Management Accounting A

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

Coordinator: Vijaya Murthy

vijaya.murthy@sydney.edu.au

Tutor-in-charge: Anna Young

anna.young@sydney.edu.au

Lecturers & Tutors:

1. Chang Loh
1
chang.loh@sydney.edu.au
2. Geoff Frost
geoffrey.frost@sydney.edu.au
3. Ravi Seethamraju
ravi.seethamraju@sydney.edu.au
4. Gigi Wongwaiwetch
gigi.wongwaiwetch@sydney.edu.au 3

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 Lecture Times/Structure
Time: Thursdays 12 Noon - 2 PM
Location: Carslaw Lecture Theatre 159
1. Introduction to Management Accounting
2. Product Costing Systems Vijaya Murthy
3. Activity-Based-Costing
4. Overhead Costing Issues
5. Variable & Absorption Costing Geoff Frost
6. Cost Behaviour & Estimation, CVP Analysis
7. Budgeting Systems
Chang Loh
8. Standard Costing & Variance Analysis
9. Flexible Budgets & Variance Analysis
10. Decision Making: Relevant Costs and
Benefits Geoff Frost
11. Capital Budgeting
12. Environmental Management Accounting 4
Anna Young

• Hilton, R. W. (2010) Managerial

Accounting: Creating Value in a Dynamic
Business Environment. 9th Edition.
McGraw-Hill
• Pearson Computer Assignments

Assessment task Weighting

Academic Honesty Module 0%
In-class Multiple Choice 20%
Quiz (each week)
p
Computer Assignments
g 10%
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 is
d on 15th March
due M h bbefore
f 9AM
9AM.
• 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 Blackboard
8

Group assignments
• Groups of 2 or 3 members from within the tut
ONLY
• Weightage –10%
• To be submitted both as hard copy and soft copy
via Blackboard.
• Due date: 21st April, 2011.
End date: 12th May 2011.
• More details will be available on Blackboard
closer towards the due date.
9

3
 Final Exam

• Weightage –60%
• More details will be available on Blackboard
closer towards the exam time
time.

10

Need three student

representatives

Contact Vijaya Murthy or Anna Young

by email

11

PEER-ASSISTED STUDY
SESSIONS
What is PASS?
• A free complementary learning program run by the School of Business for all first year
core units of study.

• An opportunity for all students to maximise their marks, as well as their academic and
social
i l university
i it experience.
i

• Weekly one hour seminars, where students work in groups on specially prepared
practice questions and materials that revisit key areas or concepts.

• A friendly team based environment ideal for meeting new people, asking questions and
developing networking, communications and teamwork skills.

• Places fill out fast! Registrations open first

12
week of semester

4
 How to register?

• To register or to find out more about PASS

go to:

www.sydney.edu.au/business/pass

Blackboard
• Please check Blackboard for lecture notes,
announcements, homework solutions and
anyy other updates.
p
• Discussion Board: For student
communications. Clarify questions on
weekly topics, computer assignments etc.
Require appropriate online behaviour.

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Overview
1. Define management accounting
2. Difference between management and financial
accounting
3. Role of management accounting in performing
management
g functions
4. Meaning of ‘cost’
5. Different classification of costs – Product cost &
period cost; Manufacturing cost; Direct & Indirect;
Variable & Fixed cost; controllable & uncontrollable
cost; opportunity, sunk & differential cost.
6. Meaning of cost objects, cost drivers and cost
behaviour
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5
 Accounting Information System

Process of gathering, organizing, and

Communicating financial information

Managerial accounting is the process of

 Identifying
 Measuring
 Analyzing
 Interpreting
 Communicating information

Simple Definition of Management

Accounting:
⁚ the provision of information required by
management for planning, organising and
control
Management accounting is concerned with
information for management purposes:
⁚ internal information for the organisation
itself and very rarely made public, unlike
financial accounting information.

