lecture 1 - 2012 introduction 3 slides

8/7/2019 Lecture 1 - 2012 Introduction 3 slides

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Management Accounting A

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ACCT2012

Vijaya Murthy

ACCT 2012 Lecture 1 Checklist Contact Details Consultation times Lecture Times/Structure Course Materials/texts Assessments Group case study further details later

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In-class Multiple Choice Quiz details later Final exam 2 hours further details later Student representatives any volunteers Pass Blackboard

Coordinator: Vijaya [email protected]

Tutor-in-charge: Anna [email protected]

Lecturers & Tutors:

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[email protected]

2. Geoff [email protected]

3. Ravi [email protected] 4. Gigi [email protected]


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Lecture Times/Structure

1. Introduction to Management Accounting2. Product Costing Systems3. Activity-Based-Costing4. Overhead Costing Issues

Time: Thursdays 12 Noon - 2 PMLocation: Carslaw Lecture Theatre 159

Vijaya Murthy

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5. Variable & Absorption Costing6. Cost Behaviour & Estimation, CVP Analysis7. Budgeting Systems8. Standard Costing & Variance Analysis9. Flexible Budgets & Variance Analysis10. Decision Making: Relevant Costs and

Benefits11. Capital Budgeting12. Environmental Management Accounting

Geoff Frost

Chang Loh

Geoff Frost

Anna Young

Hilton, R. W. (2010) Managerial Accounting: Creating Value in a DynamicBusiness Environment. 9 th Edition.

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McGraw-Hill

Pearson Computer Assignments

Assessment task Weighting

Academic Honesty Module 0%

In-class Multiple ChoiceQuiz (each week)

20%

Computer Assignments 10%

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Group assignment 10%

Final 2 hour 60%

Total 100%


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In-class Multiple Choice Quiz Conducted in tut each week. Starts week 2

Tutorial 1 and runs for all 12 tuts. Closed book tests. Assessable 2% for each week. The best 10

out of 12 will be considered. Total 20% To return the Question papers, worksheets and

answer sheets to the tutor immediately. Starts exactly at 5 minutes past the hour and

finishes 30 minutes past the hour. 7

Computer assignments Conducted from week 3 for 10 weeks. Assessable 1% for each week. Total 10% To be submitted online before 9AM on Tuesday

following the lecture week. First submission isue on arc e ore .

To access the assignments:1. Purchase PCIA access code from coop bookstore (OR)2. Use Business School computers located in the ground

floor of E & B building

To know more details, please visit Blackboard8

Group assignments Groups of 2 or 3 members from within the tut

ONLY Weightage 10%

via Blackboard. Due date: 21 st April, 2011.

End date: 12 th May 2011. More details will be available on Blackboard

closer towards the due date.9


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How to register?

To register or to find out more about PASS

www.sydney.edu.au/business/pass

Blackboard

Please check Blackboard for lecture notes,announcements, homework solutions andan other u dates.

Discussion Board: For student

communications. Clarify questions onweekly topics, computer assignments etc.Require appropriate online behaviour.

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Overview1. Define management accounting2. Difference between management and financial

accounting3. Role of management accounting in performing

management functions

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4. Meaning of cost5. Different classification of costs Product cost &

period cost; Manufacturing cost; Direct & Indirect;Variable & Fixed cost; controllable & uncontrollablecost; opportunity, sunk & differential cost.

6. Meaning of cost objects, cost drivers and costbehaviour


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Process of gathering, organizing, andProcess of gathering, organizing, andCommunicating financial informationCommunicating financial information

Accounting Information SystemAccounting Information System

Managerial accounting is the process ofIdentifyingMeasuringAnalyzingInterpretingCommunicating information

Simple Definition of ManagementAccounting :

the provision of information required bymanagement for planning, organising and

Management accounting is concerned withinformation for management purposes:

internal information for the organisationitself and very rarely made public, unlike

financial accounting information.

Contrasting Financial andManagement AccountingFinancial A/C Management A/C

InternalInternal

StockholdersStockholdersLending institutionsLending institutionsBondholdersBondholdersSuppliersSuppliersCustomersCustomersCompetitorsCompetitors

Marketing managersMarketing managersSalespersonsSalespersonsProduction managersProduction managersProduction supervisorsProduction supervisorsStrategic plannersStrategic plannersCompany presidentCompany presidentCompany engineersCompany engineers


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Contrasting Financial andManagement Accounting

FinancialFinancialaccountingaccounting

ProfitabilityProfitabilitySolvencySolvency

Focus

ManagementManagementaccountingaccounting

EfficiencyEfficiencyProductivityProductivity

QualityQuality

Focus

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Accounting RulesThe financial accountant is governed by GAAPThe financial accountant is governed by GAAP

(generally accepted accounting principles).(generally accepted accounting principles).

