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Introduction to cost and management accounting

Decision Making

Decision making consists of making a selection among competing alternatives. * What should we be offering?

2. Who ought to we become serving?

* Just how should all of us execute?


Strategy is a game plan that allows a company to attract customers simply by distinguishing itself from rivals. Focal point of the company’s technique should be the target buyers. Customer Closeness Strategy ” Understand and respond to person customer requires. Operational Excellence Strategy ” Deliver services and products faster, more conveniently including lower prices. Product Leadership Strategy ” Provide higher quality goods.

Venture Risk Management

A process used by a company to proactively determine and deal with risk.

Low fat Production ” Just-in-time (JIT) production

Customer purchases ” make order ” generate part requirements ” components will be ordered ” production begins ” merchandise delivered. Just manufactured the moment product is ordered.

Theory of Limitations

A constraint is definitely anything that stops you by getting more of what you want. TOC based on observation that effectively managing the constraint is key to achievement. The limitation in a strategy is determined by the step which has the smallest capacity.

Simply actions that strengthen the weakest website link in the “chain improves the procedure. Steps: Determine weakest link. ” Enable weakest url to set the tempo. ” Focus on improving weakest website link. ” Know that weakest website link is no longer therefore.

Leadership Skills

2. Technical skills

* High Ethics

* Understand how to implement organizational alter

5. Strong interaction skills

* Able of encouraging and mentoring other people

* Effective manage team-based decision processes

IMA Recommendations for Moral Behavior


* Understand and talk professional limitations that preclude responsible wisdom. * Preserve professional skills.

* Provide correct, clear, to the point and regular decision support information. 5. Follow appropriate laws, polices and specifications.


* Do not disclose confidential information unless legitimately obligated to do so * Make certain that subordinates usually do not disclose private information. 2. Do not use confidential information for unethical/illegal advantage. Honesty

* Mitigate conflicts appealing and advise others of potential issues. * Stay away from conduct that could prejudice undertaking duties ethically. * Avoid activities that may discredit the profession. Trustworthiness

* Communicate information quite and objectively.

2. Disclose delays or a reduction in information timeliness, processing, or internal control. * Disclose all relevant information that could influence a user’s knowledge of reports and recommendations. Stick to employer’s set up policies.

To get an uncertain ethical turmoil:

5. Discuss the conflict with immediate director or following highest uninvolved managerial level. * If immediate manager is the CEO, consider the board of directors or maybe the audit panel. * Other than where legally prescribed, preserve confidentiality. 2. Clarify concerns in a confidential discussion with an objective expert. * Check with an attorney for legal implication.

Corporate Interpersonal Responsibility

Corporate cultural responsibility (CSR) is a idea whereby agencies consider the needs of stakeholders when creating decisions. CSR extends beyond legal complying to include non-reflex actions that satisfy stakeholder expectations.

Production Costs:

1 . DM

2 . DL

3. Mfg. OH ” IM



Direct Materials- Raw materials that become a fundamental element of the product and is conveniently followed directly to it. Direct Labor ” Costs that can be tracked to person units of product. Developing Overhead Costs ” Cost that cannot be followed directly to particular units created.

IL ” Wages paid out to workers who are not directly involved with production work. E. g. maintenance, personnel, janitors, security guards etc .

IM- Components used to support the production method. E. g. lubricants/cleaning supplies used in the auto assembly herb. (FOR Mfg. OH sometimes it can be followed but it is definitely minute or perhaps not really worth the effort) Non-Manufacturing Costs

Selling Costs (SC) ” Costs important to get the buy and deliver product. Management Costs (AC) ” All executive, company and clerical costs. Item Costs vs . Period Costs

Product Costs: all costs involved in acquiring/ making a product ” DM, DL, and Mfg. ALSO. Recognized as expenses when products are sold. Period Costs: almost all SC and AC. Named expenses in period incurred. Prime Costs vs . Alteration Cost

Prime Cost = DM + DL

Conversion Expense = DL + Mfg. OH

The experience Base (Cost Driver)

A measure of what causes the incurrence of your variable cost:

* Units Developed

2. Machine Hours

5. Miles influenced

5. Labor Several hours

Fixed Price and Varying Costs

Fixed Costs do not demand depending on activity level

Variable Costs charge per unit employed.

Types of Fixed Costs:

1 . Fully commited ” Long lasting, cannot be considerably reduced in short-term. E. g. Devaluation on buildings/equipment/real estate fees. 2 . Discretionary ” Can be altered inside the short-term by simply current managerial decisions. At the. g. Advertising.

Cost Classifications for Guessing Cost Habit

Cost| In Total| Per Unit|

Variable| Total VC changes since activity level changes. | VC per unit is still the same above wide ranges of activity. | Fixed| Total FC remains a similar even when the experience level changes. | Normal FC per unit diminishes as activity levels surge and boosts when activity levels fall. |

| Total| Every Call|

| 12 mins| 75 mins| 15 mins| 90 mins|

VC/Unit is definitely $. 10| 10*10 sama dengan $1| 10*100 = $10| $. 10| $. 10| FC is usually $50| $50| $50| $50/10 min = $5| $50/100 min =$. 50|

| Total| Every Unit|

VC| Changes Upwards| Constant|

FC| Constant| Improvements Downwards|

Combined Costs

A mixed expense had both equally fixed and variable elements.




