• Course Introduction

        If you have completed Saylor Academy's BUS103: Introduction to Financial Accounting, you know that firms need to track various forms of data in order to report to investors, regulators, and potential business associates such as customers and vendors. Firm managers, however, often need information that is much more detailed than the data provided in these financial reports. They use what is known as "managerial accounting" to make various decisions about their businesses. To avoid information overload, much of their data is tailored to meet the needs of a particular business unit and is not always generally applicable to the firm as a whole. As you might expect, different managers have different needs. However, almost all management decisions deal with the same key issues: cost, price, and profit.

        This course will examine this sort of financial decision-making, and identifying the tools and methods managers use to make the best-informed decisions possible. This course begins with an introduction to the terms we will reference in the later units. We will then discuss the various methods and theories managers deploy when tracking costs and profits. The final section will explain how managers report the overall performance of a firm or department for internal use. Upon completion of this course, you will be better prepared to make informed decisions within a firm.

      • Unit 1: Cost Measurement and Estimation

        We begin by examining the differences between financial and managerial accounting. The primary difference pertains to the audience or who will read the reports. Financial accounting information is geared toward external users, while managerial accounting is for internal users. Managerial accounting is integral to making operational and strategic decisions. At the end of this unit, you will understand why there is a need for both.

        We will also introduce the manufacturing process and related financial accounting transactions, so you can differentiate between costs assigned: to products and to the period. The flow of costs in accounting mirrors the physical flow of the inventory.

        For example, a pizza parlor buys the direct materials they put on their pizzas (cheese, tomatoes, and pepperoni). When a customer orders a pizza, the restaurant assembles the direct materials, bakes (work in process) and completes a pizza (finished goods), and delivers it to the customer.

        Completing this unit should take you approximately 5 hours.

        Upon successful completion of this unit, you will be able to:

        • compare and contrast financial accounting and managerial accounting, in terms of audience, reporting, timeframe, and use of information;
        • describe the planning and control functions managers perform;
        • describe the functions key finance and accounting personnel perform;
        • describe standards of ethical conduct used to resolve ethical conflicts facing accountants;
        • describe how accounting systems help organizations;
        • define the terms accountants use for costing purposes;
        • identify how costs flow through the three inventory accounts and cost of goods sold account; and
        • describe how to prepare an income statement for a manufacturing company.
      • Unit 2: Cost Management

        This unit focuses on three categories of cost management: job costing, activity-based costing, and process/production costing. For a company that produces items for jobs, it is easy to identify the direct materials and direct labor for a specific job. However, how do you determine direct materials if the company uses a continuous assembly line? It would be inefficient to track each unit of production separately. This unit also addresses how to allocate manufacturing overhead. Manufacturing overhead consists of costs not directly related to the product but necessary to run the production process. This includes, but is not limited to, factory equipment, factory rent, and utilities for the factory.

        Completing this unit should take you approximately 19 hours.

      • Unit 3: Short-Term Decision Making

        This unit will introduce a new way to evaluate costs and make management decisions. Rather than examining direct materials, direct labor, and manufacturing overhead, this information is rearranged into variable costs, fixed costs, and mixed costs (both fixed and variable costs combined). For example, a factory worker who earns a salary and an annual bonus based on company performance was classified as direct labor in the previous unit. In this unit, salary is allocated to fixed costs and the bonus to variable costs.

        This unit looks at how managers make short-term decisions. Short-term decisions cover what should be done in the next hour, day, week, or year. At the extreme a short term decision is defined by fixed cost restraints, such as plant size, equipment size and age.    

        Understanding how these three types of costs variables behave means you will be able to make predictions about revenue and operating income, given changes in sales volume.

        Completing this unit should take you approximately 6 hours.

      • Unit 4: Cost-Volume-Profit Analysis

        This unit explores how a company can plan for profitability. Snowboard Company is a manufacturer of one model of snowboard. Snowboard Company’s CEO wants to know how many boards she would have to make to end the month with a decent profit. The methods in this unit are used to answer questions regarding break-even level of production and focus on how to achieve desired profit points. This unit considers the relationship among costs, volume, and profit  (CVP). CVP analysis identifies how changes in key variables may impact financial projections and, ultimately, profitability. Breakeven analysis is synonymous with CVP analysis.

        Completing this unit should take you approximately 3 hours.

      • Unit 5: Differential Analysis

        This unit examines Best Boards, Inc., a manufacturer of wakeboards that is facing a decision to outsource a part of its operation or not. This unit explores how Best Boards goes about this difficult task. A part of their decision process will be to undertake a differential analysis.

