Unformatted text preview: 2/23/2010 ACCT 1101 ACCOUNTING FOR DECISION MAKING
Course Co-ordinator and Lecturer St Lucia and Ipswich: CoDr Hermann Frick Office St Lucia: Phone St Lucia: Office Ipswich: Phone Ipswich: Email: Email: Consultation St Lucia: Consultation Ipswich: 39-453 393346 8027 12-314 123381 1232 [email protected] Wednesday 10am to 12 pm Monday 10 to 11am 10 11 Associate Lecturer: Office (St Lucia): Phone: Email: Consultation:
1 Ms Jenny Waters 39-406 393346 8045 [email protected] To be advised
2 Textbook and other resources
• Horngren, Datar, Foster, Rajan, and Ittner: Horngren, Datar, Rajan, Ittner:
Cost Cost Accounting: A Managerial Emphasis - 13th Edition, Prentice-Hall. Prentice– This textbook is also used in ACCT3104 Managerial Costing & Control. – Tutorial questions are selected from this textbook. Other resources
Students Students need to sign on for tutorials as soon as possible using mySI-Net. mySITutorials times are indicated on mySI-Net. mySIOnce Once tutorials have been allocated change may only be made with the permission of the tutorial co-coordinator (Ms Jenny Waters). coThe The tutorials commence next week (Week 2) and cover the material presented in this week lecture (1 hour tutorial) this week lecture (1 hour tutorial) – i.e. there is a one week lag. there is one week lag • Additional resources from Horngren’s textbook:
1. Companion Website, including true/false questions and multiple Website including true/false questions and multiple choice choice questions for each Chapter, are available through either: • the Blackboard site, OR • http://wps.prenhall.com/bp_horngren_cost_13/85/21856/5595311.cw/index.html For For details about the tasks assigned for each tutorial please check the last slide of previous week’s lecture or the blackboard under Tutorials section. Tutorials section. To To obtain the maximum benefit from tutorials students should attempt the questions questions before the tutorials and write down your questions or doubts. Tutorial Tutorial solutions will be made available on the Blackboard site under Tutorials section in the week following the tutorial. 2. My Accounting Lab – http://www.myaccountinglab.com • Copies of other references indicated in the course profile are held in the Library.
3 4 Other resources
Additional Additional resource for students who struggle with Cost Accounting. Room Room and time will be advised next week. Other resources
Blackboard: An important resource
Announcements: Announcements: Please check regularly, at least twice a week. Lecture Lecture notes: the week before the lecture. Lectopia: Lectopia: the week after the lecture. Exercises Exercises to be prepared for tutorials: the week before tutorials Solutions Solutions for tutorial exercises: the week after tutorials. Discussion Discussion board. Course Course Profile Quizzes Quizzes Results midResults mid-semester exam Consultation Time:
Consultation time of all staff will be made available on the Blackboard soon. Consultation Other Other times may be available by appointment. Make use of consultation times as soon as you have question Make use of consultation times as soon as you have a question. Feedback:
If If at any time you have feedback on any aspect of the course, lectures, tutorials, assessment items, etc please inform either your tutor, tutorial coordinator, or myself by email, phone or during consultation times. Your Your timely feedback is vital for ensuring an enjoyable learning experience in this course. This course is continually updated in response to feedback. If If you need feedback on your work or on your assessments please also ask either your tutor, tutorial coordinator or myself by email or during consultation times.
5 6 1 2/23/2010 ASSESSMENT
• Mid-Semester Exam MidDue date: To be advised Weight: 30% Perusal: 10 minutes; Duration: 90 minutes Format: Multiple-choice covering both practical and theory questions MultipleTopics covered: 1 to 4 (and related tutes) tutes) Course Structure
Part 1 - Introduction to Cost & Managerial Accounting
• Topic 1 - Introduction to Cost and Managerial Accounting as distinguished from Cost • Topic 2 - Introduction to Cost Terms, Concepts and Purposes of Cost Accounting • Topic 3 - Cost Behaviors and Cost Volume Profit (CVP) Analysis.
