06/02/2022 1 Revisions L E C T U R E 06/02/2022 Management Accounting Revision Learning Objectives: Cost concepts Costing system: Job costing, process costing, ABC costing Inventory costing Master budget Flexible budgets and variances analysis Decision making FINANCIAL AND MANAGERIAL ACCOUNTING Purpose Primary Users Focus/Emphasis Rules Time Span Behavioral Issues Managerial Accounting Financial Accounting Decision making Communicate financial position to outsiders Internal managers External users Future-oriented Past-oriented Do not have to follow GAAP; cost vs benefit GAAP compliant; CPA audited Ultra current to very long time horizons Historical monthly, quarterly reports Designed to influence employee behavior Indirect effects on employee behavior © 2012 Pearson Prentice Hall All rights reserved 06/02/2022 COST CONCEPTS 5 COSTING SYSTEM – JOB COSTING 6 06/02/2022 COSTING SYSTEM – PROCESS COSTING COSTING SYSTEM – ABC COSTING 8 06/02/2022 INVENTORY COSTING 9 MASTER BUDGETING 10 06/02/2022 FLEXIBLE BUDGET Actual results Flexible budget Static budget Actual output Actual output Budgeted output * * Budgeted price output * Budgeted price output Actual price output Flexible budget variance Sales volume variance Static budget variance 11 VARIANCES 12 12 06/02/2022 VARIANCE ANALYSYS 13 13 DIRECT COSTS VARIANCES Actual cost incurred Flexible budget Actual input quantity Actual input quantity * * Budgeted price input Actual price input Price variance Budgeted input quantity allowed for actual output * Budgeted price input Efficiency variance Flexible budget variance 14 06/02/2022 CVP ANALYSIS Changes in production/sales volume are the sole cause for cost and revenue changes Total costs consist of fixed costs and variable costs Revenue and costs behave and can be graphed as a linear function (a straight line) Selling price, variable cost per unit, and fixed costs are all known and constant In many cases only a single product will be analyzed If multiple products are studied, their relative sales proportions are known and constant The time value of money (interest) is ignored 15 CVP ANALYSIS BASIC FOMULATION ( Unit Sales Variable * Quantity Costs )( Selling Sales Price * Quantity - )- Fixed Costs = Operating Income 16 06/02/2022 DECISION MAKING – RELEVANT INFORMATION One-time-only special orders Make or buy 17 PRICING DECISION Market-based: price charged is based on what customers want and how competitors react Cost-based: price charged is based on what it costs to produce, coupled with the ability to recoup the costs and still achieve a required rate of return 18 ... Flexible budget variance Sales volume variance Static budget variance 11 VARIANCES 12 12 06/02/2022 VARIANCE ANALYSYS 13 13 DIRECT COSTS VARIANCES Actual cost incurred Flexible budget Actual... money (interest) is ignored 15 CVP ANALYSIS BASIC FOMULATION ( Unit Sales Variable * Quantity Costs )( Selling Sales Price * Quantity - )- Fixed Costs = Operating Income 16 06/02/2022 DECISION MAKING... quarterly reports Designed to influence employee behavior Indirect effects on employee behavior © 2 012 Pearson Prentice Hall All rights reserved 06/02/2022 COST CONCEPTS 5 COSTING SYSTEM – JOB COSTING