Course Introduction

 Course Tittle: Managerial Accounting

 Lecturer: Dr Nguyen Thi Hoang Anh
 Email: nguyenthihoanganh.cs2@ftu.edu.vn
 Course website: www.schoology.com
(Access code: KM5H-3R2V-KV3Z3)
 Assessment: Attendance, Quizzes, Mid term test and Final exam
Accounting for Management Decision
 Textbook:
 Drury, C (2012) Management and Cost Accounting 8th ed.
Course Overview Cengage Learning EMEA
 Garrison, Noreen and Brewer (2012), Managerial Accounting,
14th edition, McGraw- Hill
 Wild, Shaw and Chiappetta (2011), Fundamental Accounting
Principles, 20th edition, McGraw- Hill .
Slide 2

Users of Accounting Information Management and Financial Accounting

External Users Internal Users

External Users Internal Users

•Lenders •Consumer Groups •Managers •Sales Staff

•Shareholders •External Auditors •Officers/Directors •Budget Officers Financial accounting Managerial accounting
•Governments •Customers •Internal Auditors •Controllers provides external users provides information needs
with financial statements. for internal decision-makers.
Slide 3 Slide 4
Course Overview - Objectives Course Overview - Requirements
 Become familiar with what accounting information is  This class is designed to allow you to develop an
typically used within the firm. understanding of the concepts by applying the
 Develop an understanding of how accounting material covered to real life problems and cases.
information is used by managers in the decision  Your grade will be computed as follows:
making process.  Attendance and Quizzes 20%
 Consider how accounting information can be used to  Mid term test 30%
motivate members of the firm or as a mechanism to  Final examination 70%
control their behavior.

Slide 5 Slide 6

What is management accounting?

Lecture 1
Introduction to Management
Accounting and Cost Concepts
 Managerial accounting helps managers perform
three vital activities— planning, controlling, and
decision making.
 Planning involves establishing goals and specifying
how to achieve them.
 Controlling involves gathering feedback to ensure
that the plan is being properly executed or modified
as circumstances change.
 Decision making involves selecting a course of
action from competing alternatives

Slide 8
 Financial and Managerial Accounting:
Seven Key Differences Work of Management

Financial Accounting Managerial Accounting

1. Users External persons who Managers who plan for
make financial decisions and control an organization Planning
2. Time focus Historical perspective Future emphasis Controlling
3. Verifiability Emphasis on Emphasis on
versus relevance objectivity and verifiability relevance Decision
4. Precision versus Emphasis on Emphasis on Making
timeliness precision timeliness
5. Subject Primary focus is on Focus on
companywide reports segment reports
6. Rules Must follow GAAP / IFRS Not bound by GAAP / IFRS
and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory
Slide 9 Slide 10

Planning Controlling
The control function ensures
that plans are being followed.
Establish Goals.
Feedback in the form of performance reports
that compare actual results with the budget
Specify How Goals are an essential part of the control function.
Will Be Achieved.

Develop Budgets.

Slide 11 Slide 12
Decision Making Managerial Accounting: Beyond the Numbers

Decision making involves

making a selection among The primary purpose Planning
competing alternatives. of this course is to
teach measurement
skills that managers
What should Controlling
we be selling?
use to support
Who should planning, controlling,
we be serving? and decision making
How should Decision
activities.
we execute? Making
Slide 13 Slide 14

A Case Study
 In 2012, State University committed to building the
A Smith Center (A 15,000 seat basketball Arena). The
following projected financial information was
available to the University prior to engaging in the
CASE project:
 Costs:
STUDY 

Building $54 million
Parking $ 2 million
 Funding:
 Private Contributions $23 million
 State Funding $33 million

Slide 16
A Case Study A Case Study
 In the year after the Smith Center was built there  The following is a hypothetical scenario describing how
were conflicting stories on the profitability of the these could be two different measurements of profit for
Smith Center, and the profitability of the athletic the same economic entity. Lets first focus on the
department. universities estimate.
 The state legislature reported that the athletic
department made over 18 million and the basketball
program made over 2.2 million.
 The University reported a marginal profit for the
basketball program, and breakeven results for the
entire athletic department.
 How can there be two different “profits” for the same
economic entity?
Slide 17 Slide 18