Con = a + bX

Where Y = Total Combine Cost

a= Total F. C

b= the Sixth is v. C per unit of activity

X= Level of activity

Three Methods: The High- Low Method

The Least-Squares Regression Approach

The Scattergraph Method

The High-Low Method

The high-low method concentrates exclusively in the high and low levels of activity. e. g.

Month| Hours of Maintenance| Total Maintenance Cost|

January| 625| $7, 950|

February| 500| $7, 400|

March| 700| $5. 275|

April| 550| $7, 625|

May| 775| $9, 100|

June| 800| $9, 800|

| | |

High Level| 800| $9, 800|

Low Level| 500| $7, 400|

Change| 300| $2, 400|

| | |

$2400/300 = $8. 00/hour

Employing formula Y= a & bX

Therefore using for June: $9800 = a & $8 (800)

a = $3400

The charge equation pertaining to maintenance: Sumado a = $3400 + $8 X

Price Classification for Decision Making

* Every decision requires a choice between at least two alternatives. * Only those expense and rewards that vary between alternatives are relevant in a decision. All other costs and rewards can and should be ignored.

Opportunity Cost ” The actual benefit that is certainly given up when ever one alternative is picked over another.

Sunk Costs ” Costs that have long been incurred and cannot be altered now or in the future. They must be ignored when creating decisions. e. g. Organization paid 50 dollars, 00 in 1990 for any special purpose machine which was used to production a product that is now obsolete.

Types of Item Casting Devices

Work Order Being

2. Many different types of products are made.

5. Products are made in order

* Every single order one of a kind ” track or designate costs with each of them Direct material and Direct Labor costs will be charged with each job as worked is conducted. Mfg. WOW is allocated to all jobs rather than straight to each work. Why use a great allocation base?

Mfg. OH YEA is placed on jobs which can be in procedure. An portion base such as DLH, DL$ or MH is used to assign Mfg. OH to individual jobs.

Manufacturing Cost to do business Application

The predetermined overhead charge (POHP) accustomed to apply ALSO to jobs is determined prior to the period starts. POHR sama dengan Est. Total Mfg. WOW for the coming period. Représente. Total models in the share base for the coming period

OH used = POHR + Real activity

RM ” Components waiting being processed.

Work in procedure (WIP) ” Partially completed product- several material, labor or OH YEA added Completed Goods ” Completed items waiting for sales

RM| | WIP|

Material Purchases| DMDL| | DMDL| Expense of goods manufactured| | | | OH Applied| |

| | | | |

| | | | |

Mfg. OH| | Salaries + Wages Payable Account|

IM| ALSO Applied| | | DL|

IL| | | | IL|

Other OH. | | | | |

| | | | |

Finished Goods A/C| | COGS|

Expense of Goods Manufactured| COGS| | F. G| |

| | | | |

| | | | |

Standard Journal

Date| Description| Post. Ref. | Debit| Credit|

| | R. M| | X| |

| | A. P| | | X|

| | | | | |

| | Watts. I. P| | X| |

| | Mfg. WOW | | X| |

| | L. M| | | X|

| | W. I. P| | X| |

| | Mfg. OH| | X| |

| | Salaries & Wages Paid| | | X|

| | Mfg. OH YEA | | X| |

| | Accounts Payable| | | X|

| | Property taxes Payable| | | X|

| | Prepaid Insurance| | | X|

| | Acc. Dep. | | | X|

| | | | | |

| | W. My spouse and i. P | | X| |

| | Mfg. OH| | | X|

| | | | | |

| | Salaries Expense| | X| |

| | Incomes Payable| | | X|

| | | | | |

| | Advertising Expense| | X| |

| | Advertising Payable| | | X|

| | | | | |

| | Done Goods| | X| |

| | W. I. P| | | X|

| | | | | |

| | COGS| | X| |

| | Finished Goods| | | X|

| | | | | |

| | Accounts Receivable| | X| |

| | Done Goods| | | X|

DM given to a become a member of increase WIP and decrease RM. IM utilized are charged to Mfg. OH and in addition decrease RM.

In addition to IM and IL

Once FG are sold, 2 articles are required:

1) To record someone buy

2) To record COGS and reduce FG

Accounting intended for non-manufacturing Cost

non-manufacturing costs (period expenses) are charged to expenses when they are incurred.

Basic Equation pertaining to Inventory Accounts

RM, WIP, FG: Beginning, plus, minus, equal

(review in text)

Problems of Overhead Program

The between the ALSO cost used on WIP plus the actual OH YEA costs of any period is referred to as either underapplied or overapplied OH.

Underapplied OH is out there when the quantity of OH applied to jobs during the period using the established OH charge is less than the total amount of WOW actually incurred during the period.

Overapplied ALSO exists when the amount of OH put on jobs throughout the period making use of the predetermined WOW rate is definitely greater than the exact amount of WOW actually sustained during the period.

Allocating Under-or-Overapplied Overhead among Accounts

When there may be under-or-overapplied overhead there are two methods of disposing of it: 1) Allocate the under-or-overapplied expense to COGS

2) Distribute the under-or-overapplied over head between the WIP FG and COGS accounts by final the accounts, totaling these people and seeking the percentage in the total every single account is and allocating that percentage to each consideration.

If Mfg. OH is| Alternative 1Close to COGS| Alternative 2Allocation| UNDERAPPLIED| MAXIMIZE COGS| INCREASE WIP, FG, COGS|



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