Transparency Master 16(1)-1

FINANCIAL ACCOUNTING AND

MANAGERIAL ACCOUNTING
Financial Accounting
1. External Focus: Primarily reports results of
business operations to persons "outside" the
company
2. Reports historical data
3. Must follow generally accepted accounting
principles
Managerial Accounting
1. Internal Focus: Reports information used by
management in overseeing daily operations of
company
2. Reports historical data and budgets or estimates
for the future
3. Reports more detailed information
4. Not restricted by generally accepted accounting
principles
5. Usefulness to management is guiding principle

Transparency Master 16(1)-2

WRITING EXERCISE
Why is it permissible to violate generally
accepted accounting principles when
preparing reports used strictly by company
management?

Transparency Master 16(1)-3

CERTIFICATE IN MANAGEMENT
ACCOUNTING (CMA)
Professional credential available to management
accountants with a bachelor's degree and 2
years of work experience in managerial
accounting. An accountant with an associates
degree may take the CMA exam by earning a
score of 50% or better on the Graduate Records
Examination (GRE).
Must complete a 2-day examination covering the
following:
1. Economics, finance, and management
2. Financial accounting and reporting
3. Management reporting,
behavioral issues

analysis,

and

4. Decision analysis and information systems

Must earn 30 hours of continuing professional
education credit every year to maintain
certificate.
Transparency Master 16(1)-4

MANUFACTURING COSTS
Direct Materialsmaterials and component parts that
become an integral part of the final product. These materials
can be traced directly to a finished unit of product.
Direct Laborcost of wages paid to employees who work
directly on the product.
Factory Overheadall other costs incurred in making the
product. These costs include the following:
1. General manufacturing costs that cannot be traced
directly to the product:
Utilities (heating, lighting)
Depreciation on machines
Property taxes
Insurance
2. Indirect Laborwages/salaries paid to workers who are
necessary to keep the factory running, but do not work
directly on the product:
Maintenance workers
Janitorial staff
Factory personnel department
Plant manager and supervisors
3. Indirect Materialsmaterials used in the manufacturing
process that do not end up in the final product:
Materials used to test machines
Lubrication used on machines
NOTE: Direct materials and direct labor costs may be treated
as factory overhead costs if they are insignificant.
Transparency Master 16(1)-5

MANUFACTURING COSTS
Product Costs

Direct
Materials
Prime Costs

Direct
Labor

Factory
Overhead

Conversion Costs

Transparency Master 16(1)-6

COSTS INCURRED BY A MANUFACTURING

COMPANY
Product Costs
Direct
Materials

Direct
Labor

Factory
Overhead

Prime Costs Conversion Costs

Period Costs
Selling
Expenses

Administrative
Expenses

Transparency Master 16(1)-7

Statement of Cost of Goods Manufactured

Beginning work in process inventory

$XXX

Direct materials:
Beginning materials inventory

_ $XXX

Purchases
Cost of materials available for use

XXX
$XXX

Less ending materials inventory

XX

Cost of direct materials used

$XXX

Direct labor

XXX

Factory overhead:
Indirect labor

$XXX

Depreciation on factory equipment

XXX

Factory supplies and utility costs

XXX

Total factory overhead

XXX

Total manufacturing costs incurredd

XXX

Total manufacturing costs

$XXX

Less ending work in process inventory

Cost of goods manufactured

XX
_

$XXX

Transparency Master 16(1)-8

Income Statement
Sales

$XXX

Cost of goods sold:

Finished goods inventory, beginning

$XXX

Cost of goods manufactured

XXX

Cost of finished goods available for sale

XXX

Less finished goods inventory, ending

XXX

Cost of goods sold

XXX

Gross profit

$XXX

Operating expenses:
Selling expenses
Administrative expenses
Total operating expenses
Net income

$XXX
XXX
XXX
$XXX