A Case Study A Case Study

 The following is a hypothetical scenario describing how  What are allocated costs?
these could be two different measurements of profit for  Orthopedic Surgeon
the same economic entity. Lets first focus on the  Team Physicians
universities estimate.
 Trainers
 Athlete medical Expenses
 Sports Information Department
 Academic Support Center
 These cost total $23 million and are allocated
equitably over the 23 varsity programs.
 What would happen if the allocation were changed to
a per athlete basis?
 Does it matter?
Slide 19 Slide 20
A Case Study A Case Study
 What are allocated revenues?  What are the opportunity costs of providing $56
 State University has a 4.2 million dollar endorsement million of financing for the Smith Center?
contract with Pepsi. This revenue is also allocated  Develop a school of information technology.
equitably over the 23 Varsity programs.
 Expand the library.
 Does an equitable allocation make sense?
 Expand the football stadium
 What happens if the allocation is changed to sports
which are broadcast to a national audience, or the
number of national appearances?
 Does it matter?

Slide 21 Slide 22

A Case Study A Case Study

 How are utility costs assigned to the team?  Can State University generate additional revenue at
 In the Smith Center there are only 3 teams that the Smith Center?
use the facility, men’s and women’s basketball  Concerts
 WWF
and wrestling.
 Product Expo
 Basketball and wrestling are winter sports, how
 Will State University use the facility for other
are utility costs for the rest of the year assigned?
purposes?
 Commencement
 Job Fair
 Tail gates etc…

Slide 23 Slide 24
 Primary functions of cost/management
A Case Study accounting systems
Should State University open the Smith Center? 1. Inventoryvaluation for internal and external profit
measurement
Important Concepts to take away:  Allocate costs between products sold and fully
 Opportunity Costs and partly completed products that are unsold.
 Cost allocations are important in a wide variety of
contexts. 2. Providerelevant information to help managers
 Incremental cost analysis. make better decisions
 Profitability analysis
 Product pricing
 Make or buy (Outsourcing)
 Product mix and discontinuation

Slide 25 Slide 26

Primary functions of cost/management

accounting systems
3. Provide
information for planning, control
and performance measurement

 Long-term and short-term planning (budgeting)

 Periodic performance reports for feedback
control
 Performance reports also widely used to
evaluate managerial performance
 Note that costs should be assembled in
An Introduction to Cost
different ways to meet the above three Terms and Concepts
requirements.

Slide 27
Learning Objectives Learning Objective 1
1. Identify and give examples of each of the three basic
manufacturing cost categories.
2. Distinguish between product costs and period costs and give
examples of each. Identify and give
3. Understand cost behavior patterns including variable costs, examples of each of the
fixed costs, and mixed costs. three basic
4. Analyze a mixed cost using a scatter graph plot and the high- manufacturing cost
low method. categories.
5. Prepare income statements for a merchandising company
using the traditional and contribution formats.
6. Understand the differences between direct and indirect costs.
7. Understand cost classifications used in making decisions:
differential costs, opportunity costs, and sunk costs.
8. (Appendix 2A) Analyze a mixed cost using a scatter graph plot
and the least-squares regression method. Slide 29 Slide 30

Classifications of Manufacturing Costs Direct Materials

Raw materials that become an

integral part of the product and that
Direct Direct Manufacturing can be conveniently traced directly
Materials Labor Overhead to it.

The Product Example: A radio installed in an automobile

Slide 31 Slide 32
Direct Labor
Those labor costs that can be easily
traced to individual units of product.
Example: Wages paid to automobile assembly workers
Nonmanufacturing Costs
Selling
Costs
Costs necessary to
secure the order and
deliver the product.
Manufacturing Overhead
Manufacturing costs that cannot be easily
traced directly to specific units produced.
Examples: Indirect materials and indirect labor
Materials used to support Wages paid to employees
the production process. who are not directly
involved in production
Examples: lubricants and work.
cleaning supplies used in the Examples: maintenance
automobile assembly plant. workers, janitors, and
security guards.
Slide 33 Slide 34
Learning Objective 2
Administrative
Costs Distinguish between product
costs and period costs and
give examples of each.
All executive,
organizational, and
clerical costs.
Slide 35 Slide 36
Product Costs Versus Period Costs Quick Check 

