An Introduction to Managerial Accounting and Cost Concepts

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Chapter 1

An Introduction to Managerial Accounting and Cost Concepts

Introduction to Managerial Accounting

MSc. Mohammad Hicham Khalil

Objectives
1. Comparison of Financial and Managerial 2. 3. 4. 5. 6. 7. 8.

Accounting. General Cost Classifications. Product Cost versus Period Cost. Cost Classifications on Financial Statements. Cost Classifications for Predicting Cost Behavior. Cost Classification for Assigning Costs to Cost Objectives. Cost Classification for Decision Making. Review Problems MSc. Mohammad Hicham Khalil

Introduction to Managerial Accounting

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Learning Objective 1

Comparison of Financial and Managerial Accounting

Introduction to Managerial Accounting

MSc. Mohammad Hicham Khalil

Comparison of Financial and Managerial Accounting
Managerial Accounting: is concerned with providing information to p g managers (people inside an organization) who direct and control its operations. Financial Accounting: is concerned with providing information to stockholders, creditors and other who are outside an organization.

Introduction to Managerial Accounting

MSc. Mohammad Hicham Khalil

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Comparison of Financial and Managerial Accounting
Financial Accounting
1. Users 2. Time focus 3. Verifiability versus relevance 4. Precision versus timeliness 5. 5 Subject 6. GAAP 7. Requirement External persons who make financial decisions Historical perspective Emphasis on verifiability Emphasis on precision Primary focus is on the whole organization Must follow GAAP and prescribed formats Mandatory for external reports

Managerial Accounting
Managers who plan for and control an organization Future emphasis Emphasis on relevance for planning and control Emphasis on timeliness Focuses on segments of an organization Need not follow GAAP or any prescribed format Not Mandatory MSc. Mohammad Hicham Khalil

Introduction to Managerial Accounting

Learning Objective 2

General Cost Classifications

Introduction to Managerial Accounting

MSc. Mohammad Hicham Khalil

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General Cost Classifications
1. Manufacturing Costs:

Direct Materials Materials. Direct Labor. Manufacturing Overhead. 2. Nonmanufacturing Costs:

Selling Costs. Administrative Costs. Costs

Introduction to Managerial Accounting

MSc. Mohammad Hicham Khalil

Manufacturing Costs
Most manufacturing companies divide manufacturing costs into three categories: g g Direct Materials. Direct Labor. Manufacturing Overhead.

Introduction to Managerial Accounting

MSc. Mohammad Hicham Khalil

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Manufacturing Costs
Direct Materials Direct Labor Manufacturing g Overhead

The Product

Introduction to Managerial Accounting

MSc. Mohammad Hicham Khalil

Direct Materials Raw materials that become an integral part of the product and i t l t f th d t d that can be conveniently traced directly to it.

Example: A radio installed in an automobile
Introduction to Managerial Accounting MSc. Mohammad Hicham Khalil

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Direct Labor Those labor costs that can be easily traced to individual units of product.

Example: Wages paid to automobile assembly workers

Introduction to Managerial Accounting

MSc. Mohammad Hicham Khalil

Manufacturing Overhead
Manufacturing costs cannot be traced directly to specific units produced produced. Examples: Indirect materials and indirect labor Materials used to support the production process. Examples: glue and solder used in the automobile assembly plant.

Wages paid to employees who are not directly involved in production i l di d ti work. Examples: Maintenance workers, janitors and security guards. MSc. Mohammad Hicham Khalil

Introduction to Managerial Accounting

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Note…
Raw material:
Direct Material. Material Indirect Material.

Labor:
Direct Labor. Indirect Labor.

Introduction to Managerial Accounting

MSc. Mohammad Hicham Khalil

Indirect Material
It is not worth the effort to trace its cost . Insignificant...
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