ACCCOB3
PROPERTY OF BUSINESS MANAGEMENT SOCIETY
Introduction of Managerial Accounting
Strategic View of Managerial Accounting
• A strategy is a “game plan” that enables a company
to attract customers by distinguishing itself from
competitors.
• The focal point of a company’s strategy should be its
target customers.
Customer Value Propositions
1. Customer Intimacy Strategy – understand and respond
to individual customer needs
2.
Operational Excellence Strategy – deliver products and
services faster, more conveniently, and at lower prices
3.
Product Leadership Strategy – offer higher quality
products
ACER REVIEWER
Difference between Line and Staff Relationships
• Line Positions – directly related to achievement of
the basic objectives of an organization
• Staff Positions – support, help, or assist line
positions
Comparison of Financial and Managerial Accounting
Managerial Accounting – relates to the provision of
appropriate information, including cost information for
decision-making, planning, control, and performance
evaluation
Financial Accounting – defines costs and valuates
inventories to help managers to run businesses
Users
Just-in- time (JIT) – a simplification and elimination of waste
by aligning ordering with production schedule to meet
customer demand resulting to no – or at least very little –
inventories
Total quality management – a popular approach to
continuous improvement, which involves all employees,
regardless of level, focusing on quality improvement to
increase customer value
Processing reengineering – an analysis and redesigning of
workflows and business processes to reduce costs by
eliminating unnecessary steps and eliminating opportunities
errors.
Theory of constraints – identifying and addressing the most
limiting factor or bottleneck by increasing capability of the
constrained area.
Decentralization – the delegation of decision making
authority throughout an organization
Enterprise risk management – a process used by a company
to proactively identify and manage risk
Corporate Governance – the system by which a company is
directed and controlled
Time Focus
Verifiability
versus Relevance
Precision versus
Timeliness
Subject
GAAP
Requirement
Managerial
Accounting
External persons
who make
financial
decisions
Historical
perspective
Emphasis on
verifiability
Emphasis on
precision
Primary focus is
on the whole
organization
Must follow
GAAP and
prescribed
formats
Mandatory for
external reports
Financial
Accounting
Managers who
plan for and
control an
organization
Future emphasis
Emphasis on
relevance for
planning and
control
Emphasis on
timeliness
Focuses on
segments of an
organization
Need not follow
GAAP or any
prescribed
format
Not mandatory
Work of Management
Planning – involves developing short-term and long-term
goals by selecting from alternative courses of action and
laying out how it will be implemented
Controlling – the control function gathers feedback to ensure
that plans are being followed; Feedback in the form of
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ACADEMIC CORE EXCELLENCE
performance reports that compare actual results with the
budget are an essential part of the control function.
Decision making – involves making a selection among
competing alternatives.
Cost Concepts
Manufacturing Costs
1.
Direct Materials – raw materials that become an integral
part of the product and that can be conveniently traced
to direct to it
- ex. A radio installed in an automobile
2.
Direct Labor – those labor costs that can be easily traced
to individual units of product
- ex. Wages paid to automobile assembly workers
3.
Manufacturing Overhead – manufacturing costs that
cannot be traced directly to specific units produced
- ex. Indirect materials and indirect labor
Nonmanufacturing Costs
1. Selling Costs – costs necessary to secure the order
and deliver the product
2. Administrative Costs – all executive, organizational,
and clerical costs
Product Costs versus Period Costs
• Product Costs – include direct materials, direct
labor, and manufacturing overhead
• Period Costs – include all selling costs and
administrative costs
Prime Costs versus Conversion Costs
• Prime Costs – direct materials and direct labor
(direct manufacturing cost)
• Conversion Costs – direct labor and factory
overhead
Merchandisers
- Buy finished goods
- Sell finished goods
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Manufacturers
- Buy raw materials
- Produce and sell finished goods
Balance Sheet Template – Merchandise
Current Assets
Cash …………………….…………………….………….
Receivables …………………….……………………..
Merchandise Inventory …………………….……
Balance Sheet Template – Manufacturer
Current Assets
Cash …………………….…………………….………….
Receivables …………………….……………………..
Inventory …………………….…………………….…..
Raw Materials
Work in Process
Finished Goods
Income Statement – Merchandise
Beg. Merchandise Inventory …………………..
Add: Purchases …………………….…………………
Goods Available for Sale …………………….……….
Less: End. Merchandise Inventory ………….
Cost of Goods Sold …………………….……………….
Income Statement – Manufacturing
Beg. Finished Goods Inventory ……………….
Add: COG Manufactured ………………………..
Goods Available for Sale …………………….……….
Less: End. Finished Goods Inventory ………
Cost of Goods Sold …………………….……………….