The management accountant doesThe management accountant doesnot need to follow these rules.not need to follow these rules.

Timeliness is always an importantTimeliness is always an importantfeature of useful information.feature of useful information.

Users of financial accounting know thatUsers of financial accounting know thatthey can expect to receive informationthey can expect to receive information

on a quarterly and annual basis.on a quarterly and annual basis.

Timeliness

Good timing for accounting informationGood timing for accounting informationdepends upon the situation.depends upon the situation.

Some managers may need daily, orSome managers may need daily, oreven hourly, reports; others mayeven hourly, reports; others may

only need weekly or monthly.only need weekly or monthly.

Financial accounting providesFinancial accounting providesinformation about past results.information about past results.

Predictive value is desired,Predictive value is desired,but not required.but not required.

Management accounting information isManagement accounting information isused primarily for decision making, andused primarily for decision making, and

these decisions affect the future of the firm.these decisions affect the future of the firm.


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Level of Detail

Financial accounting statements areFinancial accounting statements areknown as general purpose statements.known as general purpose statements.

There are many different external usersThere are many different external usersthat must rely on the same statements.that must rely on the same statements.

Management accounting reportsManagement accounting reportsare typically much more detailed.are typically much more detailed.

They possibly deal only with the informationThey possibly deal only with the informationrelated to one particular decision.related to one particular decision.

Management Accounting in aChanging Environment

Accounting withinorganisations

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No fixed set ofrules to follow

Continuallyevolves to meet

organisationneeds

Accounting

Managing Resources, Activities,and PeopleAn organization . . . Directing

Acquires Resources

Hires People

Organized setOrganized setof activitiesof activities

DecisionMaking

PlanningControlling


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Planning Acting Controlling

The Functions of Management

Acting Controlling

Feedback

Decision Making within anOrganisation

Planning Decisions

Decisions about what tasks should beerformed & how to com lete those tasks.

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Long-term decisions tend to be made by top-

level managers.Short-term decisions tend to be made at lowerlevels of management .

Decision Making within anOrganisationControl Decisions

Proper organisational design and assignment of res onsibilities hel control decisions of members

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of the organisation.

Decisions relating to managing, motivating, andmonitoring individuals within the organisation.

Control includes the choice of performancemeasures.


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How Managerial AccountingAdds Value to the Organization

Providing information for decision making andplanning.

Providing information for decision making andplanning.

activities.

Motivating managers and other employees towardsorganizations goals.

Measuring performance of activities, managers,and other employees.

Assessing the organizations competitive position.

activities.

Motivating managers and other employees towardsorganizations goals.

Measuring performance of activities, managers,and other employees.

Assessing the organizations competitive position.

Process of Management

PlanningStrategyFormulation

DecisionMaking

DirectingControl

Managers need cost information toperform each of these functions.

What Do We Mean By a Cost?

A costis the measure of resources givenup to achieve a

particular purpose.


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Product Costs, Period Costs and Expenses

Product costs are costs associated with goods forsale until the time period during which the productsare sold, at which time the costs become expenses.

Period costs are costs that are expensed during thetime period in which they are incurred.

Expenses are the consumption of assets for thepurpose of generating revenue.

Product CostsProduct Costs Period CostsPeriod Costs

Cost Classifications on FinancialCost Classifications on FinancialStatementsStatements Income StatementIncome Statement

Cost of goods sold Operating expenses

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MerchandiserMerchandiserCurrent Assets

ManufacturerManufacturerCurrent Assets

Cost Classifications on FinancialCost Classifications on FinancialStatementsStatements Balance SheetBalance Sheet

as Receivables Prepaid Expenses Merchandise InventoryMerchandise Inventory

ReceivablesReceivablesPrepaid ExpensesPrepaid ExpensesInventoriesInventories

Raw MaterialsRaw MaterialsWork in ProcessWork in ProcessFinished GoodsFinished Goods

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Manufacturing CostsManufacturing Costs

DirectLabor

ManufacturingOverhead

DirectMaterial

TheProduct

Classifications of Costs inClassifications of Costs inManufacturing CompaniesManufacturing Companies

Manufacturing costs are oftencombined as follows:

Direct Direct Manufacturing

PrimeCost

ConversionCost

Material Labor Overhead

Manufacturing Cost FlowsManufacturing Cost FlowsDirect Material

Direct LaborWork inProcess

Inventory

anu actur ngOverhead

FinishedGoods

Inventory

Cost ofGoods

Sold


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Cost Objects, Cost drivers

Cost objects are anything for which aseparate measurement of costs is desired.