        Differential analysis determines  the difference in revenues and costs among alternative courses of action. The text begins with a relatively simple example to establish the format used to perform differential analysis. More complicated examples are presented later in the unit. As you work through this unit, notice that you use the contribution margin income statement format.

        Completing this unit should take you approximately 4 hours.

      • Unit 6: Budgeting

        The CEO of Jerry's Ice Cream wants to increase sales next year. The company knows that to accomplish this, it will need to plan for expansion. A budget is the best planning document available to Jerry's Ice Cream. The budget process is essential to planning and controlling cycles. It provides a plan for operations and a benchmark by which to measure progress. The budget process involves coordination among all the departments in a company.

        In this unit, you will learn about the components of the master budget and prepare all of the underlying schedules. Once the master budget is complete, the company can measure actual performance against the budget.

        Completing this unit should take you approximately 5 hours.

      • Unit 7: Variance Analysis

        Jerry’s Ice Cream has been following their master budget, prepared in Unit 6, and the good news is that actual sales exceeded predicted sales. The bad news is that, compared to the master budget, their actual results show significant cost overruns.

        In this unit, you start to use actual results to modify and improve the information used in managerial decisions. When actual sales differ from budgeted sales, it is inappropriate to evaluate performance by comparing actual results to the master budget. If actual sales volume is higher than the master budget, variable costs should be higher than the master budget. The opposite is true as well.

        In this unit, you will learn various methods for rationalizing the master budget for actual results. In one thread of this unit, you follow Jerry’s Ice Cream as they take their planned master budget and modify it as a long, hot summer unfolds. In another thread, you will watch as Tony Bell considers various "problems" that explain variance and how accounting for variance will improve ongoing management decisions.

        Completing this unit should take you approximately 7 hours.

      • Unit 8: Capital Budgeting

        The previous unit focused on budgeting for the day-to-day operations of a business. You will now focus on budgeting for long-term investments in capital projects, such as machinery. The capital budgeting processes is usually performed simultaneously when preparing the Master Budget. A company uses capital budgeting to evaluate long-term investments. For example, should the company replace a machine now or wait another three years?

        You use several different methods to evaluate the results of capital budgeting. Project selection or rejection criteria are based on the time value of money and discounted cash flows. This unit will briefly introduce you to the time value of money.

        Completing this unit should take you approximately 5 hours.

      • Unit 9: Performance Evaluation

        In this unit, you consider the issues that Game Products, Inc., encounters in evaluating the performance of its divisional managers. Game Inc. has three divisions: Sporting Goods, Board Games, and Computer Games. Each division is relatively autonomous with a separate manager, who independently oversees each division.

        You will explore ways in which managerial accounting helps companies evaluate performance of the company as a whole and its departments and individuals. Responsibility accounting assumes that every cost incurred by a company is the responsibility of someone. Companies that utilize responsibility accounting connect managers' compensation to financial performance. How productive is each division manager in using its assets to produce profits? The focus of this unit is on how to evaluate the performance of division managers within a decentralized organization like Game Inc.

        Completing this unit should take you approximately 3 hours.

      • Unit 10: Cash Flow Preparation and Use

        Cash is like blood; it flows through a company. Adequate amounts are needed if all parts of the company are to remain healthy and have the potential for profitability. Only in exceptional circumstances do expenses and revenues occur such that today’s expenses are paid by today’s revenues. The lag between expenses and revenue means that cash must be managed so that expenses can be paid in a timely manner. Many companies can manage their cash and ensure that sufficient reserves are maintained to pay expenses when due. Other companies, such as ones experiencing rapid growth or with highly seasonal sales may not have the ability to retain a sufficient cash reserve and must use work capital loans. In all businesses, understanding and managing cash flow is essential. Although the income statement and balance sheet provide important information concerning financial performance and financial condition, neither statement provides information regarding cash activity for a period of time. The focus of this unit is on preparing a statement that provides cash flow information. This statement is appropriately called the statement of cash flows. From this statement comes many important performance measures, aside from just cash on hand and cash needed, these measure are  a part of the next unit.

        Completing this unit should take you approximately 7 hours.

      • Unit 11: Using Managerial Accounting: Trends and Ratios

        The analysis of a company’s financial information typically follows a three-pronged approach. First, trends within a company’s own financial information are analyzed, such as sales and earnings from one year to the next, using two methods—trend analysis and common-size analysis. Second, financial measures are compared between competitors. Finally, financial ratios are compared to industry averages/standards.

        Completing this unit should take you approximately 7 hours.