Cost Classifications for Predicting Cost Behavior
How a cost will react to changes in the level of
activity within the relevant range.
• Total variable costs change when activity changes.
• Total fixed costs remain unchanged when activity
changes.
PROPERTY OF BUSINESS MANAGEMENT SOCIETY
PROPERTY OF BUSINESS MANAGEMENT SOCIETY
ACER REVIEWER
Behavior of Cost (within the relevant range)
Cost
Variable
Fixed
In Total
Total variable cost changes
as activity level changes
Total fixed cost remains the
same even when the
activity level changes
Per Unit
Variable cost
per unit
remains the
same over wide
ranges of
activity
Average fixed
cost per unit
goes down as
activity level
goes up
Number of jobs
worked
Cost
accumulated by
Average cost
computed by
Job Order
Many
Process
Single Product
Job
Department
Job
Department
Formulas
Assigning Costs to Cost Objects
Total Contribution Margin
= Total Sales – Total Variable Expense
= (Selling Price per Unit – Variable Expense per Unit) x
Number of Units
= Contribution Margin Ratio x Total Sales
Direct Costs – costs that can be easily and conveniently
traced to a unit of product or other cost object.
- ex. Direct material and direct labor
Contribution Margin per Unit
= Total Contribution Margin / Total Unit Sold
= Selling Price per Unit – Variable Expense per Unit
Indirect Costs – costs that can’t be easily and conveniently
traced to a unit of product or other cost subject.
- ex. Manufacturing overhead
Contribution Margin Ratio
= (Total Sales – Total Variable Expense) / Total Sales
= (Selling Price per Unit – Variable Expense Per Unit) / Selling
Price per Unit
= 1 – Variable Expense Ratio
Cost Classifications for Decision Making
- Every decision involves a choice between at least
two alternatives
- Only those costs and benefits that differ between
alternatives are relevant in a decision. All other costs
and benefits can and should be ignored
Opportunity cost – the potential benefit that is given up
when one alternative is selected over another
Sunk cost – have already been incurred and can’t be changed
now or in the future. These costs should be ignored when
making decisions.
Types of Product Costing
Job Order Costing – products are dissimilar or made to
special orders.
- ex. Walt Disney Studios (movie production)
Process Costing – used to manufacture homogeneous
products.
- ex. Coca-Cola (mixing and bottling beverages)
Variable Expense Ratio
= Total Variable Expense / Total Sales
= Variable Expense Per Unit / Selling Price Per Unit
= 1 – Contribution Margin Ratio
= Total units – BEP (units)
Margin of safety (%)
= Margin of safety (Pesos) / Total Sales = Margin of
safety (units) / Total Units
= 1 – Break-even Percentage
Degree of Operating Leverage
= Contribution Margin / Net Operating Income
Peso Change in Net Operating Income
STEP ONE: DOL = Contribution margin / NOI STEPTWO:
%inc(dec)inNOI=DOL*%inc
(dec) in sales
STEP THREE: Peso inc (dec) in NOI = % inc
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ACADEMIC CORE EXCELLENCE
(dec) in NOI * current NOI STEP FOUR: Proposed NOI =
Current NOI + Peso inc (dec) in NOI
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Margin of Safety
= Total sales - BEP (pesos) Margin of safety (units)
Sales Mix Ratio
= Unit Sales (Product A)/ Total Sales (Sales Mix)
Predetermined Overhead Applied (POHR)
= Estimated total MOH costs/ Estimated total amount of
the allocation base
Overhead Applied
= POHR x Actual Activity
Underapplied Applied < Actual Overapplied Applied >
Actual
Total Manufacturing Cost
=Direct material + Direct labor + MOH
= Prime + MOH
= Conversion + Direct material
Prime Cost
= Direct material + Direct labor
Conversion Cost
= Direct labor + MOH
Change in Net Operating Income
= Peso change in sales *CMR = Unit change in sales *CM/unit
Break-Even Point (BEP)
Formula Method (in Units)
= Fixed Expense / CM per unit Method (in Pesos)
= Fixed Expense / CMR
Target Profit
Formula Method (in Units)
Units = (Fixed Expense + Target Profit)/ CM per unit
Formula Method (in Pesos)
Peso Sales = (Fixed Expense + Target Profit)/ CMR
Peso Sales = (Fixed Expense + Target Profit)/ (CMRBefore-tax Return on Sales)
PROPERTY OF BUSINESS MANAGEMENT SOCIETY
PROPERTY OF BUSINESS MANAGEMENT SOCIETY
ACER REVIEWER
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ACADEMIC CORE EXCELLENCE
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PROPERTY OF BUSINESS MANAGEMENT SOCIETY