Larson−Wild−Chiappetta: © The McGraw−Hill …

1 Larson Wild Chiappetta: Fundamental accounting Principles, Seventeenth Edition18. managerial accounting Concepts and PrinciplesText The McGraw Hill Companies, 200418 ManagerialAccountingConcepts andPrinciplesA Look BackChapter 17 described the analysis andinterpretation of financial statementinformation. We applied horizontal, vertical,and ratio analyses to better understandcompany performance and Look at This ChapterWe begin our study of managerial account-ing by explaining its purpose and describingits major characteristics. We also discusscost concepts and describe how they helpmanagers to gather and organize informa-tion they need for making decisions.

2 Thereporting of manufacturing activities is Look AheadChapters 19 through 25 discuss informa-tion that managers need to make informeddecisions and how they obtain that infor-mation. We explain the types of decisionsmanagers must make and how managerialaccounting helps with these decisions. Thefirst of these chapters, Chapter 19, consid-ers how we measure costs assigned tocertain types of processes. I wanted to have a chip company that kids from the hood could relate to James LindsayLarson Wild Chiappetta: Fundamental accounting Principles, Seventeenth Edition18. managerial accounting Concepts and PrinciplesText The McGraw Hill Companies, 2004 Decision FeatureRap Snacks for Hip-Hop KidsLearning ObjectivesCAPC1C2C3C4C5A1P1P2 ConceptualExplain the purpose ofmanagerial accounting .

3 (p. 714)Describe majorcharacteristics ofmanagerial accounting .(p. 715)Describe the leanbusiness model.(p. 717)Describe accountingconcepts useful inclassifying costs.(p. 719)Define product andperiod costs and explainhow they impact financialstatements.(p. 720)Explain how the balancesheets for manufacturingand merchandisingcompanies differ.(p. 722)Explain how incomestatements formanufacturing andmerchandising companiesdiffer.(p. 723)Explain manufacturingactivities and the flow ofmanufacturing costs.(p. 726)AnalyticalCompute unitcontribution margin anddescribe what it revealsabout a company s coststructure.

4 (p. 729)ProceduralCompute cost of goodssold for a manufacturer.(p. 724)Prepare a manufacturingstatement and explain itspurpose and links tofinancial statements.(p. 727)C6C7C8 PHILADELPHIA James Fly Lindsay and his threesisters were raised by their mother in NorthPhiladelphia. We were poor, says Lindsay, but wewere rich in the values that she set forth. One of those values waseducation Lindsay was the first in his family to attend college and another was the commitment to community. You haveeveryone taking away, but you have to give back, says especially saw the dollars spent on food yet noted that dollar isnot going back into our communities.

5 Lindsay decided to take matters into his own hands. With $40,000collected from family and friends, he launched Rap Snacks[ ],a maker of snack foods. In the beginning, itssnacks featured Potato, a cartoon spud wearing a backwardbaseball cap but nothing to distinguish them from similar snackfoods. With a renewed customer orientation and first-hand knowl-edge of urban youth, Lindsay altered his packaging. He decided to sellhis snacks with rappers on the wrappers to target urban youth im-mersed in hip-hop culture. The wrappers, importantly, were designedto instill a craving for success, commitment, and entrepreneurship,says Lindsay.

6 The snack wrappers featured hip-hop artists such asWarren G, Lil Romeo, and Big Tymers paired with positive messagestelling buyers to respect yourself and stay in school. Rap Snacks also promoted an entrepreneurial training program forurban youth. Lindsay says that urban youth need to learn about busi-ness and how it can help a community. Basic managerial principles andconcepts, product and period costs, unit contribution margin, andmanufacturing statements are like another language to most urbanyouth. Lindsay struggles to change that and more. You can makemoney, says Lindsay, but also have a social responsibility to whereyou came from.

7 Investing in urban youth is a priority, says , he wants to convey the knowledge of managerial principlesand concepts and the belief that urban youth can be manufacturing activities and cost flows is not easy,says Lindsay, but the costs of not understanding are more severe. Itfeels good to make a difference, says Lindsay, and set an examplefor the kids. [Sources:Rap Snacks Website,January 2004;Entrepreneur,July 2003;Philadelphia Inquirer,October 2002;Gannett News Service,January 2003;Source,June 2001;Maxim,March 2002.]Larson Wild Chiappetta: Fundamental accounting Principles, Seventeenth Edition18.

8 managerial accounting Concepts and PrinciplesText The McGraw Hill Companies, 2004 Chapter PreviewManagerial accounting , like financial accounting , provides infor-mation to help users make better decisions. However, mana-gerial accounting and financial accounting differ in importantways, which this chapter explains. This chapter also comparesthe accounting and reporting practices used by manufacturingand merchandising companies. Both types of companies earnrevenues by selling products. A merchandising company sellsproducts without changing their condition. A manufacturingcompany buys raw materials and turns them into finishedproducts for sale to customers.

9 A service company earns rev-enues by providing services rather than products. The skills,tools, and techniques developed for measuring a manufactur-ing company s activities apply to service companies as chapter concludes by explaining the flow of manufactur-ing activities and preparing the manufacturing accounting Concepts and PrinciplesManagerialAccounting Basics Purpose of managerialaccounting Nature of managerialaccounting managerial decisionmaking Focus on managerialaccounting Balance sheet Income statement Flow of activities Manufacturing statement Types of costclassifications Identification of costclassifications Cost concepts forservice

10 CompaniesManagerial CostConceptsReporting Manufacturing ActivitiesManagerial accounting BasicsThe previous chapters focused on a financial accounting system whose main purpose is toprepare general-purpose financial statements. However, this information is incomplete for in-ternal decision makers who manage organizations. For this purpose, a managerial account-ing system is required. managerial accountingis an activity that provides financial and non-financial information to an organization s managers and other internal decision makers. Thissection explains the purpose of managerial accounting (also called management accounting )and compares it with financial of managerial AccountingThe purpose of both managerial accounting and financial accounting is providing useful in-formation to decision makers.