Managerial Accounting Concepts and Principles

1 A Look at This ChapterWe begin our study of Managerial ac- counting by explaining its purpose and describing its major characteristics. We also discuss cost Concepts and describe how they help managers gather and orga-nize information for making decisions. The reporting of manufacturing activities is also Look AheadThe remaining chapters discuss the types of decisions managers must make and how Managerial Accounting helps with those decisions. The first of these chap ters, Chap ter 2, considers how we mea sure costs assigned to certain types of Accounting Concepts and Principles CAPL earning Objectives1 CONCEPTUALC1 Explain the purpose and nature of, and the role of ethics in, Managerial Accounting .

2 (p. 4)C2 Describe Accounting Concepts useful in classifying costs. (p. 8)C3 Define product and period costs and explain how they impact financial statements. (p. 10)C4 Explain how balance sheets and income statements for manufacturing and merchandising companies differ. (p. 12)C5 Explain manufacturing activities and the flow of manufacturing costs. (p. 16)C6 Describe trends in Managerial Accounting . (p. 19)ANALYTICALA1 Compute cycle time and cycle efficiency, and explain their importance to production management (p. 21)PROCEDURALP1 Compute cost of goods sold for a manufacturer.

3 (p. 13)P2 Prepare a manufacturing statement and explain its purpose and links to financial statements. (p. 18)LP1 Learning Objectives are classified as conceptual, analytical, or Page 2 1/3/11 5:15:00 PM Page 2 1/3/11 5:15:00 PM user-f499/Users/user-f499/Desktop/Temp Work/Don't Delete Job/MHBR231:Wild:203/Users/user-f499/Des ktop/Temp Work/Don't Delete Job/MHBR231:Wild:203 COLUMBIA, MO Hanging out in a friend s basement one night, college students Corey Rimmel, Adam Hendin, and David Melnick thought a late-night bakery would be the perfect recipe for their hunger.

4 But the enterprising trio s thoughts weren t just on eating cookies but also on starting a business. At first we were just joking, kicking the idea around, Corey says. Before long, we were in the library every night doing research. One day we said, Well, let s just see if we can do it. After weeks of re-search, talking to entrepreneurs, writing a business plan, and setting up a Managerial Accounting system, the friends started Hot Box Cookies ( ). Hot Box Cookies focuses on meeting individual customer s tastes. Starting with homemade dough in four flavors, the com-pany s bakers mix in whatever the customer wants chocolate chips, Reese s pieces, candy bars.

5 After placing their orders, customers can play board games or surf the Internet in the Hot Box store or have their fresh cookies delivered. The owners say their biggest surprise is how incredibly busy they were from the very beginning of their business. We haven t had time to work our way through our marketing plan .. we ve just been too busy, explains Corey. The owners insist college is a great time to start a new busi-ness. Risk is low, and if the owners are passionate and have a good plan, banks will lend money to get the business going, says Corey.

6 It s nice having something to call our own, Adam says. A lot of people want to own a business, but they don t. But the trio, two of whom are Accounting majors, emphasize that understanding basic Managerial Principles , product and pe-riod costs, manufacturing statements, and cost flow is crucial. The owners use Managerial Accounting information from the baking process to monitor and control costs and to assess what cookies are most popular and profitable. Success has enabled the business to expand and grow into other product lines such as catering, coffee, and Dough on the Go sold in local markets.

7 Corey, Adam, and David believe that entrepreneurs fill a void by creating a niche. I ve always had it in my mind that I would work for myself, says Corey. However, financial success de-pends on monitoring and controlling operations to best meet customer needs. By staying focused and applying sound mana-gerial Accounting Principles and Concepts to their business, the owners hope to expand to other college campuses across the country. Ah, the sweet smell of success.[Sources: Hot Box Cookies Website, January 2011; Columbia Missourian, October 2008; The MOVE Magazine, October 2008; Columbia Business Times, August 2008; Columbia Tribune, November 2008.]

8 ]Decision Insight I didn t know I was a baker .. COREY RIMMELHot Late NightsA Decision Feature launches each chapter showing the relevance of Accounting for a real entrepreneur. An Entrepreneurial Decision problem at the end of the assignments returns to this feature with a Page 3 1/1/11 12:38:50 PM Page 3 1/1/11 12:38:50 PM user-f499/Users/user-f499/Desktop/Temp Work/Don't Delete Job/MHBR231:Wild:203/Users/user-f499/Des ktop/Temp Work/Don't Delete Job/MHBR231:Wild:203 Chapter PreviewManagerial Accounting , like financial Accounting , provides infor-mation to help users make better decisions.

9 However, manage -rial Accounting and financial Accounting differ in important ways, which this chapter explains. This chapter also compares the ac- counting and reporting practices used by manufacturing and mer-chandising companies. A merchandising company sells products with out changing their condition. A manufacturing company buys raw materials and turns them into finished products for sale to customers. A third type of company earns revenues by providing services rather than products. The skills, tools, and techniques developed for measuring a manufacturing company s activities apply to service companies as well.

10 The chapter concludes by explaining the flow of manufacturing activities and preparing the manufacturing Accounting is an activity that provides financial and nonfinancial information to an organization s managers and other internal decision makers. This section explains the pur pose of Managerial Accounting (also called management Accounting ) and compares it with financial Accounting . The main purpose of the financial Accounting system is to prepare general-purpose financial statements. That information is incomplete for internal decision makers who manage of Managerial AccountingThe purpose of both Managerial Accounting and financial Accounting is providing useful infor-mation to decision makers.