Contrasting Financial and

Management Accounting
Financial A/C Management A/C

Internal
External  M k ti managers
Marketing
 Stockholders
 Salespersons
 Lending institutions
 Production managers
 Bondholders
 Production supervisors
 Suppliers
 Strategic planners
 Customers
 Company president
 Competitors
 Company engineers

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 Contrasting Financial and
Management Accounting
Focus Profitability
Financial
Solvency
accounting
Liquidity

Focus Efficiency
Management
Productivity
accounting
Quality

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Accounting Rules
The financial accountant is governed by GAAP
(generally accepted accounting principles).

The management accountant does

not need to follow these rules.

Timeliness
Timeliness is always an important
feature of useful information.

Users of financial accounting know that

they can expect to receive information
on a quarterly and annual basis.

Good timing for accounting information

depends upon the situation.

Some managers may need daily, or

even hourly, reports; others may
only need weekly or monthly.

Future Orientation
Financial accounting provides
information about past results.
Predictive value is desired,
but not required.
Management accounting information is
used primarily for decision making, and
these decisions affect the future of the firm.

7
 Level of Detail
Financial accounting statements are
known as general purpose statements.
There are many different external users
that must rely on the same statements.

Management accounting reports

are typically much more detailed.

They possibly deal only with the information

related to one particular decision.

Management Accounting in a
Changing Environment
Accounting within
organisations

Management No fixed set of

Accounting rules to follow

Continually
evolves to meet
organisation
needs
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Managing Resources, Activities,

and People
An organization . . . Directing

Acquires Resources Decision

Organized set Making
of activities

Controlling Planning
Hires People

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 The Functions of Management

Planning Acting
Acting Controlling
Controlling

Feedback

Decision Making within an

Organisation
Planning Decisions
•Decisions about what tasks should be
performed & how to complete
p p those tasks.
•Long-term decisions tend to be made by top-
level managers.
•Short-term decisions tend to be made at lower
levels of management.

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Decision Making within an

Organisation
Control Decisions
•Proper organisational design and assignment of
responsibilities help control decisions of members
of the organisation.
•Decisions relating to managing, motivating, and
monitoring individuals within the organisation.
•Control includes the choice of performance
measures.
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9
 How Managerial Accounting
Adds Value to the Organization
• Providing information for decision making and
planning.
• Assisting managers in directing and controlling
activities.
• Motivating managers and other employees towards
organization’s goals.
• Measuring performance of activities, managers,
and other employees.
• Assessing the organization’s competitive position.

Process of Management
Strategy Planning
Formulation

Managers need cost information to

perform each of these functions.

Control Directing
Decision
Making

What Do We Mean By a Cost?

A cost
is the measure of
resources given
up to achieve a
particular purpose.

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 Product Costs, Period Costs and Expenses

Product costs are costs associated with goods for

sale until the time period during which the products
are sold, at which time the costs become expenses.

Period costs are costs that are expensed during the

time period in which they are incurred.

Expenses are the consumption of assets for the

purpose of generating revenue.

Cost Classifications on Financial

Statements – Income Statement

Product Costs Period Costs

Cost of goods sold Operating expenses

2-32

Cost Classifications on Financial

Statements – Balance Sheet

Merchandiser Manufacturer
Current Assets Current Assets
– C h
Cash  Cash
– Receivables  Receivables
– Prepaid Expenses  Prepaid Expenses
– Merchandise Inventory  Inventories
Raw Materials
Work in Process
Finished Goods

2-33

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 Manufacturing Costs

Direct Direct Manufacturing

Material Labor Overhead

The
Product

Classifications of Costs in
Manufacturing Companies
Manufacturing costs are often
combined as follows:
Direct Direct Manufacturing
g
Material Labor Overhead

Prime Conversion
Cost Cost

Manufacturing Cost Flows

Direct Material
Work in
Direct Labor Process
Inventory
Manufacturing
M f t i
Overhead
Finished Cost of
Goods Goods
Inventory Sold

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 Cost Objects, Cost drivers
• Cost objects are anything for which a
separate measurement of costs is desired.
• Cost drivers are any factors that affect cost.
cost

Activities that cause costs to be incurred

are called COST DRIVERS
Cost Driver Examples
Activity Cost Driver
Machining operations Machine hours
Setup Setup hours
Production scheduling Manufacturing orders
Inspection Pieces inspected
Purchasing Purchase orders
Shop order handling Shop orders
Valve assembly support Customer Requisitions

• What are examples of cost objects?

