MANAGERIAL ACCOUNTING
ZCMA 6022
Managerial
Accounting
Decision
Making
Managerial accounting process:
1. IDENTIFY
2. MEASURE
3. ANALYZE
Controlling
Management
Accounting
Activities
4. INTERPRETE
5. COMMUNICATING
Directing
Operational
Activities
Planning
OVERVIEW
SKILLS TO ACQUIRE
• Decision Making
• Plan
• Directing Operation
• Control and Review
TOOLS TO BE USED
• Costing
• Budgeting
• Performance Measurement
Case Study Group Project
Industry of Your Choice
1.
F&B Service
2.
Manufacturing
3.
Healthcare
4.
Public Sector
5.
Telecommunication
6.
Theme Park
7.
Plantation & Agriculture
8.
Construction
9.
Hospitality
10.
Transport
11.
Energy & Utilities
12.
Oil & Gas
13.
Retail
Content of Report & Presentation
1.
Background
• Industry
• Company
2.
3.
4.
5.
Decision making (Based on Individual
Assignment)
Planning
Operation Directions
Control
**Please note that case study report and
presentation is just for illustrative purpose, the
amounts need not to be accurate or true however
assumptions must be stated clearly
Individual Project
Industry of Your Choice (Based on
Group Project)
1.
F&B Service
2.
Manufacturing
3.
Healthcare
4.
Public Sector
5.
Telecommunication
6.
Theme Park
7.
Plantation & Agriculture
8.
Construction
9.
Hospitality
10.
Transport
11.
Energy & Utilities
12.
Oil & Gas
13.
Retail
14.
Non Profit Organization
Content of Report & Presentation
1.
Background (different from group project)
•
•
Industry
Company
2.
Decision making techniques
3.
Role Play Report
•
•
•
•
•
Chairman
CFO
Manager
Assistant Manager
Preparer
**Please note that case study report and presentation is just for
illustrative purpose, the amounts need not to be accurate or
true however assumptions must be stated clearly
Managerial Accounting
• Be creative
• Be imaginative
BALANCEDSCORECARD
Financial
Perspective
Goals
Measurements
Customer
Perspective
Goals
Internal Business Process
Perspective
Measurements
Goals
Learning and Growth
Perspective
Goals
Measurements
Measurements
PORTER VALUE CHAIN
COSTING
Product Cost
Product Cost vs Period Cost
Product
Cost
`
Product
Cost
Type of Production
Process
Job Shop
•Low production
•Little standardization
•One of a kind product
•Eg Film production (Universal Studio)
Batch
•Multiple products
•Low volume
•Eg: Heavy Equipment (Caterpillar)
Assembly
•Few Major Products
•Higher Volume
•Eg: automotive assembly (Ford)
Continuous Flow
•High Production
•High Standardized commodity products
•Eg: production of gasoline (Exonmobile)
Production Process
Job Order Costing
Process costing
POR = allocated overhead ($) /
anticipated direct labour ($)
Job Order Costing
Average cost for each distinct production
costs
Predetermined Overhead Rate
= Budgeted Manufacturing Overhead costs
Difference in
decimal points only
__________________________________
Budgeted amount of Cost Driver (or activity
based
Commonly used cost driver is direct labour
hour
It can be implemented on company level or
department level
Difference in
decimal points only
Process costing
Average cost over large number of identical
units of product
COST CLASIFICATION
COST
CLASIFICATION
COST OBJECT
Direct cost
Indirect Cost
CONTROLLABILITY
Controllable cost
Uncontrollable
cost
Cost Behavior Mapping
Cost
Cost
Classification
Cost Object
Direct Cost
Indirect Cost
Managers/ PIC
Controllability
over Cost
Controllable
Cost
Opportunity
Cost
Sunk Cost
Differential Cost
Cost In Relation
to End Product/
Service
Uncontrollable
Cost
Variable Cost
Variable Cost In
Tandem
Semi Variable =
FC + VC
Step Variable
Cost
Fixed Cost
Unchanged
Marginal Cost &
Average Cost
Distinction
between Cost
Fixed Cost
Curvilinear Costs
Step Fixed Cost
Engineered Cost
Committed Cost
Discretionary
Cost
Cost Behavior Mapping
Cost Behavior :
Semi Variable
Cost Prediction
1.