Which of the following costs would be

Product costs include Period costs include all
considered a period rather than a product cost
direct materials, direct selling costs and in a manufacturing company?
labor, and administrative costs.
manufacturing A. Manufacturing equipment depreciation.
overhead.
B. Property taxes on corporate headquarters.
Inventory Cost of Good Sold Expense
C. Direct materials costs.
Sale
D. Electrical costs to light the production facility.
E. Sales commissions.
Balance Income Income
Sheet Statement Statement

Slide 37 Slide 38

Quick Check  Classifications of Costs

Which of the following costs would be

considered a period rather than a product cost Manufacturing costs are often
in a manufacturing company? classified as follows:
A. Manufacturing equipment depreciation.
Direct Direct Manufacturing
B. Property taxes on corporate headquarters. Material Labor Overhead
C. Direct materials costs.
D. Electrical costs to light the production facility.
E. Sales commissions. Prime Conversion
Cost Cost

Slide 39 Slide 40
Learning Objective 3 Cost Classifications for Predicting Cost Behavior

Cost behavior refers

to how a cost will
Understand cost behavior react to changes in
patterns including variable the level of activity.
costs, fixed costs, and The most common
mixed costs. classifications are:
 Variable costs.
 Fixed costs
 Mixed costs.

Slide 41 Slide 42

Variable Cost Variable Cost Per Unit

Your total texting bill is based on The cost per text sent is constant at
how many texts you send. 5 cents per text message.

Cost Per Text Sent

Total Texting Bill

Number of Texts Sent Number of Texts Sent

Slide 43 Slide 44
The Activity Base (Cost Driver) Fixed Cost
Your monthly contract fee for your cell phone is
fixed for the number of monthly minutes in your
Units Machine contract. The monthly contract fee does not
produced hours change based on the number of calls you make.

A measure of what

Monthly Cell Phone

causes the

Contract Fee
incurrence of a
variable cost

Miles Labor
driven hours
Number of Minutes Used
Within Monthly Plan

Slide 45 Slide 46

Fixed Cost Per Unit Types of Fixed Costs

Within the monthly contract allotment, the average fixed
cost per cell phone call made decreases as more calls
are made.
Committed Discretionary
Long-term, cannot be May be altered in the
Monthly Cell Phone

significantly reduced in short-term by current

the short term. managerial decisions
Contract Fee

Examples Examples
Depreciation on Buildings Advertising and
and Equipment and Real Research and
Number of Minutes Used Estate Taxes Development
Within Monthly Plan

Slide 47 Slide 48
The Linearity Assumption and the Relevant Range Fixed Costs and the Relevant Range

For example, assume office space is available at

A straight line a rental rate of $30,000 per year in increments of
Economist’s
Curvilinear Cost
closely 1,000 square feet.
approximates a
Function curvilinear
variable cost
line within the
Relevant
relevant range. Fixed costs would increase
Total Cost

Range
Accountant’s Straight-Line in a step fashion at a rate of
Approximation (constant $30,000 for each additional
unit variable cost) 1,000 square feet.

Activity

Slide 49 Slide 50

Fixed Costs and the Relevant Range Cost Classifications for Predicting Cost Behavior

Behavior of Cost (within the relevant range)

90
Rent Cost in Thousands

Cost In Total Per Unit

The relevant range
Relevant of activity for a fixed Variable Total variable cost Increase Variable cost per unit
of Dollars

60 cost is the range of

Range activity over which and decrease in proportion remains constant.
the graph of the to changes in the activity level.
cost is flat.
30 Fixed Total fixed cost is not affected Fixed cost per unit decreases
by changes in the activity as the activity level rises and
0
0 1,000 2,000 3,000 level within the relevant range. increases as the activity level falls.
Rented Area (Square Feet)

Slide 51 Slide 52
Quick Check  Quick Check 

Which of the following costs would be variable Which of the following costs would be variable
with respect to the number of cones sold at a with respect to the number of cones sold at a
Baskins & Robbins shop? (There may be more Baskins & Robbins shop? (There may be more
than one correct answer.) than one correct answer.)
A. The cost of lighting the store. A. The cost of lighting the store.
B. The wages of the store manager. B. The wages of the store manager.
C. The cost of ice cream. C. The cost of ice cream.
D. The cost of napkins for customers. D. The cost of napkins for customers.

