MANAGEMENT ACCOUNTING

Transcription

1 MANAGEMENT ACCOUNTING Competency Framework: A1: Cost Accounting Nature of costs - Cost Classification 3 - Cost behaviour 3 - CVP 3 - Cost estimation (hi-lo) 3 - Cost objects 3 Costing and cost mgt: Material - Recording material costs 3 - Bases of inventory valuation (FIFO, WA, Std Cost, Sp ID) 3 Costing and cost mgt: Labour 3 Costing and cost mgt: Overheads 3 Management Accounting Systems 3

2 MANAGEMENT ACCOUNTING Competency Framework (cont): Costing and cost mgt: Labour - Recording labour costs 3 - Bases of assigning costs 3 - Time, Piece, Mgt of labour costs 3 Costing and cost mgt: Overheads - Recording overhead costs 3 - Bases of assigning overheads to cost objects (AC v VC, Trad Vol based measures, ABC and cost drivers) 3 Management Accounting Systems - Types of costing systems 3 (Job Costing, Process, Scrap)

3 MANAGEMENT ACCOUNTING Topic Drury Advanced Applied Nature of Costs D2 Cost estimation D3 Job Costing D4 AC & VC D7 ABC D10 CVP D8

4 FIN ACC & MAN ACC Differences Provides data and info for internal use by management: - Plan - Motivate - Organize - Control - Communicate Future oriented Not governed by GAAP Emphasizes relevance and flexibility of data and information Less emphasis on precision and more on non-monetary data Considers segments and functions within the business Draws heavily from other disciplines Not mandatory Similarities: Rely on accounting information system Corporate governance

5 Competencies in Management Decision Making & Control V1-1 Identifies and analyses factors influencing the financial performance of an entity (Strategic Context) V1-2 Manages an entity s budgeting process and control system (Budgeting, Standard Costing and Control Systems) V1-3 Evaluates internal cost allocation and transfer-pricing options V1-4 Analyses financial and other data to provide information for decision-making (CVP, Relevant Costs & Revenues, Decision-Making) V1-5 Identifies, develops and improves appropriate costing systems in order to meet the information requirements of the entity s control and decision-making processes (AC, VC, ABC)

6 COST TERMS AND CONCEPTS Classification? Behaviour? Treatment?

7 Manufacturing Costs Direct Material + Direct Labour + Direct Expenses = Prime Cost How do these costs behave? Indirect Material + Indirect Labour + Indirect Costs How do these costs behave? = + Manufacturing Overheads = Total Manufacturing Cost + Administration & Selling Costs How do these costs behave? = Total Cost

8 Cost Classification Non-manufacturing Overheads Manufacturing Overheads Prime Cost = Direct Material + Direct Labour + Direct Expenses

9 Refer to pages 31 to 34 Variable COST BEHAVIOUR Cost Defined Total Graphs Per Unit Example Fixed Defined Example Activity

10 Semi-fixed Semi-variable Defined Example Defined Example Cost Graphs Hi-Lo Method (Pg 600 Very NB) Always take the highest and lowest activity Change in Cost = VC/Unit Change in Activity Activity

11 TREATMENT OF COSTS Unexpired cost - Asset in the Balance Sheet Expired cost - Expense in the Income Statement Important in determining profits & valuing assets Product cost cost identified with goods purchased or produced for resale Period cost treated as an expense in the period incurred What point in time are they classified? Manuf Cost Non-Manuf Cost Unsold? Sold? Balance Sheet Income Statement

12 COST RELEVANCY Decision relevant approach Relevant & irrelevant (Page 35) Avoidable and Unavoidable Sunk Differential Analysis Materials Conversion Revenue Net Reason Opportunity Incremental and marginal Time horizon Job costing and process

13 Cost Sheet Layout Example 3.1 COST ASSIGNMENT: D3 A B Direct Material This breakdown is assumed Direct Labour Direct Expenses Prime Cost Manufacturing Overheads Production Cost Administration and Selling Expenses Total Cost Net Profit (Cost + or % of SP) Selling Price Blanket or Departmental Rate? For Stock Valuation as per IAS2 Always treat as a period cost Does this serve any purpose? Is this the profit per unit? Is the market prepared to pay?

14 Blanket Rate As per Example 3.1 Total manufacturing overheads = Labour Hour Rate = TMO DLH for X + Y + Assembly = Machine Hour Rate = TMO MH for X + Y + Assembly = Units of Production = TMO Total Production Units =

15 Eg 3.1 Pg Allocate or apportion overheads to Production Cost Centres and Service Cost Centres respectively Service Cost Centres MP GFS Indirect Wages & Supervision Indirect Materials 0 10 Lighting & Heating Property Taxes Etc Departmental Rates: Remember the 3 As Manufacturing Overheads = R11.7m Total Production Cost Centres 2. Apportion Service Cost Centre costs to Production Cost Centres 3. Absorb overhead rates into product cost using volume based drivers eg DLH or MH X Y Assembly X Y Assembly Ind Wage&S R4.3m R3.8m R3.6m Ind Mats m MH 1m MH 2m LH Light&Heat =R2.15/MH =R3.80/MH R1.80/DLH Property Tax Value of Overheads Absorbed: Product A etc Mach X 5MH x R2.15 R1075 MP Re-app Mach Y 10MH x R3.80 R3800 GFS Re-app Assembly 10LH x R1.80 R1800 Total

16 Pre-determined Overhead Rates Why do we pre-determine? (Refer to page 63) 1. Practical consideration 2. Many companies have a real-time accounting system Therefore derive a budgeted overhead rate, based on a long term average of your normal production levels Based on standard activity levels and not actual activity levels Procedure: 1. Budgeted expenditure budgeted activity 2. Absorb overheads: Actual activity x POAR 3. Compare absorbed cost to actual cost 4. Difference will be an over or under-recovery of overheads 5. May be required to reconcile into an expenditure and a volume variance why?

17 Pre-determined Overhead Rates Budgeted exp R50K Actual exp R65K Budgeted activity Actual activity Fixed Production Overhead Control Account Actual Absorbed Under-recovery Expenditure Budget Actual Volume Budget Actual

18 JOB COSTING: D4 Units or batches of output is unique Integrated or interlocking system? Entries are normally straightforward Pay attention to the issues/flow and the control accounts Raw materials Sales Labour WIP Finished Goods (COS) Overhead = GP Over/under applied o/h (Non-manuf o/h) = NP

19 Job Costing (cont) 1. Consider the big picture - see the flow 2. Pick up the opening balances, if applicable 3. Purchases and payments 4. Overhead control account Distinguish between direct and indirect costs

20 Raw Materials Op Bal 0K -WIP 165K WIP Op Bal+ RM+DL+O/Hs-TRF Out=Cl Bal 0K + 165K+145K+140K-300K = 150K Finished Goods 300K 240K = 60K Salaries & Wages Op Bal 0K Direct Labour 145K Indirect Labour 40K Cost of Sales From finished goods = 240K Overheads applied 140K Vs Actual Exp? Sales Less: COS 400K 240K = Normal GP 160K Less Under applied o/h (6K) = Actual GP 154K

21 Job Costing (cont) 4. Overhead control account Actual expenditure R146K Overhead applied (WIP) R140K Under recovery R6K Over/Under Applied Overhead Overhead Control R6K Income & Exp A/C R6K 5. Must Balance in the End! WIP c/f = Individual jobs c/f COS = Individual jobs completed Sales = Invoice Value of jobs completed