Account Classification :
•
Classifies ledger accounts to either
a.
b.
c.
Fixed cost
Variable cost
Semi-variable cost
2. Visual-Fit Method
•
Suitable for semi-variable cost
a.
b.
c.
d.
Plot observation
Scatter diagram
Intercept = FC
VC = Semi-Variable Cost (-) FC
Cost
Estimation
3. High-Low Method
•
Use for semi-variable cost approximation
a.
Variable Cost Per unit
= (HIGHEST COST - LOWEST COST ) /
(HIGHEST ACTIVITY - LOWEST ACTIVITY
4. Least Square Regression Method
a.
Y = a + b1X1
5. Multiple Regression Method
a.
Y = a + b1X1+ b2X2
6. Engineering Method
a.
b.
How much needed and how much it cost
Not relying so much on historical data
AccountClassification
Visual-Fit
Method
High-Low
Method
Least Square
Regression
Method
Multiple
Regression
Method
Engineering
Method
Cost Estimation
Visual-Fit Method
Account Classification Method
Note: ACM and VFM main different is ease of explanantion,
however, both method are not objective, as professional
judgement differs for analyst
Cost Estimation
Visual-Fit Method
High-Low Method
Note: HLM and VFM are almost similar, the differences are:
(1) use of available data, (2) objectivity of report outcome
Cost Estimation
Note: LSRM and VFM are almost similar, the differences are:
(1) approach to draw a line (statistical vs visual), (2)
objectivity of report outcome
Visual-Fit Method
Least Square Regression Method
Cost Estimation
Least Square Regression Method
Y = a + b1X1
Multiple Regression
Y = a + b1X1+ b2X2
Cost Estimation
Account Classification
easy to use for simple organization
more complex to explain without
in depth experience on the
expenditure
may get varied analysis due to
dependencies of professional
judgement
Engineering Method
forward looking
comprehensive information of
activities involved and cost
involved
lack of objectivity : eg: two cost
analyst may give to different
report
Time Consuming and expensive
Cost Estimation
Account Classification
easy to use for simple organization
more complex to explain without
in depth experience on the
expenditure
may get varied analysis due to
dependencies of professional
judgement
Visual-Fit Method
Easy to explain
with sufficient knowledge,
analyst is able to spot outliers
lack of objectivity : eg: two cost
analyst may give to different
report
Cost Estimation
High-Low Method
easy to use for simple
organization
only uses high and low points of
data
lack of objectivity
Visual-Fit Method
Easy to explain
with sufficient knowledge,
analyst is able to spot outliers
lack of objectivity : eg: two cost
analyst may give to different
report
Cost Estimation
Least Square Regression Method
Y = a + b1X1
Easy to explain
with sufficient knowledge,
analyst is able to spot outliers
Make use of all available data
objective outcome
economic plausibility
Goodness of fit (R2)
Visual-Fit Method
Easy to explain
with sufficient knowledge, analyst
is able to spot outliers
Make use of all available data
lack of objectivity : eg: two cost
analyst may give to different report
Cost Estimation
Least Square Regression Method
Y = a + b1X1
Easy to explain
with sufficient knowledge,
analyst is able to spot outliers
Make use of all available data
objective outcome
economic plausibility
Goodness of fit (R2)
Multiple Regression
Y = a + b1X1+ b2X2
Easy to explain
with sufficient knowledge, analyst
is able to spot outliers
Make use of all available data
objective outcome
more complex and requires more
statistical capabilities
economic plausibility
Goodness of fit (R2)
Prediction
Sales Prediction
Cost Prediction
Engineered Cost
Discretionary
Cost
Committed Cost
Cost
Changed in total as the level
of activity/ production varies
Unchanged in total as the
level of activity/ production
varies
Variable Cost
Material
Fixed Cost
Labour
Labour
Support Activities
Overhead
Manufacturing
Overhead
Manufacturing
Overhead
COST
