RSM 222 – Managerial Accounting
CHAPTER 1: Managerial Accounting
It provides information to managers for use in planning and controlling operations as well as
decision making. The essential steps include:
2. Directing and Motivating
3. Controlling – making sure plan is followed, give feedback like performance reports
4. Performance Evaluation
Key Differences between Managerial and Financial Accounting:
a. Geared towards different users: internal for M and external for F
b. M is for future decisions, F is from past transactions
c. Relevance is more important in M, objectivity is more important in F
d. Detailed segmented reports for M, summarized data for the entire org for F
A business process is a series of steps that are followed in order to carry out some task in
business, and a value chain has major business functions that add value to a company’s
products and services. There are different approaches to IMPROVE this process:
1. Lean Production – In a traditional push system, everyone is kept busy to produce
as much as possible, but is costly because of high inventory costs. The lean
approach takes 5 steps to improve flow: 1. Identify the value 2. Identify business
processes that deliver this value 3. Organize work around the flow of the business
process (manufacturing cell), 4. Create a pull system so production happens when
there is consumer demand/orders, 5. Continue to pursue perfection.
This is also called supply chain management.
2. Six Sigma – improvement method that relies on customer feedback and fact-based
data. It’s often associated with ‘zero defects’. It refers to a process that generates no
more than 3.4 defects per million opportunities. DMAIC framework: Define, Measure,
Analyze, Improve, and Control. Non-value-added activities should be removed.
Management should increase business rather than decreases costs and the labour
3. Enterprise Systems – a computer application designed to overcome problems in
data inconsistency and duplication by integrating data across an organization into
one system. (Also Enterprise Risk Management is important)
Examples of Business Risks and Controls:
-Assets being stolen from computer files, create firewalls
-Products harming consumers, develop better product-testing system
-Supplier strike halting flow of materials, establish relationship with two suppliers
-Inaccurate budget estimations, implement a rigorous budget review process CHAPTER 2: Cost Terms, Concepts, and Classifications
Direct Materials – materials that become an integral part of a finished product and can be
traced, such as seats in a car, or the processor in a computer.
Indirect Materials – small immaterial items such as glue and nails, and are hard to trace, are
part of manufacturing overhead.
Raw materials are anything that goes into the final product, and do not have to be unprocessed
natural resources like lumber. The finished plastics from one company can be the raw
materials for another one.
Direct Labour – factory labour costs that can be traced to individual units of product (touch
labour), such as assembly lines, carpenters, and bricklayers.
Indirect labour – hard to trace their contribution to the products, such as janitors and guards;
also recorded as part of the manufacturing overhead.
Manufacturing Overhead – all costs associated with manufacturing except direct materials and
direct labour. It can include maintenance and repairs, heat and light, taxes, insurance, and
depreciation – anything associated with OPERATING THE FACTORY. Can be called:
factory overhead, factory burden, and indirect manufacturing cost.
Manufacturing Overhead + Direct Labour = conversion cost.
Direct Labour + Direct Materials = prime cost.
Overtime Premiums – the extra hourly wage rate paid to workers who work above their normal
time requirements. Job specific reasons would count as direct labour, while general
management needs are overhead. Employee benefits costs for indirect labour would be
1. Marketing or selling costs – all costs necessary to secure customer orders and get
the finished good into the hands of the customer (order-getting or order-filling costs),
such as shipping, sales commissions, and finished goods warehouses.
2. Administrative costs – all executive, organizational, and clerical costs associated
with the general management of an org, such as exec compensation, general
accounting, PR, and etc.
Product Costs vs. Period Costs
Product Costs – all costs involved in the purchase or manufacture of goods. In manufactured
goods, these include direct materials and direct labour; also called inventoriable costs. They
are treated as expenses in the period when products are SOLD. Direct material cost might
be incurred in one period but not expensed until the next period when the product is sold.
Period Costs – costs taken directly to the income statement as expenses in the period they are
incurred, such as SG&A. Not included in product costs. Sales commissions and ads are
Manufacturing companies have different financial statements then merchandising
companies, who only resale goods. Manufacturing must have raw materials, work in
process, and finished goods. Instead of adding purchases to beginning inventory,
manufacturers add cost of goods manufactured (the costs associated with goods
that are finished in the period). Schedule of Cost of Goods Manufactured:
The sum of all raw materials used in production, direct labour, and manufact