Slide 53 Slide 54

Mixed Costs
(also called semivariable costs) Mixed Costs

The total mixed cost line can be expressed

as an equation: Y = a + bX
A mixed cost contains both variable and fixed
elements. Consider the example of utility cost. Where: Y = The total mixed cost.
a = The total fixed cost (the
Y Y vertical intercept of the line).
b = The variable cost per unit of
Total Utility Cost

Total Utility Cost

activity (the slope of the line).
X = The level of activity.

Variable Variable
Cost per KW Cost per KW

X Fixed Monthly X Fixed Monthly

Activity (Kilowatt Hours) Utility Charge
Activity (Kilowatt Hours) Utility Charge

Slide 55 Slide 56
 Analysis of Mixed Costs
Mixed Costs – An Example

If your fixed monthly utility charge is $40, your variable Account Analysis and the Engineering Approach
cost is $0.03 per kilowatt hour, and your monthly
activity level is 2,000 kilowatt hours, what is the amount In account analysis, each account is
of your utility bill? classified as either variable or fixed based
on the analyst’s knowledge of how
the account behaves.

Y = a + bX
The engineering approach classifies
Y = $40 + ($0.03 × 2,000) costs based upon an industrial engineer’s
evaluation of production methods, and
Y = $100 material, labor, and overhead
requirements.

Slide 57 Slide 58

Learning Objective 4 Scattergraph Plots – An Example

Assume the following hours of maintenance work and
the total maintenance costs for six months.

Analyze a mixed cost

using a scattergraph
plot and the high-low
method.

Slide 59 Slide 60
The Scattergraph Method The High-Low Method – An Example
Plot the data points on a graph
(Total Cost Y vs. Activity X).
The variable cost
Y Scattergraph Method per hour of
$10,000
maintenance is
$9,500 equal to the change
Total Maintenance

$9,000
in cost divided by
the change in hours.
$8,500

$8,000
Cost

$2,400
$7,500
= $6.00/hour
X
400
$7,000
400 500 600 700 800 900

Hours of Maintenance
Slide 61 Slide 62

The High-Low Method – An Example The High-Low Method – An Example

Total Fixed Cost = Total Cost – Total Variable Cost

Total Fixed Cost = $9,800 – ($6/hour × 850 hours) The Cost Equation for Maintenance

Total Fixed Cost = $9,800 – $5,100 Y = $4,700 + $6.00X

Total Fixed Cost = $4,700
Slide 63 Slide 64
Quick Check  Quick Check 
Sales salaries and commissions are $10,000 when Sales salaries and commissions are $10,000 when
80,000 units are sold, and $14,000 when 120,000 80,000 units are sold, and $14,000 when 120,000
units are sold. Using the high-low method, what is the units are sold. Using the high-low method, what is
variable portion of sales salaries and commission? the fixed portion of sales salaries and commissions?
a. $0.08 per unit a. $ 2,000
b. $0.10 per unit b. $ 4,000
c. $0.12 per unit c. $10,000
d. $0.125 per unit d. $12,000

Slide 65 Slide 66

Quick Check  Least-Squares Regression Method

Sales salaries and commissions are $10,000 A method used to analyze mixed costs if a
when 80,000 units are sold, and $14,000 when scattergraph plot reveals an approximately linear
120,000 units are sold. Using the high-low relationship between the X and Y variables.
method, what is the fixed portion of sales
salaries and commissions? This method uses all of the
a. $ 2,000 data points to estimate
Total cost = Total fixed cost +
the fixed and variable
b. $ 4,000 Total variable cost
cost components of a
c. $10,000 $14,000 = Total fixed cost +
($0.10 × 120,000 units) mixed cost. The goal of this method is
d. $12,000
Total fixed cost = $14,000 - $12,000 to fit a straight line to the
Total fixed cost = $2,000 data that minimizes the
sum of the squared errors.
Slide 67 Slide 68
Least-Squares Regression Method Comparing Results From the Two Methods

 Software can be used to fit a The two methods just discussed provide
regression line through the data
different estimates of the fixed and variable cost
points.
components of a mixed cost.
 The cost analysis objective is the
same: Y = a + bX This is to be expected because each method
uses differing amounts of the data points to
provide estimates.
Least-squares regression also provides a statistic,
Least-squares regression provides the most
called the R2, which is a measure of the goodness
accurate estimate because it uses all the data
of fit of the regression line to the data points. points.