Cost of Goods/
Services
Direct Material
Direct Labour
Raw Material
WIP
Indirect
Material
Finished Goods
Manufacturing
Overhead
Indirect Labour
Other
Manufacturing
Cost
Service Dept
cost
Premium
overtime
Idle time
Setup cost etc
NOTE: the same concept as manufacturing can be replicated with service industries with
relevant customization to type of service
COSTING
ADVANCED
COSTING METHODS
Activity Based
Costing (ABC)
Target Costing
Life Cycle Costing
Stage : Implementation
Back-Flush
Accounting
Throughput
Accounting
Variable Cost vs Fixed Cost
Total Cost
Cost Per unit
6,000
Fixed Cost
5,000
Variable Cost
1
Material Cost
2
Labour Cost
5
10
5000
4,000
4000
3,000
3000
2,000
2000
1,000
1000
Units
Produced
6000
15
Manufacturing Overhead
Cost
0
1
2
3
4
5
Units Produced
Material Cost
Labour Cost
Manufacturing Overhead
Cost
6
Financial
Accounting
Reporting to
interest
Organization
Cost
Stakeholders
Managerial
Accounting
Cost
Management
Service
Raw Material
Manufacturing
Conversion Cost
Cost of Goods
Sold
Raw Material WIP Inventory
Finished
Goods
Cost of Goods
Sold
ABC vs Traditional
ABC
Traditional
ABC vs Traditional
ABC
Traditional
• Volume based costing system
• Over costing high volume product
lines
• And under costing complex line
Traditional product
costing system
•
Volume based costing system
•
Or Throughput based costing system
•
BASED ON BUDGETED LABOUR
HOURS
MANUFACTURING OVERHEAD RATE
= Total Budgeted
Manufacturing Overhead
---------------------------------------Total Budgeted
Labour Hours
ABC system
•
Technique that allocates overheads
based on the activities that drives
the cost
Cost Pool 1
Manufacturing
Overhead
Cost Pool 2
Total
Overhead
Cost Pool 1
Customer
Overhead
Cost Pool 2
Cost Driver Rate
= Total Cost Pool Overheads
-----------------------------------Total COST DRIVERS
ABC
Cost Pool
Cost Drivers
ABC & ABM
Preparer (ABC)
Reviewer (ABM)
• To decide
• To identify:
• new product or services to
develop
• existing products/services curtail
or drop
• products/ services should be
promoted
• overhead costs to target
• Non value added activities
• Non value added costs
• Customer Profitability Analysis
CVP analysis
• Breakeven Point (BEP) (units and $)
doesn’t convey how profit changes as activity changes
• Graph
1. CVP graph – over FC
2. CVP graph – over VC
3. Profit-Volume graph
shows BEP
Shows Profit and Loss areas
• Sensitivity Analysis
• Safety Margin (MOS)
• Operating Leverage
CVP analysis
BEP
Sensitivity
Analysis
Margin of
Safety
CVP Income Statement
Traditional Income Statement
doesn’t disclose breakdown
between FC / VC/ Semi-Variable
Cost
Contribution Income Statement
highlights distinct values of FC/
VC/ Semi-VC
Highlights CVP relationships
Able to identify Cost Structure
(Cost domination – VC or FC)
CVP Analysis - Breakeven
Breakeven Point ($)
1. Contribution Margin Approach
Breakeven Point (unit)
1. Contribution Margin Approach
2. Formula
2. Formula
CVP Analysis - Breakeven
Breakeven Point ($)
1. Contribution Margin Approach
Breakeven Point (unit)
1. Contribution Margin Approach
2. Formula
2. Formula
CVP Graph
CVP graph over FC
CVP graph over VC
CVP Graph
CVP graph over FC
Profit Volume Graph
CVP Analysis – Income Statement
CVP Analysis – Income Statement - ABC
Cost Behavior Mapping
Industry
Cost
Estimation
Method(s)
Complexity of
Processes
Cost Behavior
Mapping
Value Chain
Production
Process
Mapping
CVP analysis
Assignment
Group Assignment:
Organization of your choice
1. All the steps are for Final Presentation
Project, unless otherwise stated
Industry
Cost
Estimation
Method(s)
Complexity of
Processes
Cost Behavior
Mapping
Value Chain
Production
Process
Mapping
Individual Assignment:
1. Cost Estimation Methods
Other Semi Individual Assignment:
1. Role Play
1.
2.
3.
4.
5.
BOD
CEO
Operation Manager
Financial Controller
External Stakeholder
CVP analysis