Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
We can say that the two largest categories in accounting are Management &
Financial Accounting.
Financial Accounting focuses on communicating the financial position of the
company to external users (banks, investors), prepares financial statements
according to IFRS/ASPE and reports economic events but also influences managers’
behaviour since their compensation is often based on this financial reports.
Management Accounting has a big impact in the decision making process. It`s
internal measures and reports help managers make decisions that are of the best
interest of the company. It is based on cost-benefit analysis and it is designed to
influence the behaviour of managers and employees.
Cost accounting on the other hand supplies information to both financial and
management accounting. It measures, analyses and reports financial and non-
financial information related to the cost of purchasing and using resources in a
company. Therefore, the goals of cost accounting are to determine, report and
analyze the costs and make decisions that will help boost the business. It is also
used to measure and monitor the internal decision making, the performance on all
levels, the alignment of the employees with the company’s goals and strategies.
There are two types of strategies that help an organization to match its capabilities
with the market requirements: cost leadership (generate profit by providing
generic product features-quality and low price) or value leadership (generate profit
by offering unique, innovative product).
Factors/analysis that influence how customers experience their consumption of a
product or service are:
Value-Chain Analysis representing a sequence of business functions that also
contains customer usefulness. Companies can add value by using the value-
adding activities such as R&D, design, production, marketing, distribution
and customer service.
Supply-Chain analysis explains the flow of goods, services and information
from their original source to customers, regardless of whether those
activities occur in multiple organizations. This analysis can help implement
new strategies, cut costs and create value.
Key Success Factors include activities essential for good performance such
as: cost and efficiency, quality, time & innovation.
The five steps in decision making are:
1. Identifying the problem and uncertainties
2. Obtaining information
3. Make predictions about the future
4. Decide on one of the available alternatives
5. Implement the decision, evaluate performance and learn
In order to identify the problems, different reports need to be used. Obtaining
more information is always beneficial when making future predictions. It is
important to examine the alternatives and choose the best of the possible options.
Once the decision is made, companies monitor and evaluate the performance and
learn from this experience.
Chapter 2
Cost is a resource used to achieve specific objective (actual or past/historic cost vs.
budget cost or future cost). The accumulation of the actual cost is called cost
accumulation (cost pools/buckets). Cost assignment is related to a pool of actual
cost to a specific product.
Manufacturing costs are classified as follows direct material cost, direct
manufacturing labour costs and indirect costs.
DM: costs directly traceable to the end-product
DML: costs that result from compensating of all manufacturing labour
directly traceable to the product
MOH: costs related to the product that cannot be traced to the product on
an economically feasible way (ex. Acc. Depreciation)
Direct costs are related to the distinct cost object and can be traced to it. (DM, DML,
DL).
Indirect costs are necessary costs that cannot be traced to the end product. Indirect
manufacturing costs are often called as MOH. Depending on when manufacturing
costs incurred they can be called upstream (incurred prior to production) and
downstream costs (incurred after production).
Factors that can affect the classification of direct/indirect cost classifications are:
- selection of the distinct cost object
- significance of the cost in question
- available information-gathering technology
- design of operations
Prime costs is the sum of DM costs and DML costs;
Conversion costs are all the DML costs and MOH costs. Costs necessary for the
conversion of the prime costs into the final product.
Relevant range: the range of action for a given product where total fixed costs are
constant and also the variable costs per unit are also constant. So if we say that
fixed costs are $200, variable costs are $5 per unit we are assuming that the
relevant range holds true from 1 to 500 units but that after that our fixed and
variable costs might change.
Variable costs are costs that differ with respect to the changes in the level of total
activity because the cost per unit is constant (ex. If the activities go up than the
total variable cost will go up
#of units $per unit total
1 $2 $2
20 $2 $40
Fixed costs are constant within a relevant range of finished outputs, meaning the
more units we produce the more we are spreading out the fixed cost over more
units.
Cost driver is a variable that measures the level of activity/volume that affects the
costs. Fixed costs have a cost driver only in the long run.
