Unit 1: Cost Measurement and Estimation
We begin by examining the differences between financial and managerial accounting. The primary difference pertains to the audience: 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.
In this unit we examine the manufacturing process and related financial accounting transactions, so you can differentiate between costs assigned to products and costs assigned to a period of time. 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.
Unit 1 has introduced you to the basics of managerial accounting. You have explored the functions managerial accounting provide, and the types of people and organizational structures that support effective management information systems. You have seen the difference between financial and management accounting. In the next unit we will begin to focus on managerial accounting in terms of learning by example with real world applications.