, 4201-271, 3, 530C1-287,9C, GProblems:1-295, 6,8,925W1-30345W1-316, 7, 10, 1125E, W1-324, 6, 9, 1040E, WCases:1-331, 3, 6, 10,1140E, W*W = written responseE = Ethical issueG = Group workI = InternationalC = Internet use

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Chapter 02-Basic Cost Management ConceptsManagerial Accounting, 12/e2-1CHAPTER 2BASIC COST MANAGEMENT CONCEPTSLearning Objectives2-1.Explain what is meant by the wordcost.2-2.Distinguish among product costs, period costs, and expenses.2-3.Describethe role of costs in published financial statements.2-4.Listand describe four types of manufacturing processes.2-5.Giveexamples of three types of manufacturing costs.2-6.Preparea schedule of cost of goods manufactured, a schedule of cost of goodssold, and an income statement for a manufacturer.2-7.Understandthe importance of identifying an organization’s cost drivers.2-8.Describethe behavior of variable and fixed costs, in total and on a per-unit basis.2-9.Distinguishamong direct, indirect, controllable, and uncontrollable costs.2-10.Defineand give examples of an opportunity cost, an out-of-pocket cost, a sunkcost, a differential cost, a marginal cost, and an average cost.

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2-2Instructor's ManualChapter OverviewIWhatDo We Mean by a Cost?A.Costs at the most basic levelB.Product costs, period costs, and expensesII.CostsonFinancial StatementsA.Income statement1.Operating Expenses2.Gross Profit and Operating Income3.Costs of manufactured inventoryB.Balance sheet1.Raw-materials inventory2.Work-in-process inventory3.Finished-goods inventoryIII.Manufacturing Operations and Manufacturing CostsA.Job shop, batch, assembly line, continuous flowB.Assembly manufacturingC.Manufacturing costs1.Direct material2.Direct labor3.Manufacturing overheadi.Indirect materialii.Indirect laboriii.Other manufacturing costsa)Servicedepartmentsb)Supportdepartmentsc)Overtimepremiumd)Idle time4.Totalmanufacturingcosts,conversion costs, prime costsIV.Manufacturing Cost FlowsA.Cost of goods manufacturedB.Cost ofgoodssoldV.Non-Manufacturing Production CostsA.ServicefirmsB.Non-profit organizationsVI.Basic Cost Management Concepts: Different Costs for Different PurposesA.Costdrivers

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Chapter 02-Basic Cost Management ConceptsManagerial Accounting, 12/e2-3B.Variable andfixedcosts1.Variablecosts2.Fixedcosts3.Graphicalperspectives4.Management Accounting Practice: Health Care Industryi.Affordable Care ActC.Costmanagement andaccountability1.Costmanagementsystems2.Direct and indirect costs3.Controllable anduncontrollable costsD.Economiccostconcepts1.Opportunity costs2.Out-of-pocket costs3.Sunk costs4.Differentialand incrementalcosts5.Marginal andaverage CostsE.Costs andbenefits ofinformationVII.Costs in the Service IndustryA.Product and period costsB.Variable and fixed costsC.Direct andindirectD.Controllable and uncontrollable costsD.Opportunity, out-of-pocket,and sunk costsE.Differential, marginal,and average costsKey Lecture ConceptsI.What Do We Mean by a Cost?•Acostis the sacrifice made to achieve a particular purpose.•There are different costs for different purposes, with costs that areappropriate for one use being totally inappropriate for others (e.g., a costthat is used to determine inventory valuation may be irrelevant indeciding whether or not to manufacture that same product).•Anexpenseis defined as the cost incurred when an asset is used up orsold for the purpose of generating revenue. The terms"product cost"and"period cost"are used to describe the timing with which expenses arerecognized.➢Product costsare the costs of goods manufactured or the cost of

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2-4Instructor's Manualgoods purchased for resale. These costs are inventoried until thegoods are sold.➢Period costsare all other non-product costs in an organization (e.g.,selling and administrative). Such costs are not inventoried but areexpensed as time passes.II.Costs on Financial Statements•Product costs are shown as cost of goods sold on the income statementwhen goods are sold. Income statements of service enterprises lack a cost-of-goods-sold section and instead revealafirm's operating expenses.•Product costs, housedon the balance sheetuntil sale,are found in threeinventory accounts:➢Raw materials—materialsthat await production➢Work in process—partiallycompleted production➢Finished goods—completedproduction that awaits sale•Gross profit(sometimes calledgross margin) is the portion of revenues left afterdeducting just the costs that have been classified as cost of sales (cost ofgoods/products sold), without considering any other costs of operating thecompany.•Operating income(sometimes calledoperating profit)goes one step further toreport the profit remaining from revenues after deducting both cost of salesandall period costs of operationsIII.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—afew major products; higher volume➢Continuous flow—high volume; highly standardized commodity

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Chapter 02-Basic Cost Management ConceptsManagerial Accounting, 12/e2-5products•Direct materials—materials easily traced to a finished product (e.g., theseat 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:➢Indirect materials—materialsand supplies other than thoseclassified as direct materials.➢Indirect labor—personnelwho do not work directly on the product(e.g., manufacturing supervisors), and➢Other manufacturing costs not easily traceable to a finished good(insurance, property taxes, depreciation,utilities, andservice/support department costs).Overtime premiums and thecost of idle time are also accounted for as overhead.➢Idle time—time that is not spent productively by an employeedue to such events as equipment breakdowns or new setups ofproduction runs.•Conversion cost(the cost to convert direct materials into finishedproduct): direct labor + manufacturing overhead•Prime cost:direct material + direct laborIV.Manufacturing Cost Flows•Manufacturing costs (direct materials, direct labor, and manufacturingoverhead) are"put in process"and attached to work-in-process inventory.The goods are completed (finished goods), and the costs are then passedalong to cost of goods sold upon sale.•Cost of goods manufactured:Direct materials used + direct labor +manufacturing overhead + beginning work-in-process inventory-endingwork-in-process inventory➢This amount is transferred from work-in-process inventory tofinished-goods inventory when goods are completed.

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