19-119-2Learning ObjectivesIdentify the features of managerial accounting and the functions of management.Demonstrate how to compute cost of goods manufactured and prepare financial statements for a manufacturer.3Discuss trends in managerial accounting.14Describe the classes of manufacturing costs and the differences between product and period costs.2Managerial Accounting1919-3Managerial accounting provides economic and financial information for managers and other internal users.LEARNING OBJECTIVEIdentify the features of managerial accounting and the functions of management.1LO 119-4Comparing Managerial and Financial AccountingIllustration 19-1 Differences between financial and managerial accountingLO 119-5PlanninguMaximize short-term profit and market share.uCommit to environmental protection and social programs.uAdd value to the business.DirectingControllinguCoordinate diverse activities and human resources.uImplement planned objectives.uProvide incentives to motivate employees.uHire and train employees.uProduce a smooth- running operation.uKeeping activities on track.uDetermine whether goals are met.uDecide changes needed to get back on track.uMay use an informal or formal system of evaluations.Management FunctionsLO 119-6Louis VuittonEven the Best Have to Get Better Luxury-goods manufacturers used to consider stockouts to be a good thing. But recently, Louis Vuitton, a French manufacturer of high-end handbags, wallets, and suitcases, changed its attitude. The company adopted “lean” processes used by car manufacturers and electronics companies to speed up production of “hot” products. Work is done by flexible teams, with jobs organized based on how long a task takes. By reducing wasted time and eliminating bottlenecks, what used to take 20 to 30 workers eight days to do now takes only 6 to 12 workers one day. Other efforts included organizing 10-person factory teams into U-shaped clusters. This arrangement freed up floor space, allowing Louis Vuitton to hire 300 additional employees. The company also selectively employs robots to bring items to human workers, saving valuable time. In addition, computer programs are now used to identify flaws in leather skins, enabling the company to identify the best way to cut pieces from the leather to increase quality and minimize waste. Finally, Louis Vuitton stores around the world feed sales information to the companys headquarters in France. Production is then adjusted accordingly to ensure that would-be buyers arent left empty-handed. With these new production processes, Louis Vuitton is already seeing improved resultsreturns of some products are down by two-thirds. Sources: Christina Passariello, “Louis Vuitton Tries Modern Methods on Factory Lines,” Wall Street Journal (October 9, 2006); and Christina Passariello, “At Vuitton, Growth in Small Batches,” Wall Street Journal (June 27, 2011).Management InsightLO 119-7Organization charts show the interrelationships of activities and the delegation of authority and responsibility within the company.Organizational StructureIllustration 19-2 A typical corporate organization chartLO 119-8Indicate whether the following statements are true or false.1.Managerial accountants have a single role within an organization, collecting and reporting costs to management.2.Financial accounting reports are general-purpose and intended for external users.3.Managerial accounting reports are special-purpose and issued as frequently as needed.FalseTrueTrueLO 1DO IT!Managerial Accounting Overview119-9FalseFalse4.Managers activities and responsibilities can be classified into three broad functions: cost accounting, budgeting, and internal control.5.Managerial accounting reports must now comply with generally accepted accounting principles (GAAP). Indicate whether the following statements are true or false.LO 1DO IT!Managerial Accounting Overview119-10Managers should ask questions such as the following.1.What costs are involved in making a product or providing a service?2.If we decrease production volume, will costs decrease?3.What impact will automation have on total costs?4.How can we best control costs?LEARNING OBJECTIVEDescribe the classes of manufacturing costs and the differences between product and period costs.2LO 219-11Manufacturing consists of activities and processes that convert raw materials into finished goods.Manufacturing CostsLO 219-12DIRECT MATERIALSRaw MaterialsBasic materials and parts used in manufacturing process.Direct Materials Raw materials that can be physically and directly associated with the finished product during the manufacturing process.Manufacturing CostsLO 219-131.Not physically part of the finished product or 2.they are an impractical to trace to the finished product because their physical association with the finished product is too small in terms of cost.Considered part of manufacturing overhead.INDIRECT MATERIALSManufacturing CostsLO 219-14Work of fact