Beruflich Dokumente
Kultur Dokumente
Program
2007
By: Isam Rimawi
irimawi@hotmail.com
Master Program Advanced Managerial accounting 12/20/2010 last update
http://www.geocities.com/irimawi/
Work of Management
Planning
Identify alternatives. Select alternative that does the best job of furthering organization’s objectives.
Develop budgets to guide progress toward the selected alternative.
Controlling
• The control function ensures that plans are being followed.
• Feedback in the form of performance reports that compare actual results with the budget are an
essential part of the control function
Formulating
Begin
Formulatinglong-and
long-andshort-
short-
term plans (Planning)
term plans (Planning)
Comparing
Comparingactual
actual Decision Implementing
Implementing
to planned performance
to planned performance plans
plans(Directing
(Directingand
and
(Controlling)
(Controlling)
aking
M Motivating)
Motivating)
Measuring
Measuringperformance
performance
(Controlling)
(Controlling)
Organizational Structure
Decentralization
Decentralizationis
isthe
thedelegation
delegationof
ofdecision-
decision-
making
makingauthority
authoritythroughout
throughoutananorganization.
organization.
C o r p o r a t e O r g a n i z a t i o n C h
B o a r d o f D i r e c t o r s
P r e s i d e n t
P u r c h a s i nP g e r s o n n V e ilc e P r e s C i d h ei e n f t F i n a n c i a l
O p e r a t i o n Os f f i c e r
T r e a s u C r eo r n t r o ll e r
Complete
Completeproducts
products
Receive
Receivecustomer
customer just
justin
intime
timeto
to
orders.
orders. ship customers.
ship customers.
Schedule
Schedule
production.
production.
Receive
Receivematerials Complete
materials Completeparts
partsjust
justin
in
just
just in timefor
in time for time for assembly into
time for assembly into
production.
production. products.
products.
JIT Consequences
1. Improved plant layout
2. Reduced setup time
3. Zero production defects
4. Flexible workforce
JIT purchasing
Fewer, but more ultra reliable suppliers. Frequent JIT deliveries in small lots. Defect-free supplier
deliveries.
Process Reengineering
1. A business process is diagrammed in detail.
2. Every step in the business process must be justified.
3. The process is redesigned to eliminate all non-value-added activities
Anticipated results:
1. Process is simplified.
2. Process is completed in less time.
3. Costs are reduced.
4. Opportunities for errors are reduced.
Theory of Constraints
A constraint (also called a bottleneck) is anything that prevents you from
getting more of what you want.
4.4.Recognize
Recognizethat
thatthe
the
weakest
weakestlink
link
isisno
no longerso.
longer so.
International Competition
Increasing
Increasing sophistication
sophistication
in
in international
international markets.
markets.
Fewer
Fewer tariffs,
tariffs, Improvements
Improvements
quotas, Competition has
quotas, andand in
in global
global
other barriers become worldwide
other barriers transportation
transportation
to in most industries.
to free
free trade.
trade. systems.
systems.
An
Anexcellent
excellentmanagement
managementaccounting
accountingsystem
systemisisneeded
needed
to succeed in today’s competitive global marketplace.
to succeed in today’s competitive global marketplace.
E-Commerce
In recent years, many dot.com businesses failed that might have benefited from the application of
managerial accounting tools:
Cost concepts (Chapter 2)
Cost estimation (Chapter 5)
Cost-volume-profit (Chapter 6)
Activity-based costing (Chapter 8)
Budgeting (Chapter 9)
Decision-making (Chapter 13)
Capital budgeting (Chapter 14)
Code of Conduct for Management Accountants
The Institute of Management Accountant’s (IMA) Standards of Ethical Conduct for Practitioners
of Management Accounting and Financial Management have two major parts offering guidelines
for:
Ethical behavior.
Resolution for an ethical conflict.
IMA Guidelines for Ethical Behavior
Follow
Followapplicable
applicablelaws,
laws,regulations
regulationsand
and
standards.
standards.
Maintain
Maintain
professional
professional Competence
competence.
competence.
Prepare
Preparecomplete
completeand
andclear
clearreports
reports
after appropriate analysis.
after appropriate analysis.
Do
Donot
notuse
useconfidential
confidential
information
informationfor
for Confidentiality
personal
personaladvantage.
advantage.
Ensure
Ensurethat
thatsubordinates
subordinatesdodonot
notdisclose
disclose
confidential information.
confidential information.
Do
Donot
notsubvert
subvert
organization’s
organization’slegitimate
legitimate Integrity
objectives.
objectives.
Recognize
Recognizeand
andcommunicate
communicatepersonal
personaland
and
professional limitations.
professional limitations.