Financial Accounting. The role of the management accountant • Three Online Quizzes
Total weight: 15% (5% each) 30-40 randomly selected MCQs 40 randomly selected MCQs Open over a 1 week period, automatically closes at 9pm on the due date. period, 9pm Multiple attempts may be allowed, however accepting a new quiz erases the previous score. Worth 5 marks each, all three quizzes worth 15 marks. First Quiz: Topics 1 to 4. Due date 12 April at 9 pm. Second Quiz: Topics 5 to 8. Due date 10 May at 9 pm. Third Quiz: Topics 9 to 11. Due date 4 June at 9 pm. Part 2 - Costing Systems
• • • •
Topic Topic Topic Topic 4 5 6 7 -Job Costing Systems - End of Period Adjustments Including Proration Spoilage, Rework and Scrap - Activity Based Costing (ABC) - Process Costing Systems (weighted average vs. FIFO method) Part 3 - Planning & Control
• • • •
7 • Final Exam
Due date: Examination period Weight: 55% Further details will be announced closer to the examination period. Topic Topic Topic Topic 8 - Master Budget & Responsibility Accounting 9 - Variances and Management Control (I): Direct Input Variances 10 - Variances and Management Control (II): Overhead Variances 11 - Inventory Costing and Capacity Analysis LECTURE 1
Introduction. The accountant’s role in the organisation Reading: Cost Accounting vs. Mgt Accounting
A fine line between… What is cost accounting? Cost accounting is a process that involves measuring, analyzing, and reporting information (both financial and nonfinancial) related to the cost of acquiring and using of th resources in the organization….
- Goods - Services Horngren et al. Chapter 1 Lecture Objectives: Describe the major purposes of Accounting systems Define Cost and Managerial Accounting and their relationship to Financial Accounting Discuss the differences between Managerial accounting and Financial Accounting Define Planning and Control, and Decision Making Identify the roles of the Managerial Accountant Describe recent Developments in Managerial Accounting including the Value Chain approach.
9 Cost accounting information is used by management accountants and managers for planning, control and decision making within the organisation. 10 Role Role of management accounting
How cost accounting is different from management accounting? Management accounting is a process that involves measuring, analyzing, and reporting information (both financial and nonfinancial information) that helps managers make decisions to fulfill the goals of the organizations.
What is included? • Providing information for decision-making and planning to managers. • Assisting managers in directing and controlling operational activities. • Measuring and evaluating performance of managers, activities or units. • Assessing the organisation’s competitive position. ACCT2102 is focused on Cost Accounting Therefore, CVP analysis (Topic 3) Job costing and process costing systems (Topics 4 to 7) Cost budgets, variances and analysis (Topics 8 to 11) ACCT 3104 “Managerial Costing and Control” Additional topics more related to Management Accounting Managers performance evaluation 11 12 2 2/23/2010 Management Accounting VS Financial Accounting
Purpose of information Primary users Help managers make decisions to fulfill organisation’s goals. Internal users: Managers of the organisation. Future-oriented: budgets Financial Accounting
Help external users make decisions related to the organisation. External users: investors, banks, regulators and suppliers. Past-oriented: historical information information. Based on GAAP, Corp. Act, ASIC (“objective”) and be certified by external, independent auditors. Annual and quarterly financial reports, primarily on the company as a whole. Role of management accountant in strategic decisiondecision-making
Formulation of organisational objectives Formulation of Strategies Planning- Managers prepare plans to support strategies Managers implement plans & design Control Systems Focus and emphasis Rules of measurement No prescribed rules and reporting (“subjective”). Normally based on cost-benefit analysis. Time span and time reports From hourly information to 15 to 20 years. Financial and non-financial reports on products, departments, territories and strategies. Designed to influence behaviour of managers and other employees. Feedback Control - Managers evaluate performance against plans and take corrective action 14 Behavioral implications It may influence behaviour when compensation is based 13 on financial statements. 15 16 Performance Report = Evaluation and feedback for managers
Lecture Example 1.1: Boone Shop, July 2007 Budget Actual Revenues $59,000 $60,000 Cost of sales 42,000 43,400 Wages 6,700 7,000 General expenses 1,300 900 Operating income $4,000 $3,700 Performance Reports & Feedback Performance Report Variance $1,000 F 1,400 U 300 U 400 F $300 U Revenues Cost of sales Gross margin Budget $59,000 42,000 $17,000 % Actual % 100 $60,000 100 71 43,400 72 29 $16,600 28 What can a management accounting tell managers about this performance report? Actual cost of sales were 72% of revenues instead of the budgeted 71%. Feedback: ◦ Managers examine past performance ◦ Systematically explore alternatives to improve performance 17 18 3 2/23/2010 Mgt accountant & Value chain
The “value chain” is defined as a sequence of business functions or activities that add value to the products or services of an organisation (there may be one or many organisations involved). Management accountants provide decision support for managers in the value chain. Terminology explained: What are upstream upstream and downstream functions? downstream
The Research and Development (R&D) and Design functions are sometimes referred to as upstream activities The Value Chain of Business Functions Managerial Accounting R&D Design Production Marketing Distribution & Sales Customer Service The Marketing and sales, Distribution, and Customer Service functions are sometimes referred to as downstream activities.
