1011Lecture11short_Introduction_and_Cost_behaviour_2_ -...

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Unformatted text preview: Spring Term 2011 Welcome back! Same Approach Same textbook Lecture Spend 3 hours at least on private study Understand Management Accounting Homework and practice on MAL Regular tests on Moodle Schedule of Work Topics Dates of quizzes Dates of workshops Please download on Moodle Learning objectives Distinction between management and financial accounting The role of accounting in the management process Identify and explain the nature of fixed costs, variable costs, semivariable and semifixed (stepped) costs Lecture 11: Introduction to Management Accounting and Cost behaviour Management Accounting The process of collecting, collating and reporting information that is of use to the managers of a business. Accounting information for: Costing Planning Decision making Control Operational Strategic Role of accounting in Management Process Costing and Decision making Planning Provision of cost information Selection between alternatives E.g. Deciding on selling price Deciding on investment Setting objectives Strategy formulation Controlling Communication and Motivation Monitoring activities (by product; by department; by manager) Take remedial corrective action Keep plans on track Inform and encourage all members of organisation Management Accounting Information Timely Future oriented as well as past Relevant Focused Detailed Suit the needs of the managers! Forecasts and historical Distinction Between Management and Financial Accounting Management Accounting Principal users Time horizon Decisions Frequency Detail Format Accuracy Internal Mainly forecasts Tactical & strategic As needed, at least monthly Very detailed, disaggregated To suit need Speed Financial Accounting 3rd party stakeholders Historic data Strategic Annually or semi annually Broad aggregated information Standardised, comparable Precision How do costs change as a result of a change in activity? Business Activity and Costs Important to know for many management decisions Same? Rising? Falling? For example : how to maximise use of limited skilled labour hours Eg which product is making losses and therefore needs to be eliminated Cost Behaviour: Variable Costs Variable costs vary in line with the level of business activity For example Higher the activity; higher the cost Costs change with activity Examples Raw material 20 per table 10 tables... Raw Material 200 20 tables...Raw material 400 Total Variable Costs = q * 20 Zero activity = zero costs Material Costs Labour costs Cost Behaviour: Fixed Costs Fixed costs do not vary with the level of business activity Same costs each month e.g Staff salaries Rent charges Insurance costs Some mobile phone charges Contracts 25 per month Cost Behaviour: Stepped Costs Stepped costs: where the business activity reaches some level of activity sometimes the fixed cost must increase, the increase is sudden Fixed over ranges of activity Also known as semifixed costs Up to 2000 units ....Hiring Charges 300 2000 to 4000 units ... Hiring charges 600 Above 4000 units....Hiring charges 900 Cost Behaviour: Semivariable costs Semivariable costs have both fixed and variable elements e.g. Electricity There is a fixed standing charge Plus an element that increases with activity For example electricity bill = 20 per month + 0.10q q = how much used If 50 units used the bill is??? Most utility bills Gas, electricity, telephone Class example: Fixed or Variable, Stepped or Semivariable 1. 2. 3. 4. 5. 6. 7. 8. Administrative staff wages Power for machines Depreciation Insurance Machine operators wages Cost of Raw materials Metered water charges Telephone charges Separation of costs into fixed and variable Most costs tend to be semivariable TC = FC + VC (q) Various mathematical tools are used to separate and identify cost behaviour Scatter graph High and Low Method VC per unit = Difference in costs Difference in activity Graph and find line of best fit Deduce FC = TC VC Regression analysis Examples Different businesses and cost behaviour Name 2 variable costs for Name 2 fixed costs for A firm of solicitors Taxi business A beauty salon Shirt manufacturer Learning activities Remember 3 hours per week at least Introduction module in Understand Management Accounting Homework on MAL Week 11 Read A&M Chapter 7 ...
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This note was uploaded on 03/28/2011 for the course MN 1015 taught by Professor Evangelos during the Spring '08 term at Royal Holloway.

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