Refuse
Refusegifts
giftsor
or
Refrain
Refrainfrom
from favors that
favors that
activities
activitiesthat
that might
might
could discredit
could discredit
the
theprofession.
profession.
Integrity influence
influence
behavior.
behavior.
Communicate
Communicateunfavorable
unfavorableasas
well as favorable information.
well as favorable information.
Objectivity
Disclose
Discloseall
allinformation
informationthat
thatmight
mightbe
beuseful
usefultotomanagement.
management.
Ethical
Ethicalstandards
standardsininbusiness
businessare
areessential
essentialfor
foraa
smooth
smoothfunctioning
functioningadvanced
advancedmarket
marketeconomy.
economy.
End of Chapter 1
1. Direct Materials
2. Direct Labor
3. Manufacturing Overhead
Direct Materials
Raw materials that become an integral part of the product and that can be conveniently traced
directly to it.
Example: A radio installed in an automobile
Direct Labor
Those labor costs that can be easily traced to individual units of product.
Example: Wages paid to automobile assembly workers
Manufacturing Overhead
Manufacturing costs that cannot be traced directly to specific units produced.
Examples:
Examples: Indirect
Indirect labor
laborand
and indirect
indirectmaterials
materials
Classifications of Costs
Manufacturing costs are often classified as follows:
Direct
Direct Direct
Direct Manufacturing
Manufacturing
Material
Material Labor
Labor Overhead
Overhead
Prime Conversion
Cost Cost
Non-manufacturing Costs
Marketing or Selling Cost : Costs necessary to get the order and deliver the product.
Administrative Cost : All executive, organizational, and clerical costs.
Prepared by: Isam Rimawi irimawi@hotmail.com http://www.geocities.com/irimawi/ Page 12 of 47
Master Program Advanced Managerial accounting 12/20/2010 last update
Balance Income
Sheet Statement Income
Statement
Quick Check ü
Which of the following costs would be considered a period rather than a product cost in a
manufacturing company?
A. Manufacturing equipment depreciation.
B. Property taxes on corporate headquarters.
C. Direct materials costs.
D. Electrical costs to light the production facility.
E. Sales commissions. , B, E,
Balance Sheet
Merchandisers . . . Manufacturers . . .
Current assets Current Assets
Cash Cash
Receivables Receivables
Prepaid Expenses Prepaid Expenses
Merchandise Inventory Inventories
Raw Materials
Work in Process
Finished Goods
Raw Materials Materials waiting to be processed.
Work in Process Partially complete products – some material, labor, or overhead has been added.
Finished Goods Completed products awaiting sale.
Inventory Flows
Beginning
Additions Available
balance + $$$ = $$$$$
$$
Quick Check ü
If your inventory balance at the beginning of the month was $1,000, you bought $100 during the
month, and sold $300 during the month, what would be the balance at the end of the month?
A. $1,000.
B. $ 800.
C. $1,200.
D. $ 200. . , B, $1,000 + $100 = $1,100 $1,100 - $300 = $800
Work In
Raw Materials Manufacturing Costs Process
Manufacturing Work
Raw Materials Costs In Process Finished Goods
Quick Check ü
Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was
purchased. A count at the end of the month revealed that $28,000 of raw material was still
present. What is the cost of direct material used?
A. $276,000
B. $272,000
C. $280,000
D. $2,000 . ,C
The Answer C
Beg. raw materials $ 32,000
+ Raw materials
purchased 276,000
Raw materials
= available
for use in
production $ 308,000
– Ending raw materials
inventory 28,000
Direct materials used in production totaled $280,000. Direct labor was $375,000 and factory
overhead was $180,000. What were total manufacturing costs incurred for the month?
A. $555,000
B. $835,000
C. $655,000
D. Cannot be determined. . ,B
The Answer B
Direct Materials $280,000
+ Direct Labor 375,000
+ Mfg. Overhead 180,000
= Mfg. Costs Incurred
for the Month $835,000
Beginning work in process was $125,000. Manufacturing costs incurred for the month were
$835,000. There were $200,000 of partially finished goods remaining in work in process inventory
at the end of the month. What was the cost of goods manufactured during the month?
A. $1,160,000
B. $ 910,000
C. $ 760,000
D. Cannot be determined. . C ,
The Answer C
Beginning work in
process inventory $ 125,000
+ Mfg. costs incurred
for the period 835,000
= Total work in process
during the period $ 960,000
– Ending work in
process inventory 200,000
= Cost of goods
manufactured $ 760,000
Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month
was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods
sold for the month?
A. $ 20,000.
B. $740,000.
C. $780,000.
D. $760,000. . ,B
The Answer B
$130,000 + $760,000 = $890,000
$890,000 - $150,000 = $740,000
Minutes Talked
Minutes Talked
Telephone Bill
Monthly Basic
Quick Check ü
Which of the following costs would be variable with respect to the number of cones sold at a
Baskins & Robbins shop? (There may be more than one correct answer.)