Slide 69 Slide 70

Learning Objective 5 The Traditional and Contribution Formats

Prepare income
statements for a
merchandising
company using the
traditional and
contribution formats.
Used primarily for Used primarily by
external reporting. management.
Slide 71 Slide 72
Uses of the Contribution Format Learning Objective 6

The contribution income statement format is used

as an internal planning and decision-making tool.
We will use this approach for: Understand the differences
1.Cost-volume-profit analysis (Chapter 5). between direct and indirect
costs.
2.Budgeting (Chapter 8).
3.Segmented reporting of profit data (Chapter 6).
4.Special decisions such as pricing and make-or-
buy analysis (Chapter 12).

Slide 73 Slide 74

Assigning Costs to Cost Objects Learning Objective 7

Direct costs Indirect costs

• Costs that can be • Costs that cannot
easily and be easily and
Understand cost
conveniently traced conveniently traced classifications used in
to a unit of product to a unit of product making decisions:
or other cost object. or other cost object.
differential costs,
• Examples: direct • Example: opportunity costs, and
material and direct manufacturing
labor overhead sunk costs.

Slide 75 Slide 76
 Differential Cost and Revenue
Cost Classifications for Decision Making

Costs and revenues that differ

 Every decision involves a choice among alternatives.
between at least two alternatives.
Example: You have a job paying $1,500 per
month in your hometown. You have a job offer in
 Only those costs and benefits that a neighboring city that pays $2,000 per month.
differ between alternatives are The commuting cost to the city is $300 per month.
relevant in a decision. All other costs
and benefits can and should be
ignored as irrelevant. Differential revenue is: Differential cost is:
$2,000 – $1,500 = $500 $300

Slide 77 Slide 78

Opportunity Cost Sunk Costs

The potential benefit that is

given up when one alternative Sunk costs have already been incurred
is selected over another. and cannot be changed now or in the
future. These costs should be ignored
when making decisions.
Example: If you were
not attending college, Example: Suppose you had purchased
you could be earning gold for $400 an ounce, but now it is selling
$15,000 per year. for $250 an ounce. Should you wait for the
Your opportunity cost gold to reach $400 an ounce before selling
of attending college
for one year is
it? You may say, “Yes” even though the
$15,000. $400 purchase is a sunk costs.

Slide 79 Slide 80
Quick Check 
Suppose you are trying to decide whether to
drive or take the train to Portland to attend a
concert. You have ample cash to do either,
but you don’t want to waste money
needlessly. Is the cost of the train ticket
relevant in this decision? In other words,
should the cost of the train ticket affect the
decision of whether you drive or take the
train to Portland?
A. Yes, the cost of the train ticket is relevant.
B. No, the cost of the train ticket is not relevant.
Slide 81
Quick Check 
Suppose you are trying to decide whether to
drive or take the train to Portland to attend a
concert. You have ample cash to do either, but
you don’t want to waste money needlessly. Is
the annual cost of licensing your car relevant in
this decision?
A. Yes, the licensing cost is relevant.
B. No, the licensing cost is not relevant.
Slide 83
Quick Check 
Suppose you are trying to decide whether to
drive or take the train to Portland to attend a
concert. You have ample cash to do either,
but you don’t want to waste money
needlessly. Is the cost of the train ticket
relevant in this decision? In other words,
should the cost of the train ticket affect the
decision of whether you drive or take the
train to Portland?
A. Yes, the cost of the train ticket is relevant.
B. No, the cost of the train ticket is not relevant.
Slide 82
Quick Check 
Suppose you are trying to decide whether to
drive or take the train to Portland to attend a
concert. You have ample cash to do either, but
you don’t want to waste money needlessly. Is
the annual cost of licensing your car relevant in
this decision?
A. Yes, the licensing cost is relevant.
B. No, the licensing cost is not relevant.
Slide 84
Quick Check  Quick Check 

Suppose that your car could be sold

now for $5,000. Is this a sunk cost? Suppose that your car could be sold
A. Yes, it is a sunk cost. now for $5,000. Is this a sunk cost?
B. No, it is not a sunk cost. A. Yes, it is a sunk cost.
B. No, it is not a sunk cost.

