Management Accounting and

Control System (DBA 552)

Presented By: Dr. Richard Oliver F. Cortez, MBA, DBA, FRIBA, AFBE
AMA University
TOPICS TO BE COVERED:

1. Basic Cost Management Concepts

2. Product costs, period costs, and
expenses
3. Costs on Financial Statements
4. Income statement: expenses
5. Balance sheet: inventories
6. Raw-materials inventory
7. Work-in-process inventory
8. Finished-goods inventory
LEARNING OUTCOMES:

1. Explain what is meant by the word "cost."

2. Identify product costs, period costs, and expenses
3. Test the different costs the financial statements
4. Develop a manufacturing operations and describe mass
customization
5. Appreciate the value of managerial accounting in
business
 Process of Management
Strategy
Planning
Formulation

Managers need cost information to

perform each of these functions.

Control Decision Directing

Making

2-4
What Do We Mean By a Cost?

A cost
is the measure of
resources given
up to achieve a
particular purpose.

2-5
Product Costs, Period Costs and Expenses

Product costs are costs associated with goods for

sale until the time period during which the products
are sold, at which time the costs become expenses.

Period costs are costs that are expensed during the

time period in which they are incurred.

Expenses are the consumption of assets for the

purpose of generating revenue.

2-6
 Cost Classifications on Financial
Statements – Balance Sheet
Merchandiser Manufacturer
Current Assets Current Assets
– Cash  Cash
– Receivables  Receivables
– Prepaid Expenses  Prepaid Expenses
– Merchandise  Inventories
Inventory Raw Materials
Work in Process
Finished Goods

2-7
 Manufacturing Costs

Direct Direct Manufacturing

Material Labor Overhead

The
Product

2-8
 Direct Material

Cost of raw material that is used to

make, and can be conveniently
traced, to the finished product.
Example:
Steel used to
manufacture
the automobile.

2-9
 Direct Labor

Cost of salaries, wages, and fringe

benefits for personnel who work
directly on manufactured products.

Example:
Wages paid to an
automobile assembly
worker.

2-10
 Manufacturing Overhead
All other manufacturing costs
Indirect Indirect Other
Material Labor Costs

Materials used to support the

production process. Examples:
lubricants and cleaning supplies
used in an automobile assembly
plant.

2-11
 Manufacturing Overhead
All other manufacturing costs
Indirect Indirect Other
Material Labor Costs

Cost of personnel who do not

work directly on the product.
Examples: maintenance
workers, janitors and security
guards.

2-12
 Manufacturing Overhead
All other manufacturing costs
Indirect Indirect Other
Material Labor Costs

Examples: depreciation on
plant and equipment, property
taxes, insurance, utilities,
overtime premium, and
unavoidable idle time.

2-13
 Classifications of Costs in
Manufacturing Companies
Manufacturing costs are often
combined as follows:
Direct Direct Manufacturing
Material Labor Overhead

Prime Conversion
Cost Cost

2-14
 Manufacturing Cost Flows
Direct Material
Work in
Direct Labor Process
Inventory

Manufacturing
Overhead

2-15
 Manufacturing Cost Flows
Direct Material
Work in
Direct Labor Process
Inventory
Manufacturing
Overhead
Finished
Goods
Inventory

2-16
 Manufacturing Cost Flows
Direct Material
Work in
Direct Labor Process
Inventory
Manufacturing
Overhead
Finished Cost of
Goods Goods
Inventory Sold

2-17
Cost Classifications
Cost behavior means
how a cost will react
to changes in the
level of business
activity.
– Total variable costs
change when activity
changes.
– Total fixed costs
remain unchanged
when activity changes.

2-18
 Direct and Indirect Costs
Direct costs Indirect costs
• Costs that can be • Costs that must be
easily and conveniently allocated in order to be
traced to a product or assigned to a product or
department. department.
• Example: cost of paint in • Example: cost of
the paint department of an national advertising for
automobile assembly an airline is indirect to
plant. a particular flight.

2-19
 CREDIT

goes to for the

images used in the presentation
 Thank you
very much for
listening!