Unit cost: total costs done by the company that are necessary for the production
of a single unit, service.
Opportunity costs are assets that we don’t take advantage of when we choose one
option over another
Sunk costs are past costs and we should not take them into consideration when
making decisions.
Product costs (inventoriable costs) are costs that have future benefit and are
included in the manufacturing process. There are three types of inventory: direct
inventory, work in process and finished goods. All of these are included on the
statement of financial position and are considered as assets.
Period costs are not part of the manufacturing process and are therefore not
considered as future asset. They are often referred to as operating expenses, non-
inventoriable costs, upstream and downstream costs.
In order to represent the cost flow we need to start with the materials purchased
that are represented as raw materials on the balance sheet. The second production
stage is WIP which includes direct labour and MOH and is also included in the
balance sheet. The third stage included on the balance sheet is finished good which
only once sold flows to the income statement as COGS. The selling and admin. Costs
are period costs that bypass the balance sheet and flow only to the income
statement.
Calculation of cost of direct materials used, total manufacturing costs incurred &
COGM:
1. Cost of direct materials used:
Beginning inventory of DM
+Purchase of DM
-End inventory of DM
=DM used
COGM contains the costs of all goods during the process of modification from raw
materials to finished goods and this is how it can be calculated:
3. COGM
Beginning WIP inventory
+Total manufacturing costs incurred
-End WIP inventory
=COGM
Overtime premium is the salary paid to a worker for the in excess of his/her regular
wage.
Idle time is salary paid to worker for the unproductive time caused by lack of
organization, machine breakdown etc.
Chapter 3
CVP (Cost-volume-profit) analysis the relation of net income relative to the changes
in total revenue, total cost or both. CVP analysis is based on few assumptions such
as
1. Increase or decrease in the amount of quantity produced and sold is the
same;
2. All costs can be classified as variable or fixed costs;
3. The behaviour of the costs is linear within a certain range;
4. The information about the price/unit, variable cost/unit and sales volume is
given;
5. Revenue/cost can be computed without considering the time value of
money.
Unit sales price x Q
-Unit variable cost x Q
= Contribution margin (can be expressed as %, showing how many pennies per $1
of revenue contribute to paying the fixed cost)
-Fixed cost x Q
=Operating income
Total revenue/sales
-Total costs
=Break-even point (can be also expressed as a percentage Fixed cost/Contribution
margin %)
When solving a problem with the CVP analysis approach it is essential we do the
following steps before making a decision.
1. Identify the problem
2. Obtain information
3. Predict the future
4. Choose the right alternative
5. Implement the decision, evaluate the performance and learn
There are three methods on which the CVP relationships can be expressed.
The equation method:
Revenues – VC – FC = Op.
income
│ │
(Selling price (VC/unit
X X
Quantity sold) Quantity sold)
PROBLEMS:
Chapter 4 (4-18)
2.
A) Actual costing (actual cost rates)
Cost Job 26 = 91% (actual manuf. rate) X 27 000 (direct manuf. labour costs)
= 24 570
B) Normal costing (budgeted cost rates)
Cost Job 26 = 85% (budg. manuf. OH rate) x 27 000 (direct manuf. labour costs)
= 22 950
3. Total MOH normal costing = actual direct manuf. labour costs
X budgeted MOH rate
= 2 540 000 X 85% = 2 159 000
Underallocated MOH = Actual MOH cost – Total MOH cost
= 2 311 400 – 2 159 000 = 152 400
There is no under/overallocated OH under the actual costing because this system
is using the actual inputs incurred during the business cycle.
4. Actual: precise, reflects actual costs, no need for additional
adjustments/corrections
Normal: gives the option to make estimates and create budgets at
beginning of the year
Chapter 5 (5-19)
DM cost 180 000/ 50 000 = 3.6 360 000 / 100 000 = 3.6
DML cost 60 000 / 50 000 = 1.2 120 000/ 100 000 = 1.2
4.8 4.8
+7.32 + 3.54
12.12 8.34