.

Activities that cause costs to be incurredare called COST DRIVERS

Cost Driver Examples

Activity Cost DriverMachining operations Machine hours

Production scheduling Manufacturing orders

Inspection Pieces inspectedPurchasing Purchase ordersShop order handling Shop orders

Valve assembly support Customer Requisitions

What are examples of cost objects? individual products geographic segments of the business departments


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Direct Costs : can be identified or traced tospecifically and exclusively with a cost object economical to trace can see the associationwith production (ie direct materials/directlabour

Traceability: Direct & Indirect cost

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Indirect Costs : cannot be identified specificallyand exclusively with a cost object uneconomical to trace to a specific product cannot see direct association with production(Eg. Production managers Salary)

Direct Cost

Cost of raw material that is used tomake, and can be convenientlytraced, to the finished product.

Examples of Indirect Costs

IndirectLabor

IndirectMaterial

OtherCosts

Examples:depreciation on plant

and equipment,property taxes,

insurance, utilities,overtime premium,

and unavoidable idletime.

Cost of personnel whodo not work directly

on the product.Examples: maintenanceworkers, janitors and

security guards.

Examples:Nails used

in making furnitureWhiteboard markers

in classroom


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Cost BehaviourCost behavior means how a cost will react to

changes in the level of business activity.Cost Behaviour Cost Driver Activity Assumptions : costs can be divided into either fixed or

variable

the level of activity Variable Costs : changes in response to changes in level

of activity (proportional to level of activity) assumeunit activity cost does not change

Mixed Costs : combination of both fixed and variablecosts

Step Costs : where changes in level of activity will resultin sudden significant cost changes

Total Variable Cost Example

Your total long distance telephone bill isbased on how many minutes you talk.

ce

Minutes Talked

Total Long

Distan

Telephone Bill

Total Fixed Cost ExampleYour monthly basic telephone bill probably does

not change when you make more local calls.

Number of Local Calls

Monthly Basic

Telephone Bill


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Controllable v. Uncontrollable Costs

A cost that can be significantly influenced by amanager is a controllable cost.

Cost Item Manager Classification

Controllability

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Cost of food usedin restaurant

Restaurantmanager

Controllable

Cost of nationaladvertising byrestaurant chain

Restaurantmanager

uncontrollable

Opportunity CostThe potential benefit that is given up when one alternative is selected over

another. Example: If you were not attending Uni,

you could be earning $20,000 per year.Your opportunity cost of attending Uni for one year is $20,000.

un osts

All costs incurred in the past that cannot be changed by any decision made now orin the future are sunk costs. Sunk costs should not be considered in decisions.

Example: You bought an automobile that cost $12,000 two years ago.The $12,000 cost is sunk because whether you drive it, park it, trade it, orsell it, you cannot change the $12,000 cost.

Differential Costs

Costs that differ between alternatives.

Example: You can earn $1,500 per month in your, .

Your commuting costs are $50 per month in yourhometown and $300 per month to the city.

What is your differential cost?$____ - $____ = $________


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Manufacturing costs Manufacturing costs are incurred within the

factory area Upstream and downstream costs are non-

manufacturing costs anu actur ng costs nc u e t ree categor es:

direct material, direct labour and manufacturingoverhead This classification as direct or indirect cost assumes

that products are the relevant cost objects

Under conventional product costing, onlymanufacturing costs are included in product costs

Problem 2.42 (Page 70)

a. Total prime costs:

Direct material $ 2,100,000

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WagesFringe benefits 95,000

Total prime costs

b. Total manufacturing overhead:

Depreciation on factory building $ 115,000Indirect labor: wagesProducti on supervi sor's salary 45,000Service department costs

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Fringe benefits for production supervisor 9,000

Total overtim e premium s paid 55,000Cost of idle time: pr oduction employees

Total manufacturing overhead


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c. Total conversion costs:

Direct labor ($485,000 + $95,000) $ 580,000Manufacturing overheadTotal conversion costs

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d. Total product costs:

Direct material $2,100,000Direct labor Manufacturing overheadTotal product costs

Text Book Chapters to read:Chapters 1 and 2

Homework Questions to attempt:

1.25, 2.8, 2.10, 2.23, 2.24, 2.29,2.45.

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lecture 1 - 2012 introduction 3 slides

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