Planning and Control Decisions focus on one or more different business functions
19 Quick Quick check 1.1
Boone Corporation is a book manufacturer. They are interested in identifying which costs belong to the value chain functions. Required:
◦ Classify each cost in the table below according to one of the value chain functions as:
a. Research and development b. Design of products, services, and processes c. Production d. Marketing & Sales e. Distribution f. Customer service Answer: Value chain classification Value
• Cost of customer order forms. • Cost of paper used in manufacturing books. • Cost of paper used in packing cartons to ship pape used pac ca to books. • Cost of paper used in display at national trade show. • Depreciation of delivery trucks. • Depreciation of the wood used in the manufacturing plant. • Salary of the scientists attempting to find another source of printing ink.
21 22 Value chain functions SupplySupply-Chain
An organisation’s supply chain refers to the flow of all goods, services and information into and out of the organisation (usually involves many organisations).
Value-Chain Management: Management of activities or functions to reduce costs and make better decisions with focus on the value added to products and services (vertical integration? elimination of activities?) ABC Suppliers of: • Goods • Services • Information The organisation Suppliers Buyers Consumers or buyers of: • Goods • Services • Information Supply –Chain Management: Management of goods, services and information flows, from upstream suppliers to the internal transformation process ending with downstream customers, focusing in long-term relationship between buyers and sellers with the goal of making the relationship profitable for both parties. 23 24 4 2/23/2010 5. Key themes in management accounting
Value/usefulness of product/service The five-steps Decision-making process: fiveDecisionA newspaper company as an example The challenge to the manager: Increase revenues Success Factors Time, Quality, Cost, Innovation 1. 2. Identify the problem and uncertainties.
Increase selling price per newspaper or rate per advertisement (consequences?) Obtain information to reduce uncertainties. Talk to the appropriate people about the consequences of each decision (management accountant, marketing manager, customers). 3. 4. Make predictions about the future.
The sales volume and revenue under each scenario (judgment, be careful with biases). Managing Value-Chain Managing Supply-Chain
25 advert. rate, inform relevant parties. Make decisions by choosing among alternatives. e.g. increase the Implement the decision, evaluate performance, and learn.
Use control mechanisms (e.g. budgets) to evaluate performance and improve.
26 5. DecisionDecision-making Planning Planning and controlling Quick Quick check 1.2:
Place the five steps in the decision-making process in the correct order: A = Obtain information B = Make decisions by choosing among alternatives C = Identify the problem and uncertainties D = Implement the decision E = Make predictions about the future
A) D B E A C Management Decision
Planning (Steps 1-4)
Identify problem, obtain information, make prediction about future, and make decision by choosing among alternatives Management Accounting
Expected advertising pages sold, rate per page and revenue.
Financial representation of the plan Feedback Accounting System Control
1. Implement the decision
e.g. 4% increase in advertising rtes
Recording the actual transactions Including sales, accounts receivable, Pages sold, and prices and rates, etc. Recording transactions and classifying them in accounting records 2. Performance Evaluation and learning
Advertising revenue is lower than the budget by 10% Performance Reports
Comparing actual pages sold, rate per page, and revenue to budgets. Reports comparing actual results to budgets B) E D A B C C) C A E B D 27 D) A E B D C 28 Real world example
How can management accountants help Asciano Group? (Apply the 5-step decision-making process? Three guidelines that assist management accountants to provide value to their organizations
1. Employ a cost-benefit approach
Resources should be spent if the expected benefits to the company exceed the expected costs. Not always easy to quatify. 2. Recognition to behavioral and technical considerations id
Behavioral: motivating managers and other employees to achieve the firm’s goals. Technical: provide managers with the appropriate information to make the right decision. 3. Use of different costs for different purposes
Alternative ways to compute costs -“One size doesn’t fit all” – (e.g. process costing, job costing).
29 30 5 2/23/2010 Ethics = Good or bad? Right or Wrong? For whom? Ethical dimension of decision-making:
Economic consequences? Enron, Worldcom, Waste Management, Arthur Andersen. Nik Nike Ethical Guidelines
Accountants have special obligations regarding ethics: Competence:
Adequate knowledge, expertise, and skills to perform the job in accordance with the rules and principles. Keep information confidential and disclosed only to authorized people/parties and refrain from using it for personal advantages. Avoid any conduct that causes conflict of interest or leads to unethical Confidentiality: Integrity:
behavior. Causes: Why unethical behaviour? Personal characteristics and attitudes Situational pressures and incentives Opportunities
31 Credibility: Disclose all relevant information that are expected to influence an intended users fairly and objectively. 32 Next Next Lecture: Introduction Introduction to Cost Terms and Purposes (Horngren et al. p 26-50) 26- Tutorial questions next week:
Horngren Ch 1 Questions: 1- 1- 1- 1Questions: 1-1, 1-4, 1-8, 1-9 and 1-10 1Exercises: 1- 1Exercises: 1-16, 1-20 and 1-22 1Problems: 1Problems: 1-24 and 1-25 133 6 ...
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