Slide 85 Slide 86

Summary of the Types of Cost Classifications Exercise 1.1

Porter Company manufactures furniture, including tables.
Selected costs are given below:
1. The tables are made of wood that costs $100 per table.

Financial Predicting Cost 2. The tables are assembled by workers, at a wage cost of $40
Reporting Behavior per table.
3. 3. Workers assembling the tables are supervised by a factory
supervisor who is paid $38,000 per year.
4. Electrical costs are $2 per machine-hour. Four machine-
hours are required to produce a table.
Assigning Costs Making Business
5. The depreciation on the machines used to make the tables
to Cost Objects Decisions
totals $10,000 per year. The machines have no resale value
and do not wear out through use.
6. The salary of the president of the company is $100,000 per
year.
Slide 87 Slide 88
Exercise 1.1 Exercise 1.1
Porter Company manufactures furniture, including tables.
Selected costs are given below:
7. The company spends $250,000 per year to advertise its
products.
8. Salespersons are paid a commission of $30 for each
table sold.
9. Instead of producing the tables, the company could rent
its factory space for $50,000 per year.
Required:
Classify these costs according to the various cost terms
used in the chapter

Slide 89 Slide 90

Exercise 1.2 Exercise 1.2

The Edelweiss Hotel in Vail, Colorado, has accumulated records of the
total electrical costs of the hotel and the number of occupancy-days
over the last year. An occupancy-day represents a room rented out for
one day. The hotel’s business is highly seasonal, with peaks occurring
during the ski season and in the summer
1. Prepare a scatter graph using the data given above. Plot cost on the
vertical axis and occupancy days on the horizontal axis. Is there an
approximately linear relationship.
2. Using the high-low method, estimate the fixed cost of electricity per
month and the variable cost of electricity per occupancy-day. Round off
the fixed cost to the nearest whole dollar and the variable cost to the
nearest whole cent.
2. What other factors other than occupancy-days are likely to affect the
variation in electrical costs from month to month?

Slide 91 Slide 92
 Learning Objective 8

Analyze a mixed cost

using a scattergraph plot
and the least-squares
regression method.
Appendix 2A

Least-Squares Regression
Computations

Slide 94

Simple Regression Analysis Simple Regression Using Excel

You will need three pieces of

information from your
regression analysis:
Matrix, Inc. wants to
1. Estimated Variable Cost
know its average Per Unit (line slope)
fixed cost and 2. Estimated Fixed Costs
(line intercept)
variable cost per 3. Goodness of fit, or R2
meals served.
Using the data to the To get these three pieces
information we will need
right, let’s see how to to use three Excel
do a regression functions.
using Microsoft SLOPE, INTERCEPT, and
RSQ
Excel.

Slide 95 Slide 96
Simple Regression Using Excel Simple Regression Using Excel

Scroll down to
the “Statistical”
Place your cursor in functions. Now
cell F4 and press the scroll down the
= key. Click on the statistical
pull down menu and functions until
scroll down to “More you highlight
Functions . . .” “SLOPE”

Slide 97 Slide 98

Simple Regression Using Excel Simple Regression Using Excel

Here is the
estimate of the
slope of the
line.

1. In the Known_y’s box, enter C4:C19 for the range. 1. In the Known_y’s box, enter C4:C19 for the range.
2. In the Known_x’s box, enter D4:D19 for the range. 2. In the Known_x’s box, enter D4:D19 for the range.

Slide 99 Slide 100

Simple Regression Using Excel Simple Regression Using Excel

With your cursor in

cell F5, press the =
key and go to the pull Here is the
down menu for estimate of the
“Special Functions.” fixed costs.
Select Statistical and
scroll down to
highlight the
INTERCEPT function.
1. In the Known_y’s box, enter C4:C19 for the range.
2. In the Known_x’s box, enter D4:D19 for the range.

Slide 101 Slide 102

Simple Regression Using Excel Simple Regression Using Excel

Finally, we will
determine the
“goodness of Here is the
fit”, or R2, by estimate of R2.
using the RSQ
function.

1. In the Known_y’s box, enter C4:C19 for the range.

2. In the Known_x’s box, enter D4:D19 for the range.

Slide 103 Slide 104