Lecture Management accounting: An Australian perspective: Chapter 2 - Kim Langfield-Smith

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This chapter introduce the management accounting: basic terms and concepts. The contents of this chapter includes: Management accounting information, conventional vs. contemporary management accounting systems, emphasis on cost, cost classifications, cost behaviour,... Inviting you refer.

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Nội dung Text: Lecture Management accounting: An Australian perspective: Chapter 2 - Kim Langfield-Smith

Chapter 2 Management accounting: basic terms and concepts Copyright 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
Management accounting information  Components Costing system Budgeting system Performance measurement system Cost management system  Conventional versus contemporary approaches Copyright ª 2003 McGrawHill Australia Pty Ltd, 2
Conventional vs. contemporary management accounting systems Copyright ª 2003 McGrawHill Australia Pty Ltd, 3
Emphasis on cost  Why do management accountants pay so much attention to costs? Historic focus on production costs, to value inventory and COGS for external reporting Ready availability of cost data within the transactionbased accounting system Importance of cost information in managers’ decisions  Nonfinancial information has assumed increased importance in contemporary management accounting systems Copyright ª 2003 McGrawHill Australia Pty Ltd, 4
Cost classifications  Before classifying costs, need to consider how managers intend to use the cost information in decision making  Different cost and classifications are used for different purposes  The same cost can be classified in a number of ways depending on the intended use of the cost information continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 5
Cost classifications  What are costs? Resources given up to achieve a particular objective If the benefit extends beyond the current accounting period these costs are classified as assets If the benefit is used, the costs are classified as expense Measured in monetary terms Copyright ª 2003 McGrawHill Australia Pty Ltd, 6
Cost behaviour  Managers must understand how costs change as the as the level of activity in the business changes The level of activity is the level of work performed in the organisation  Variable costs Change in total in direct proportion to a change in the level of activity Sometimes referred to as unitlevel costs in product costing as they incurred for each unit of product/service produced continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 7
Cost behaviour  Fixed costs Remain unchanged in total despite changes in the level of activity Can be described as committed costs Result from an organisation’s ownership or use of premises and its basic organisation structure, and is difficult to change in the shortterm or as discretionary costs Result from management’s decision to spend a particular amount of money for some purpose, and can be easily changed continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 8
Cost behaviour  Cost drivers Any activities or factors that drive (cause) costs  Conventional approaches focus on production volume as the level of activity (or cost driver) Costs are classified as variable or fixed with respect to production volume  Contemporary approaches recognise that other (nonvolume) cost drivers exist Copyright ª 2003 McGrawHill Australia Pty Ltd, 9
Direct and indirect costs  An important function of management accounting is to measure the cost of cost objects Cost objects are the items for which management wants a separate measure of costs Products, projects, contracts and departments are common cost objects in conventional costing systems Contemporary costing systems may also include activities and customers as cost objects Copyright ª 2003 McGrawHill Australia Pty Ltd, 10
Direct and indirect costs  In responsibility centres The costing system may measure the costs of managers’ individual areas of responsibility Costs that can be traced to a particular responsibility centre are direct costs of that centre Costs that relate to responsibility centres, but cannot be traced precisely to specific responsibility centres are indirect costs of those centres continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 11
Direct and indirect costs  Product costs Manufacturing costs that can be traced to product in an economic manner are direct product costs Indirect costs are manufacturing costs that cannot be traced to products in an economic manner  Whether a cost is classified as direct or indirect depends on the nature of the cost object Copyright ª 2003 McGrawHill Australia Pty Ltd, 12
Controllable and uncontrollable costs  Managers’ performance evaluation can be enhanced by classifying responsibility centre costs as either controllable by the manager or uncontrollable  Ideally, managers should be held responsible only for costs they can control or significantly influence continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 13
Controllable and uncontrollable costs Copyright ª 2003 McGrawHill Australia Pty Ltd, 14
Costs across the value chain  The value chain—a set of linked processes or activities that begins with acquiring resources and ends with providing and supporting product or services that customers value  Provides a useful framework for examining the areas where costs are incurred within a business continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 15
Costs across the value chain  Upstream costs Research and development costs include the costs involved in developing new products and processes Design costs include the costs associated with designing a product or production process Supply costs are the cost of sourcing and managing incoming parts, assemblies and supplies continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 16
Costs across the value chain  Production costs The costs incurred to collect and assemble the resources used to produce a product or service  Downstream costs Marketing costs are the cost of selling products and the cost of advertising and promotion Distribution costs are the cost of storing, handling and shipping finished products Customer service costs are the costs of serving customers, including aftersales service Copyright ª 2003 McGrawHill Australia Pty Ltd, 17
Copyright ª 2003 McGrawHill Australia Pty Ltd, 18
Manufacturing costs  Manufacturing costs are incurred within the factory area, whereas upstream and downstream costs are sometimes called nonmanufacturing costs  Manufacturing costs include three categories: direct material, direct labour and manufacturing overhead This classification assumes that products are the relevant cost objects continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 19
Manufacturing costs  Direct material Material that is consumed in the manufacturing process Physically incorporated into the finished products; and Can be traced to products conveniently  Direct labour The cost of wages and labour oncosts of staff who work directly on manufacturing a product However, contractual arrangement sometimes means that such labour is a committed cost continued Copyright ª 2003 McGrawHill Australia Pty Ltd, 20