Prepared by: Isam Rimawi irimawi@hotmail.com http://www.geocities.com/irimawi/ Page 20 of 47
Master Program Advanced Managerial accounting 12/20/2010 last update
Opportunity Costs
The potential benefit that is given up when one alternative is selected over another
Example: If you were not attending college, you could be earning $15,000 per year.
Your opportunity cost of attending college for one year is $15,000
Sunk Costs
Sunk costs have already been incurred and cannot be changed now or in the future. They should
be ignored when making decisions.
Example: You bought an automobile that cost $10,000 two years ago. The $10,000 cost is sunk
because whether you drive it, park it, trade it, or sell it, you cannot change the $10,000 cost.
Quick Check ü
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. A,
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 B,
Suppose that your car could be sold now for $5,000. Is this a sunk cost?
A. Yes, it is a sunk cost.
B. No, it is not a sunk cost. B,
Idle Time
• Machine Breakdowns
• Material Shortages
• Power Failures
The labor costs incurred during idle time are ordinarily treated as manufacturing overhead.
Overtime
The overtime premiums for all factory workers are usually considered to be part of
manufacturing overhead
When the overwhelming majority of products produced conform to design specifications and are
free from defects.
• Lost sales
Appraisal costs:
Inspection 600,000 1.20% 560,000 1.12%
Reliability testing 580,000 1.16% 420,000 0.84%
Supervision of testing and inspection 120,000 0.24% 80,000 0.16%
Depreciation of test equipment 200,000 0.40% 140,000 0.28%
Total appraisal cost 1,500,000 3.00% 1,200,000 2.40%
20
$10
14
7 External External
External External 12
6 Failure Failure
Failure Failure
10
5
4 8 Internal
Internal
Failure Failure
3 Internal 6 Internal
Failure Failure
2 4
Appraisal Appraisal
Appraisal 2 Appraisal
1
Prevention Prevention 0 Prevention Prevention
0
1 2 1 2
Year Year
End of Chapter 2
Units
Machine
produce
hours
d
A measure of what
causes the
incurrence of a
variable cost
Miles Labor
driven hours
Minutes Talked
Types of Cost Behavior Patterns
Recall the summary of our cost behavior discussion from an earlier chapter.
Minutes Talked
Volume
Step-Variable Costs
A resource that is obtainable only in large chunks (such as maintenance workers) and whose costs
increase or decrease only in response to fairly wide changes in activity is known as a step-variable cost.
Volum
e
The Linearity Assumption and the Relevant Range
Economist’s A
A straight
straight line
line
closely
closely
Curvilinear Cost
approximates
approximates aa
Function curvilinear
curvilinear
variable
variable cost
cost
line
line within
within the
the
Relevant relevant range.
relevant range.
Range
Total Cost
Accountant’s Straight-Line
Approximation (constant unit
variable cost)
Activity
Rent Cost
Total
Total cost
cost doesn’t
in
doesn’t
Relevant change
change forfor aa wide
wide
60 Range range
range ofof activity,
activity,
and
and then
then jumps
jumps toto aa
new
new higher
higher cost
cost for
for
30 the
the next
next higher
higher
range of activity.
range of activity.
00 1,000 2,000 3,000
Rented Area (Square Feet)
Quick Check ü
Which of the following statements about cost behavior are true?
1. Fixed costs per unit vary with the level of activity.
2. Variable costs per unit are constant within the relevant range.
3. Total fixed costs are constant within the relevant range.
4. Total variable costs are constant within the relevant range. 1 , 2 , 3 ,
Mixed Costs
A mixed cost has both fixed and variable components. Consider the example of utility cost.
Y
Utility
Total
Cost
o st
ed
c
ix
ta lm
To Variable
Cost per KW
Fixed Monthly
Activity (Kilowatt Hours)
X Utility Charge
Y = a + bX
Y =
Y = $40 + ($0.03 × 2,000)
Y = $100
Y = $100
Y
20
* ** *
Maintenance Cost
1,000’s of Dollars
* *
**
10 * *
0 X
0 1 2 3 4
Patient-days in 1,000’s
Y
20
* ** *
Maintenance Cost
1,000’s of Dollars
* *
**
10 * *
0 X
0 1 2 3 4
Patient-days in 1,000’s
Use one data point to estimate the total level of activity and the total cost.
* *
**
10 * *
Intercept = Fixed cost: $10,000
0 X
0 1 2 3 4
Patient-days in 1,000’s
Patient days = 800
Make a quick estimate of variable cost per unit and determine the cost equation.
