23.1pps t/a carnegie et al; accounting: financial and organisational decision making © 1999...
TRANSCRIPT
23.1PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
ACCOUNTINGACCOUNTINGFinancial and Organisational Financial and Organisational
Decision MakingDecision Making
Chapter 23
Cost concepts for management decisions
Slides written by Sandra Porritt
designed byTony Van Eekelen
23.2
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Learning ObjectivesLearning Objectives
• In this chapter you will be introduced to:– the need for different cost classifications
according to their decision-making context– outlay costs and opportunity costs– costs as direct or indirect with regard to
various identified cost objectives
23.3
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Learning ObjectivesLearning Objectives
– the behaviour of variable costs and fixed costs
– controllable and non-controllable costs
– the concept of costs being engineered, discretionary or committed
23.4
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
– the benefits obtainable from derivingthe cost of value adding and non-valuing adding activities
– opportunity, incremental, differential and sunk costs
Learning ObjectivesLearning Objectives
23.5
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
IntroductionIntroduction
• ways of classifying and analysing costs for different management purposes
• cost classification - variable and fixed costs costs, incremental, differential and sunk costs to name some
• costing methods and there use for setting prices
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Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Management purposes:Management purposes:
• Planning
• Decision making
• Control
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Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
PlanningPlanning
• management accountants prepare plans in the form of operating budgets and capital expenditure budgets
• the anticipated outcome of following these plans are presented in :- budgeted profit and loss statements, balance sheet and cash flow
• the anticipated picture is all collected together in the master budget
23.8
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Decision makingDecision making
• managers need adequate information to make decisions
• management accountability - need for decisions to be rationalised and supported
23.9
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
ControlControl
• to ensure that events are conforming to plan
• management accounting system used to monitor activities
• when there is a deviation from plan
• take action to revert to plan or changed circumstances means plan revision
• control of costs needs a detailed cost accounting system
23.10
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
EvaluationEvaluation
• feedback on results
• for decisions about any changes
• used to determine managers strengths and weaknesses
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Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Cost classifications for different Cost classifications for different management purposesmanagement purposes
• direct and indirect costs
• variable and fixed costs
• controllable and non-controllable costs
• engineered, discretionary and committed costs
• value adding and non value-adding
• incremental, differential and sunk costs
23.12
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Outlay and opportunity costsOutlay and opportunity costs
• outlay costs - actual financial expenditure to obtain goods and services
• opportunity costs - are measures of the loss of benefits from a foregone alternative
23.13
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Direct and indirect costsDirect and indirect costs
• direct costs - costs that can be traced to an activity or project
• indirect costs - relates to what is the cost object for example in the making of a product the manager’s salary is indirect but when the object is the entire department then it becomes direct
23.14
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Variable and fixed costsVariable and fixed costs
• how costs are are expected to change in response to changes in other variables
23.15
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Fixed costsFixed costs
• costs that do not change with the level of activity - the cost of a leased building
23.16
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Variable costsVariable costs
• costs which vary according to the level of activity
– examples are direct materials and direct labour
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Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Semi-variable costsSemi-variable costs
• many costs are neither fully fixed nor fully variable they contain elements of both– for example the cost of equipment repairs
• fixed - is the cost of maintenance staff
• variable is the increased cost of repairs caused by increased usage
• they are not strictly variable - they are not zero when activity is zero
23.18
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Controllable and non-Controllable and non-controllable costscontrollable costs
• The costs are directly controlled or outside the scope of authority
23.19
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Engineered, discretionary and Engineered, discretionary and committed costscommitted costs
• engineered costs - direct relationship to activity level
• committed costs - predetermined and inflexible
• discretionary costs - resources that are not consumed in direct proportion to operations
23.20
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Value-adding and non-value-adding Value-adding and non-value-adding costscosts
• the activity is said to add value to the product if it causes the product to become more valuable to the customer
• non-value adding costs should be eliminated
23.21
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Incremental, differential and Incremental, differential and sunk costssunk costs
• incremental - additional costs that will be incurred as a result of the decision
• differential - costs that will differ between decision alternatives
• sunk - cost incurred in the past that will not change
23.22
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Qualitative and behavioural Qualitative and behavioural factors in management decisionsfactors in management decisions
• decisions are made by people who have prejudices are bias and have likes and dislikes
• other motivations and hidden agendas
23.23
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
Ethical issuesEthical issues
• influences on decisions
• bias can influence the inclusion of some facts
23.24
Chapter 23: Cost concepts for management decisions
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust.
SummarySummary
• accounting information is required for planning, decision making and control
• cost classification make costs traceable to cost objects