Académique Documents
Professionnel Documents
Culture Documents
Personnel
Vice President
Operations
Chief Financial
Officer
Treasurer
Controller
Process Management
Business Process
o A series of steps that are followed in order to
carry out some task in a business
Value Chain
o Consists of the major business functions that
add value to a companys products and services
Business functions making up the value chain
R
Product
Manufacturi Market Distributi
Custo
and
Design
ng
ing
on
mer
D
Service
Three approaches to improving business processes
o Lean Production
o Theory of Constraints
o Six Sigma
Traditional push manufacturing company
Forecast sales
Order components
Store inventory
Store inventory
Produce goods in
anticipation of
sales
Lean Production
o Lean thinking model
Five-step management approach
1. Identify value in
specific
products/services
5. Continuously
pursue perfection
in business process
4. Create a pull
system
2. Identify business
process that delivers
value
3. Organize
work
arangements
Customer places an
order
Goods delivered
when needed
Create production
order
Production begins
as parts arrive
Generate
component
requirements
Components are
ordered
1. Identify the
weakest link
2. Allow the
weakest link to set
the tempo
4. Recognize that
the weakest link is
no longer so
3. Focus on
improving the
weakest link
Six Sigma
o Relies on customer feedback and fact-based data
gathering and analysis techniques to drive
process improvement
o Refers to a process that generates no more than
3.4 defects per million opportunities
o Sometimes associated with the term zero defects.
o DMAIC Framework
Stage
Goals
Define
Establish scope and purpose
Diagram the flow
Establish customers requirements
Measure
Gather baseline performance data
Narrow the scope of the project to the most
important problems
Analyze
Identify root cause(s) of the problems
Improve
Develop, evaluate and implement solutions
Control
Ensure problems remain fixed
Seek to improve the new methods over time
IMAs Code of Conduct for Management Accountants
IMA Guidelines for Ethical Behavior
o Competence
Recognize
and
communicate
professional limitations
Follow applicable laws
Corporate Governance
The system by which a company is directed and
controlled
Boards of directors provide incentives and monitoring
for top management to pursue objectives of
stockholders.
Enterprise Risk Management
Process used by a company to proactively identify and
manage risk
Once a company identifies its risks, specific controls may
be implemented to reduce these risks
Corporate Social Responsibility
Select
alternative
Develop
budgets to
guide
progress
Comparing actual to
planned
performance
Decision
Making
Implementing
plans
Measuring
performance
Cost Behavior
How a cost will react to changes in the level of activity
within the relevant range
Direct Labor
Manufacturing
Overhead
Job 1
Job 2
Job 3
Sunk Costs
Costs that have already been incurred and cannot be
changed now or in the future
These costs should be ignored when making decisions
Summary of the Types of Cost Classifications
Financial reporting
Predicting cost behavior (variable/fixed)
Assigning costs to cost objects (direct/indirect)
Making business decisions
III. CHAPTER 3: SYSTEMS DESIGN: JOB-ORDER
COSTING
Types of Product Costing Systems
Process Costing
o Production of many units of a single,
homogenous product
o The identical nature of each unit of product
enables assigning the same average cost per unit
o Basic formula for process costing:
Job-Order Costing
o Usually used in service-oriented industries
o Many different products are produced each
period
o Manufactured to order
o The unique nature of each order requires tracing
or allocating costs to each job, and maintaining
cost records for each job.
Comparison
Job-Order
Process
Number of jobs worked
Many
Single Product
Cost accumulated by
Job
Department
Average cost computed by
Job
Department
Production
Order
Job cost
sheet
Materials
requisition
form*
Employee
time ticket*
Production
Order
*Note: Indirect materials and indirect labor are first included in the
manufacturing overhead account before the job cost sheet
Flow of Costs and Applying Manufacturing Overhead
T-account format ; Journal Entries
Raw Materials
Material
DM
Purchases IM
Work In Process
(Job Cost Sheet)
DM
DL
Overhead
Applied
Salaries and Wages
Payable
DL
IL
Mfg. Overhead
Actual
Applied
IM
OH
IL
applied to
Others
WIP
Accounting for Nonmanufacturing Cost
These costs are not assigned to individual jobs, rather
they are expensed in the period incurred.