Total maintenance at 800 patients $ 11,000
Less: Fixed cost 10,000
Estimated total variable cost for 800 patients $ 1,000
$1,00
= $1.25/patient-
Variable cost per unit = 800
day
800
Y
Y == $10,000
$10,000 ++ $1.25X
$1.25X
Total
Total maintenance
maintenance Number
Number of
of patient
patient
cost
cost days
days
$2,400
= $8.00/hour
300
Quick Check ü
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000
units are sold. Using the high-low method, what is the variable portion of sales salaries and
commission?
a. $0.08 per unit
b. $0.10 per unit
c. $0.12 per unit
d. $0.125 per unit ,b,
High le ve l
Units
120,000
Cost
$ 14,000
$4,000 ÷ 40,000 units
Low le ve l
Cha nge
80,000
40,000 $
10,000
4,000 = $0.10 per unit
Sales salaries and commissions are $10,000 when 80,000 units are sold, and $14,000 when 120,000
units are sold. Using the high-low method, what is the fixed portion of sales salaries and commissions?
a. $ 2,000
b. $ 4,000
c. $10,000
d. $12,000 ,a,
• Software can be used to fit a regression line through the data points.
• The cost analysis objective is the same: Y = a + bX
Least-squares regression also provides a statistic, called the R2, that is a measure of the
goodness of fit of the regression line to the data points.
Y
20
* ** *
Cost
Tota
l
* * **
10 * * R varies from 0% to 100%, and
2
X
0 0 1 2 3 4
Activity
Appendix 5A
Prepared by: Isam Rimawi irimawi@hotmail.com http://www.geocities.com/irimawi/ Page 37 of 47
Master Program Advanced Managerial accounting 12/20/2010 last update
To get these three pieces information we will need to use three different Excel functions.
LINEST, INTERCEPT, & RSQ
we will determine the “goodness of fit”, or R2, by using the RSQ function.
End of Chapter 5
If Racing sells 400 units in a month, it will be operating at the break-even point.
If Racing sells one more bike (401 bikes), net operating income will increase by $200.
We do not need to prepare an income statement to estimate profits at a particular sales volume.
Simply multiply the number of units sold above break-even by the contribution margin per unit.
If Racing sells 430 bikes, its net income will be $6,000.
CVP Relationships in Graphic Form
The relationship among revenue, cost, profit and volume can be expressed graphically by preparing a
CVP graph. Racing developed contribution margin income statements at 300, 400, and 500 units sold.
We will use this information to prepare the CVP graph.
CVP Graph
rea
Total Sales fit A
Pro
450,000
Total Expenses
oll
ar
D
Fixed Expenses
400,000
Units
r ea
Lo ssA 350,000
300,000 Units
250,000
200,000
150,000
Prepared by: Isam Rimawi irimawi@hotmail.com http://www.geocities.com/irimawi/ Page 41 of 47
100,000
Master Program Advanced Managerial accounting 12/20/2010 last update
$200 = 40%
$500
Sales increase by $62,000, fixed costs increase by $15,000, and net operating income increases
by $2,000.
Sales increase by $37,500, variable costs increase by $31,125, but fixed expenses decrease by
$6,000.
Quick Check ü
Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of
coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month
is $1,300. 2,100 cups are sold each month on average. What is the CM Ratio for Coffee Klatch?
a. 1.319
b. 0.758
c. 0.242
d. 4.139 ,b,
Break-Even Analysis
Break-even analysis can be approached in two ways:
1. Equation method
2. Contribution margin method
Equation Method
Profits = (Sales – Variable expenses) – Fixed expenses
OR
Sales = Variable expenses + Fixed expenses + Profits
Break-Even Analysis
Here is the information from Racing Bicycle Company:
Total Per Unit Percent
Sales (500 bikes) $250,000 $ 500 100%
Less: variable expenses 150,000 300 60%
Contribution margin $100,000 $ 200 40%
Less: fixed expenses 80,000
Net operating income $ 20,000
Equation Method
We calculate the break-even point as follows:
Sales = Variable expenses + Fixed expenses + Profits
$500Q = $300Q + $80,000 + $0
Where:
Q = Number of bikes sold
$500 = Unit selling price
$300 = Unit variable expense
$80,000 = Total fixed expense
$500Q = $300Q + $80,000 + $0
$200Q = $80,000
Q = $80,000 ÷ $200 per bike
Q = 400 bikes
X = 0.60X + $80,000 + $0
X = 0.60X + $80,000 + $0
Where:
X = Total sales dollars
0.60 = Variable expenses as a % of sales
$80,000 = Total fixed expenses
Let’s use the contribution margin method to calculate the break-even point in total sales dollars at
Racing
Fixed expenses
Break-even = Unit CM
$1,300
= $1.49/cup - $0.36/cup
$1,300
=
$1.13/cup
= 1,150 cups