– individual products
– alternative marketing strategies
– geographic segments of the business
– departments

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 Traceability: Direct & Indirect cost
• Direct Costs: can be identified or traced to
specifically and exclusively with a cost object –
economical to trace – can see the association
with production (ie direct materials/direct
labour)
• Indirect Costs: cannot be identified specifically
and exclusively with a cost object –
uneconomical to trace to a specific product –
cannot see direct association with production
(Eg. Production manager’s Salary)

40

Direct Cost
Cost of raw material that is used to
make, and can be conveniently
traced, to the finished product.

Examples of Indirect Costs

Indirect Indirect Other

Material Labor Costs

Examples:
Cost of personnel who
depreciation on plant
Examples: do not work directly and equipment,
Nails used on the product. property taxes,
in making furniture Examples: maintenance insurance, utilities,
Whiteboard markers workers, janitors and overtime premium,
in classroom security guards. and unavoidable idle
time.

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 Cost Behaviour
Cost 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
• Fixed Costs: does not change in response to changes in
the level of activity
• Variable Costs: changes in response to changes in level
of activity (proportional to level of activity) – assume
unit activity cost does not change
• Mixed Costs: combination of both fixed and variable
costs
• Step Costs: where changes in level of activity will result
in sudden significant cost changes

Total Variable Cost Example

Your total long distance telephone bill is
based on how many minutes you talk.
Total Long Distance
Telephone Bill

Minutes Talked

Total Fixed Cost Example

Your monthly basic telephone bill probably does
not change when you make more local calls.
Monthly Basic
Telephone Bill

Number of Local Calls

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 Controllability
• Controllable v. Uncontrollable Costs
• A cost that can be significantly influenced by a
manager is a controllable cost.

Cost Item Manager Classification

Cost of food used Restaurant Controllable
in restaurant manager
Cost of national Restaurant uncontrollable
advertising by manager
restaurant chain
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Opportunity Cost
The 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.

S kC
Sunk Costs
t
All costs incurred in the past that cannot be changed by any decision made now or
in 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, or
sell 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
hometown or $2,000
$2 000 per month in a nearby city.
city
Your commuting costs are $50 per month in your
hometown 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
• Manufacturing
M f t i costs t include
i l d three
th categories:
t i
direct material, direct labour and manufacturing
overhead
– This classification as direct or indirect cost assumes
that products are the relevant cost objects
• Under conventional product costing, only
manufacturing costs are included in product costs

Problem 2.42 (Page 70)

a. Total prime costs:

Direct material $ 2,100,000

Direct labor:
Wages
Fringe benefits 95,000
Total prime costs

50

b. Total manufacturing overhead:

Depreciation on factory building $ 115,000

Indirect labor: wages
Production supervisor's salary 45,000
Service department costs
Indirect labor: fringe benefits
Fringe benefits for production supervisor 9,000

Total overtime premiums paid 55,000

Cost of idle time: production employees

Total manufacturing overhead

51

17
 c. Total conversion costs:

Direct labor ($485,000 + $95,000) $ 580,000

Manufacturing overhead
Total conversion costs

d. Total product costs:

Direct material $2,100,000

Direct labor
Manufacturing overhead
Total product costs

52

Text Book Chapters to read:

Chapters 1 and 2

Homework
H kQQuestions
i to attempt:
1.25, 2.8, 2.10, 2.23, 2.24, 2.29,
2.45.

53

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