Debit expense, credit asset/liability
Transferring Completed Units
T-account format ; Journal Entries
Work In Process
(Job Cost Sheet)
DM
DL
COGM
Overhead
Applied
Finished Goods
COGM
COGS
Cost of Goods Sold
COGS
Overhead Application Problems
Underapplied overhead
o Actual MOH > Applied MOH
Overapplied overhead
o Actual MOH < Applied MOH
Allocation of under/overapplied OH
If MOH is:
Underapplied
Oveapplied
ALTERNATIVE 1
Close to COGS
Increase
COGS
Decrease
COGS
ALTERNATIVE 2
Allocation
Increase
WIP
Finished Goods
COGS
Decrease
WIP
Finished Goods
COGS
Cost
Per
Unit
Total
Cost
Activity Level
Activity Level
Step-variable cost
o Cost of a resource that is obtained in large
chunks and that increases or decreases only in
response to fairly wide changes in activity
Cost
Activity Level
Manufacturing
>Cost
of
goods sold
>Direct
materials
>Direct labor
>Variable
overhead
Merchandising
And
Manufacturing
>Commissions
>Shipping
costs
>Clerical costs
Fixed Costs
A cost whose total dollar amount remains constant as the
activity level changes
Average fixed cost per unit decrease as the activity level
increases
Cost
Per
Unit
Total
Cost
Activity Level
Service
>Supply
>Travel
>Clerical
We assume a strictly
linear
relationship
between cost and volume
Relevant Range
o Range of activity
within which the
assumptions
are
reasonably valid
Activity Level
Range
Cost
Volume
Fixed
In Total
Total variable cost is
proportional to the
activity level within the
relevant range
Total fixed costs remain
the same even when the
activity level changes
within the relevant range
Per Unit
Variable cost per unit
remains the same over
ranges of activity
Average fixed costs per
unit decrease as the
activity level increases
Total
Cost
Mixed Cost
Slope =
variable
cost/unit
Intercept = total
fixed cost
Contribution Format
Variable cost element
Activity Level
CVP Graph
Fixed expense
Application
Application
Break-Even Analysis
Target Profit
V. COST-VOLUME-PROFIT RELATIONSHIPS
CVP Relationships in Equation Form
Profit formula
Unit CM formula
Margin of Safety
The excess of budgeted (or actual) sales over the breakeven volume of sales
Operating Leverage
Measure of how sensitive net operating income is to
percentage changes in sales
1. Prepare standard
cost performance
report
6. Conduct next
period's
operations
2. Analyze
variances
5. Take corrective
actions
3. Identify
questions
4. Receive
explanations
Inputs
Direct materials
Direct labor
Variable mfg. overhead
Total standard unit cost
AxB
Standard
Quantity
or Hours
Standard
Price
or Rate
Standard
Cost
per Unit
3.0 lbs.
2.5 hours
2.5 hours
12.00
35.00
7.50
54.50
Price Variance
Difference
between
actual price
and
standard
price
Materials PV
Labor Rate
PV
VOH Rate
variance
Difference
between
actual
quantity and
standard
quantity
Materials QV
Labor efficiency
variance
VOH efficiency
variance
Examples
Standard example
VII.
CHAPTER
12:
DECENTRALIZATION
SCORECARD
SEGMENT
REPORTING,
AND
THE
BALANCED
Decentralization
Benefits
o Top management can concentrate on strategy
o Lower-level managers gain experience in
decision-making
o Decision-making authority leads to job
satisfaction
o Lower-level decisions often based on better
information
o Lower level managers can respond quickly to
customers
Disadvantages
o May be a lack of coordination among
autonomous managers
o Lower-level managers may make decisions
without seeing the big picture
o Lower-level managers objective may not be
those of the organization
o May be difficult to spread innovative ideas in the
organization
Backtracking
Responsibility Center
Cost Center
o Segment whose manager has control over costs,
but not over revenues or investment funds
Profit center
o Segment whose manage has control over both
costs and revenues, but not investment funds
Investment center
o Segment whose manager has control over costs,
revenues, and investments in operating assets
Decentralization and Segment Reporting
Segment: any part or activity of an organization about
which manager seeks cost, revenue or profit data
Segmented Income Statements
Two keys to building:
o Contribution format should be used because it
separates fixed from variable costs, and enables
calculation of contribution margin
o Traceable fixed costs should be separated from
common fixed costs to enable the calculation of
a segment margin
o Common costs should not be allocated to the
divisions, as these would remain even if one of
the divisions were eliminated
Sales
Variable costs
CM
Traceable FC
Division margin
Common costs
Net operating
income
Income Statement
Company
Television
$ 500,000
$ 300,000
230,000
150,000
270,000
150,000
170,000
90,000
100,000
$ 60,000
25,000
$
Computer
$ 200,000
80,000
120,000
80,000
$ 40,000
Examples
Standard
75,000
Increasing ROI
o Increase sales
o Reduce expenses
o Reduce assets
Net book value: used by most companies to calculate
average operating assets
Residual Income
Another measure of performance
Measures net operating income earned less the minimum
required return on average operating assets
Encourages managers to make profitable investments that
would be rejected by managers using ROI
Disadvantage: Cannot be used to compare the
performance of divisions of different sizes
Formula
Backtracking
With Analysis
Evaluation
o If an intracompany would result in higher
profits, there is always a range of transfer prices
within which both the selling and buying
divisions would have higher profits should they
agree to the transfer
o If managers are pitted against each other rather
than against their past performances, a no
cooperative atmosphere is almost guaranteed
o Given disputes that accompany the negotiation
process, most rely on other means of setting
transfer prices.
Example
Examples
Dropping Segments
Special Orders
Total Cost
Current
Situation
$
200,000
Situation
With New
Machine
$
200,000
Differential
Costs and
Benefits
-
70,000
40,000
10,000
120,000
80,000
70,000
25,000
10,000
105,000
95,000
15,000
15,000
62,000
62,000
18,000
62,000
3,000
65,000
30,000
(3,000)
(3,000)
12,000
Differential Cost
$
$
15,000
(3,000)
12,000
Constrained Resources
Constraint: limited resource of some type restricts a
companys ability to satisfy demand
Bottleneck: machine or process that limits overall output
Utilization
o Fixed costs are usually unaffected, so the
product mix that maximizes the companys total
contribution margin should be selected
o A company should not necessarily promote
those products with highest unit CM
o Total CM will be maximized by promoting
products or accepting orders that provide the
highest CM in relation to the constraint
General formula
Examples
Managing Constraints
Per Log
Lumber
Sawdust
$
140
$
40
50
24
20
Per Log
Lumber
270
140
130
50
80
Sawdust
50
40
10
20
(10)
REMINDERS:
Do not forget to bring the ff:
o CALCULATOR
o Ruler
o Assignment notebook
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